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https://www.investopedia.com/personal-finance/what-lawsuit-settlement-loan/

LawsuIt Settlement Loan: What It Is, How It Works

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> A lawsuit settlement loan provides cash in advance for a pending settlement award or lawsuit judgment. For victims waiting to receive <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/classaction.asp">class-action</a> payments, a lawsuit settlement loan may seem like a quick and easy solution to their financial woes. The borrower can pay back the loan once the funds from the settlement are disbursed. Interest will accrue while the loan is outstanding, sometimes at high rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> A lawsuit settlement loan is not the only arrangement for obtaining funds in anticipation of winning a settlement or lawsuit award. Often, plaintiffs can arrange advance funding from funding companies that offer cash in exchange for a portion of the ultimate recovery. Although the term “lawsuit settlement loan” is sometimes used to refer to advance funding arrangements as well as borrowings, the legal structure and responsibilities for the two types of arrangements differ. Legally, a lawsuit settlement loan is a borrowing; advance funding is more akin to a purchase of a portion of the ultimate award. </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>Settlement loans and advance funding arrangements provide cash advances with respect to awards expected from legal settlements and lawsuit judgments.</li><li>While a settlement loan might seem like an oasis in a cash-dry desert for some people, interest rates are often sky-high. High interest rates can eat up a good chunk of the settlement proceeds.</li><li>An advance funding arrangement is effectively the purchase of an interest in an award; the funder bears the risk that the award may fall short of the anticipated recovery. </li><li>The businesses for settlement loans and advance funding are relatively new and generally poorly regulated.</li><li>Many other options, such as borrowing from a 401(k) or from a relative, are often better options for those in need of cash.</li></ul></div></div></div> <span class="heading-toc" id="toc-who-needs-a-lawsuit-settlement-loan-or-advance-funding"></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"> Who Needs a Lawsuit Settlement Loan or Advance Funding? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Lenders and specialized finance companies sometimes offer cash to plaintiffs in personal injury suits and civil rights discrimination suits or to heirs waiting for the settlement of their deceased loved one’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/estate.asp">estate</a>. If you are a victim of a personal injury, such as a traffic accident or medical malpractice, you might have to wait months or even years before you actually go to trial and receive a settlement. In the meantime, you may be unable to work, which results in a loss of income. Accordingly, cash from a lawsuit loan or advance funding can help tide you over for the interim. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> As your medical bills and living expenses continue to pile up, you may find your savings melting away. In this dire situation, a lawsuit settlement loan or advance funding arrangement may seem like an oasis in a cash-dry desert. However, it’s important to carefully weigh all of your options before you undertake one of these arrangements. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-how-lawsuit-loans-and-advance-funding-differ"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> How Lawsuit Loans and Advance Funding Differ </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Lenders making lawsuit loans generally evaluate a borrower’s creditworthiness, in addition to the likelihood of a settlement or lawsuit recovery before making a loan. Companies providing advance funding generally do not evaluate the litigant’s creditworthiness but rely on an assessment of the anticipated recovery, making it often easier to obtain advance funding arrangements. So, if your credit rating is low, it may be easier to arrange advance funding rather than a lawsuit settlement 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"> Under a lawsuit settlement loan, a borrower must repay an amount equal to the borrowed cash plus interest for the period that the borrowing is outstanding. In an advance funding arrangement, the amount or percentage of the ultimate award that the funder will receive is fixed at the outset. The litigant contracting for advance funding generally has no personal liability; if the litigant loses the lawsuit or the ultimate award is not sufficient to meet the full amount that the funder expected, the loss is borne by the funder, not the litigant. Although the terms and conditions of these arrangements differ, both can substantially reduce a plaintiff’s recovery, whether determined as interest or a portion of an award.<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-minimal-regulation-high-costs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Minimal Regulation, High Costs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Both lawsuit loans and advance funding arrangements are relatively new financing options, and both can prove costly. Pre-settlement loans generally are subject to regulations applicable to all debt financing. In most jurisdictions, regulations specifically directed at either of these financing methods are minimal or non-existent. These arrangements are not subject to the type of targeted laws and regulations that provide consumer protections for mortgages, automobile loans, and other individual borrowing. </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"> Because lawsuit settlement loans generally carry significant <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>, they can quickly eat up a large chunk of the settlement money you are owed. In fact, interest rates for these loans often run as high as 27% to 60% a year.<span class="ql-inline-citation" data-cite="2"></span> That means that if you take out a lawsuit loan for $30,000, you could pay up to $18,000 in interest each year.  </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 the end, you could wind up owing more loan interest than your actual settlement amount. Let’s say, in the scenario above, that it takes you two years to receive your settlement of $30,000. By then, not only would you owe the lender the $30,000 you borrowed, but you’d also be on the hook for $36,000 in interest. Depending on the conditions of the loan, you could owe even more, as the interest charged on lawsuit settlement loans is usually <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compoundinterest.asp">compounded</a> monthly.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Advance funding arrangements generally impose no future liability on the borrower. However, the share of proceeds for which the funder has priority over the litigant may also leave the litigant with very few proceeds from a settlement or award.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <span class="heading-toc" id="toc-government-suits-challenging-lawsuit-loans"></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"> Government Suits Challenging Lawsuit Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Considering the risks, it’s no surprise that settlement advances/loans have stirred up some highly publicized controversy. For instance, in a lawsuit filed in Feb. 2017, New York’s attorney general and 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> alleged that one lender scammed sick Sept. 11 responders and former NFL players who sustained concussion injuries with costly lawsuit loans in advance of settlement. According to authorities, the lender used unethical tactics, charging interest rates as high as 250% and exorbitant fees. The lender collected millions of dollars on settlement loans.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-does-my-lawyer-have-to-sign-off-on-a-settlement-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does My Lawyer Have to Sign Off on a Settlement Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No. A settlement loan is typically handled between the plaintiff and a lender. While the lender may talk to your lawyer about the strength of the case, your legal counsel is not required to approve your loan.</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-are-settlement-loans-regulated-by-the-government"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Settlement Loans Regulated by the Government?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Unfortunately, no. There is little regulation on lawsuit settlement loans. Because of this, they can include predatory levels of interest that make them difficult to repay.</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-happens-if-i-lose-my-case"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Happens if I Lose My Case?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Every loan has its own set of repayment guidelines. In many cases, if you lose your case, you won't be required to repay the loan. The high interest rates offset this possibility for the lender.</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"> If you are considering applying for a lawsuit settlement loan or advance funding, you may want to think again. Not only are these arrangements costly, but they also generally lack explicit regulation by federal and state authorities. If you are the victim of a personal injury and struggling to pay your bills, it might be more economical first to consider other sources of money, such as insurance proceeds, disability payments, or a personal loan from friends or family members. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> If all else fails, borrowing from your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/401kplan.asp">401(k)</a> or other retirement accounts might be worth considering. While this should be viewed carefully (a loan from a 401(k) can result in lower retirement income), it may prove less costly and less risky than poorly regulated, high-cost alternatives. </p></div>

A lawsuit settlement loan provides cash in advance for a pending settlement award or lawsuit judgment. For victims waiting to receive [class-action](https://www.investopedia.com/terms/c/classaction.asp) payments, a lawsuit settlement loan may seem like a quick and easy solution to their financial woes. The borrower can pay back the loan once the funds from the settlement are disbursed. Interest will accrue while the loan is outstanding, sometimes at high rates. A lawsuit settlement loan is not the only arrangement for obtaining funds in anticipation of winning a settlement or lawsuit award. Often, plaintiffs can arrange advance funding from funding companies that offer cash in exchange for a portion of the ultimate recovery. Although the term “lawsuit settlement loan” is sometimes used to refer to advance funding arrangements as well as borrowings, the legal structure and responsibilities for the two types of arrangements differ. Legally, a lawsuit settlement loan is a borrowing; advance funding is more akin to a purchase of a portion of the ultimate award. ### Key Takeaways * Settlement loans and advance funding arrangements provide cash advances with respect to awards expected from legal settlements and lawsuit judgments. * While a settlement loan might seem like an oasis in a cash-dry desert for some people, interest rates are often sky-high. High interest rates can eat up a good chunk of the settlement proceeds. * An advance funding arrangement is effectively the purchase of an interest in an award; the funder bears the risk that the award may fall short of the anticipated recovery. * The businesses for settlement loans and advance funding are relatively new and generally poorly regulated. * Many other options, such as borrowing from a 401(k) or from a relative, are often better options for those in need of cash. ## Who Needs a Lawsuit Settlement Loan or Advance Funding? Lenders and specialized finance companies sometimes offer cash to plaintiffs in personal injury suits and civil rights discrimination suits or to heirs waiting for the settlement of their deceased loved one’s [estate](https://www.investopedia.com/terms/e/estate.asp). If you are a victim of a personal injury, such as a traffic accident or medical malpractice, you might have to wait months or even years before you actually go to trial and receive a settlement. In the meantime, you may be unable to work, which results in a loss of income. Accordingly, cash from a lawsuit loan or advance funding can help tide you over for the interim. As your medical bills and living expenses continue to pile up, you may find your savings melting away. In this dire situation, a lawsuit settlement loan or advance funding arrangement may seem like an oasis in a cash-dry desert. However, it’s important to carefully weigh all of your options before you undertake one of these arrangements. ## How Lawsuit Loans and Advance Funding Differ Lenders making lawsuit loans generally evaluate a borrower’s creditworthiness, in addition to the likelihood of a settlement or lawsuit recovery before making a loan. Companies providing advance funding generally do not evaluate the litigant’s creditworthiness but rely on an assessment of the anticipated recovery, making it often easier to obtain advance funding arrangements. So, if your credit rating is low, it may be easier to arrange advance funding rather than a lawsuit settlement loan.  Under a lawsuit settlement loan, a borrower must repay an amount equal to the borrowed cash plus interest for the period that the borrowing is outstanding. In an advance funding arrangement, the amount or percentage of the ultimate award that the funder will receive is fixed at the outset. The litigant contracting for advance funding generally has no personal liability; if the litigant loses the lawsuit or the ultimate award is not sufficient to meet the full amount that the funder expected, the loss is borne by the funder, not the litigant. Although the terms and conditions of these arrangements differ, both can substantially reduce a plaintiff’s recovery, whether determined as interest or a portion of an award. ## Minimal Regulation, High Costs Both lawsuit loans and advance funding arrangements are relatively new financing options, and both can prove costly. Pre-settlement loans generally are subject to regulations applicable to all debt financing. In most jurisdictions, regulations specifically directed at either of these financing methods are minimal or non-existent. These arrangements are not subject to the type of targeted laws and regulations that provide consumer protections for mortgages, automobile loans, and other individual borrowing. Because lawsuit settlement loans generally carry significant [interest rates](https://www.investopedia.com/terms/i/interestrate.asp), they can quickly eat up a large chunk of the settlement money you are owed. In fact, interest rates for these loans often run as high as 27% to 60% a year. That means that if you take out a lawsuit loan for $30,000, you could pay up to $18,000 in interest each year.  In the end, you could wind up owing more loan interest than your actual settlement amount. Let’s say, in the scenario above, that it takes you two years to receive your settlement of $30,000. By then, not only would you owe the lender the $30,000 you borrowed, but you’d also be on the hook for $36,000 in interest. Depending on the conditions of the loan, you could owe even more, as the interest charged on lawsuit settlement loans is usually [compounded](https://www.investopedia.com/terms/c/compoundinterest.asp) monthly. Advance funding arrangements generally impose no future liability on the borrower. However, the share of proceeds for which the funder has priority over the litigant may also leave the litigant with very few proceeds from a settlement or award. ## Government Suits Challenging Lawsuit Loans Considering the risks, it’s no surprise that settlement advances/loans have stirred up some highly publicized controversy. For instance, in a lawsuit filed in Feb. 2017, New York’s attorney general and the [Consumer Financial Protection Bureau (CFPB)](https://www.investopedia.com/terms/c/consumer-financial-protection-bureau-cfpb.asp) alleged that one lender scammed sick Sept. 11 responders and former NFL players who sustained concussion injuries with costly lawsuit loans in advance of settlement. According to authorities, the lender used unethical tactics, charging interest rates as high as 250% and exorbitant fees. The lender collected millions of dollars on settlement loans. ## Does My Lawyer Have to Sign Off on a Settlement Loan? No. A settlement loan is typically handled between the plaintiff and a lender. While the lender may talk to your lawyer about the strength of the case, your legal counsel is not required to approve your loan. ## Are Settlement Loans Regulated by the Government? Unfortunately, no. There is little regulation on lawsuit settlement loans. Because of this, they can include predatory levels of interest that make them difficult to repay. ## What Happens if I Lose My Case? Every loan has its own set of repayment guidelines. In many cases, if you lose your case, you won't be required to repay the loan. The high interest rates offset this possibility for the lender. ## The Bottom Line If you are considering applying for a lawsuit settlement loan or advance funding, you may want to think again. Not only are these arrangements costly, but they also generally lack explicit regulation by federal and state authorities. If you are the victim of a personal injury and struggling to pay your bills, it might be more economical first to consider other sources of money, such as insurance proceeds, disability payments, or a personal loan from friends or family members. If all else fails, borrowing from your [401(k)](https://www.investopedia.com/terms/1/401kplan.asp) or other retirement accounts might be worth considering. While this should be viewed carefully (a loan from a 401(k) can result in lower retirement income), it may prove less costly and less risky than poorly regulated, high-cost alternatives.

A lawsuit settlement loan provides cash in advance for a pending settlement award or lawsuit judgment. For victims waiting to receive class-action payments, a lawsuit settlement loan may seem like a quick and easy solution to their financial woes. The borrower can pay back the loan once the funds from the settlement are disbursed. Interest will accrue while the loan is outstanding, sometimes at high rates. A lawsuit settlement loan is not the only arrangement for obtaining funds in anticipation of winning a settlement or lawsuit award. Often, plaintiffs can arrange advance funding from funding companies that offer cash in exchange for a portion of the ultimate recovery. Although the term “lawsuit settlement loan” is sometimes used to refer to advance funding arrangements as well as borrowings, the legal structure and responsibilities for the two types of arrangements differ. Legally, a lawsuit settlement loan is a borrowing; advance funding is more akin to a purchase of a portion of the ultimate award. Key Takeaways Settlement loans and advance funding arrangements provide cash advances with respect to awards expected from legal settlements and lawsuit judgments.While a settlement loan might seem like an oasis in a cash-dry desert for some people, interest rates are often sky-high. High interest rates can eat up a good chunk of the settlement proceeds.An advance funding arrangement is effectively the purchase of an interest in an award; the funder bears the risk that the award may fall short of the anticipated recovery. The businesses for settlement loans and advance funding are relatively new and generally poorly regulated.Many other options, such as borrowing from a 401(k) or from a relative, are often better options for those in need of cash. Who Needs a Lawsuit Settlement Loan or Advance Funding? Lenders and specialized finance companies sometimes offer cash to plaintiffs in personal injury suits and civil rights discrimination suits or to heirs waiting for the settlement of their deceased loved one’s estate. If you are a victim of a personal injury, such as a traffic accident or medical malpractice, you might have to wait months or even years before you actually go to trial and receive a settlement. In the meantime, you may be unable to work, which results in a loss of income. Accordingly, cash from a lawsuit loan or advance funding can help tide you over for the interim. As your medical bills and living expenses continue to pile up, you may find your savings melting away. In this dire situation, a lawsuit settlement loan or advance funding arrangement may seem like an oasis in a cash-dry desert. However, it’s important to carefully weigh all of your options before you undertake one of these arrangements. How Lawsuit Loans and Advance Funding Differ Lenders making lawsuit loans generally evaluate a borrower’s creditworthiness, in addition to the likelihood of a settlement or lawsuit recovery before making a loan. Companies providing advance funding generally do not evaluate the litigant’s creditworthiness but rely on an assessment of the anticipated recovery, making it often easier to obtain advance funding arrangements. So, if your credit rating is low, it may be easier to arrange advance funding rather than a lawsuit settlement loan.  Under a lawsuit settlement loan, a borrower must repay an amount equal to the borrowed cash plus interest for the period that the borrowing is outstanding. In an advance funding arrangement, the amount or percentage of the ultimate award that the funder will receive is fixed at the outset. The litigant contracting for advance funding generally has no personal liability; if the litigant loses the lawsuit or the ultimate award is not sufficient to meet the full amount that the funder expected, the loss is borne by the funder, not the litigant. Although the terms and conditions of these arrangements differ, both can substantially reduce a plaintiff’s recovery, whether determined as interest or a portion of an award. Minimal Regulation, High Costs Both lawsuit loans and advance funding arrangements are relatively new financing options, and both can prove costly. Pre-settlement loans generally are subject to regulations applicable to all debt financing. In most jurisdictions, regulations specifically directed at either of these financing methods are minimal or non-existent. These arrangements are not subject to the type of targeted laws and regulations that provide consumer protections for mortgages, automobile loans, and other individual borrowing. Because lawsuit settlement loans generally carry significant interest rates, they can quickly eat up a large chunk of the settlement money you are owed. In fact, interest rates for these loans often run as high as 27% to 60% a year. That means that if you take out a lawsuit loan for $30,000, you could pay up to $18,000 in interest each year.  In the end, you could wind up owing more loan interest than your actual settlement amount. Let’s say, in the scenario above, that it takes you two years to receive your settlement of $30,000. By then, not only would you owe the lender the $30,000 you borrowed, but you’d also be on the hook for $36,000 in interest. Depending on the conditions of the loan, you could owe even more, as the interest charged on lawsuit settlement loans is usually compounded monthly. Advance funding arrangements generally impose no future liability on the borrower. However, the share of proceeds for which the funder has priority over the litigant may also leave the litigant with very few proceeds from a settlement or award. Government Suits Challenging Lawsuit Loans Considering the risks, it’s no surprise that settlement advances/loans have stirred up some highly publicized controversy. For instance, in a lawsuit filed in Feb. 2017, New York’s attorney general and the Consumer Financial Protection Bureau (CFPB) alleged that one lender scammed sick Sept. 11 responders and former NFL players who sustained concussion injuries with costly lawsuit loans in advance of settlement. According to authorities, the lender used unethical tactics, charging interest rates as high as 250% and exorbitant fees. The lender collected millions of dollars on settlement loans. Does My Lawyer Have to Sign Off on a Settlement Loan? No. A settlement loan is typically handled between the plaintiff and a lender. While the lender may talk to your lawyer about the strength of the case, your legal counsel is not required to approve your loan. Are Settlement Loans Regulated by the Government? Unfortunately, no. There is little regulation on lawsuit settlement loans. Because of this, they can include predatory levels of interest that make them difficult to repay. What Happens if I Lose My Case? Every loan has its own set of repayment guidelines. In many cases, if you lose your case, you won't be required to repay the loan. The high interest rates offset this possibility for the lender. The Bottom Line If you are considering applying for a lawsuit settlement loan or advance funding, you may want to think again. Not only are these arrangements costly, but they also generally lack explicit regulation by federal and state authorities. If you are the victim of a personal injury and struggling to pay your bills, it might be more economical first to consider other sources of money, such as insurance proceeds, disability payments, or a personal loan from friends or family members. If all else fails, borrowing from your 401(k) or other retirement accounts might be worth considering. While this should be viewed carefully (a loan from a 401(k) can result in lower retirement income), it may prove less costly and less risky than poorly regulated, high-cost alternatives.

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

Itayose: What It is, How It Works, Rules

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-itayose"></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 Itayose? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Itayose is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/clearing.asp">clearing</a> method used by Japanese commodity exchanges to set prices. It is a form of auction market in which the time of order entry is not distinguished, and an opening price is derived on the principle of price priority.  </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-itayose"></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 Itayose </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Itayose is a modified version of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/walrasian.asp">Walrasian market</a>. Staff at exchanges that implement the Itayose method will post a provisional price to floor members. These members then submit buy and sell orders to the staff, who subsequently analyze the orders to adjust the provisional price. This process is repeated until a price matches all the buy and sell orders placed by the floor members, clearing all trades. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <span class="heading-toc" id="toc-the-itayose-clearing-method"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> The Itayose Clearing Method </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> A contract price determined by the Itayose method is the price that maximizes the traded volume and minimizes the untraded volume according to the price and time priority rule. The conditions of that rule are that all market orders are executed first; next, all limit orders are executed to sell/buy at prices lower/higher than the execution price and, finally, the following amounts of limit orders to sell or buy are at the execution price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> According to the Japan Exchange Group, market orders have a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="http://www.jpx.co.jp/english/derivatives/rules/trading-methods/">priority</a> based on the order acceptance time and are matched according to price and time priority rule. All the market orders that are not executed by the Itayose method are invalid. Therefore, market orders are not necessarily executed. Also, regardless of whether a transaction by the Itayose method is made, a trading session moves to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/z/zar-south-african-rand.asp">Zaraba​​ method</a>​​​​​ after the time to conduct Itayose<em> </em>passes with the exception of when the session ends.<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"> An order acceptance period is established in the same way as the beginning of trading, and a transaction occurs by the Itayose method at the same time as the closing of the order acceptance period. If the price determined by closing auction exceeds the defined price range (Executable Price Range in Closing Auction) from the last contract price, a transaction is not made. The Executable Price Range in Closing Auction is the same as the Immediately Executable Price Range. </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-the-rules-that-determine-contract-price-by-the-itayose-method"></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"> The Rules that Determine Contract Price by the Itayose Method </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The Japan Exchange Group lays out the following rules for the Itayose method. The following is excerpted from their website:<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> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> <li><strong>Condition 1</strong>: The price where bids and offers match within the range between one tick above the highest order price and one tick below the lowest order price*1.</li><li><strong>Condition 2: </strong>In the case where there are several prices that meet Condition 1, the price that maximizes the traded volume.</li><li><strong>Condition 3: </strong>In the case where there are several prices that meet Condition 2, the price that minimizes the difference between the cumulative volume of sell orders and the cumulative volume of buy orders ("surplus volume").</li><li><strong>Condition 4: </strong>In the case where there are several prices that meet Condition 1, the price will be either of the following: If the cumulative sell volume is larger than the cumulative buy volume at all such prices, the lowest price. If the cumulative buy volume is larger than the cumulative sell volume at all such prices, the highest price; or, the price in Condition 5.</li><li><strong>Condition 5: </strong>Either of the following prices: If the highest price of those that minimizes the surplus volume (limited to the lowest price among those where the surplus volume becomes selling on balance and the highest price among those where the surplus volume becomes buying on balance when the prices of selling on balance and buying on balance are included in the prices where the surplus volume is minimum), the highest price.</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"> If there is a Reference Price*2 between the lowest price and the highest price of those prices that minimizes the surplus volume, the Reference 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"> If the lowest price of those that minimizes the surplus volume is higher than a Reference Price, the lowest price. </p></div>

## What Is Itayose? Itayose is a [clearing](https://www.investopedia.com/terms/c/clearing.asp) method used by Japanese commodity exchanges to set prices. It is a form of auction market in which the time of order entry is not distinguished, and an opening price is derived on the principle of price priority.  ## Understanding Itayose Itayose is a modified version of the [Walrasian market](https://www.investopedia.com/terms/w/walrasian.asp). Staff at exchanges that implement the Itayose method will post a provisional price to floor members. These members then submit buy and sell orders to the staff, who subsequently analyze the orders to adjust the provisional price. This process is repeated until a price matches all the buy and sell orders placed by the floor members, clearing all trades. ## The Itayose Clearing Method A contract price determined by the Itayose method is the price that maximizes the traded volume and minimizes the untraded volume according to the price and time priority rule. The conditions of that rule are that all market orders are executed first; next, all limit orders are executed to sell/buy at prices lower/higher than the execution price and, finally, the following amounts of limit orders to sell or buy are at the execution price. According to the Japan Exchange Group, market orders have a [priority](http://www.jpx.co.jp/english/derivatives/rules/trading-methods/) based on the order acceptance time and are matched according to price and time priority rule. All the market orders that are not executed by the Itayose method are invalid. Therefore, market orders are not necessarily executed. Also, regardless of whether a transaction by the Itayose method is made, a trading session moves to the [Zaraba​​ method](https://www.investopedia.com/terms/forex/z/zar-south-african-rand.asp)​​​​​ after the time to conduct Itayosepasses with the exception of when the session ends. An order acceptance period is established in the same way as the beginning of trading, and a transaction occurs by the Itayose method at the same time as the closing of the order acceptance period. If the price determined by closing auction exceeds the defined price range (Executable Price Range in Closing Auction) from the last contract price, a transaction is not made. The Executable Price Range in Closing Auction is the same as the Immediately Executable Price Range. ## The Rules that Determine Contract Price by the Itayose Method The Japan Exchange Group lays out the following rules for the Itayose method. The following is excerpted from their website: * **Condition 1**: The price where bids and offers match within the range between one tick above the highest order price and one tick below the lowest order price\*1. * **Condition 2:** In the case where there are several prices that meet Condition 1, the price that maximizes the traded volume. * **Condition 3:** In the case where there are several prices that meet Condition 2, the price that minimizes the difference between the cumulative volume of sell orders and the cumulative volume of buy orders ("surplus volume"). * **Condition 4:** In the case where there are several prices that meet Condition 1, the price will be either of the following: If the cumulative sell volume is larger than the cumulative buy volume at all such prices, the lowest price. If the cumulative buy volume is larger than the cumulative sell volume at all such prices, the highest price; or, the price in Condition 5. * **Condition 5:** Either of the following prices: If the highest price of those that minimizes the surplus volume (limited to the lowest price among those where the surplus volume becomes selling on balance and the highest price among those where the surplus volume becomes buying on balance when the prices of selling on balance and buying on balance are included in the prices where the surplus volume is minimum), the highest price. If there is a Reference Price\*2 between the lowest price and the highest price of those prices that minimizes the surplus volume, the Reference Price. If the lowest price of those that minimizes the surplus volume is higher than a Reference Price, the lowest price.

What Is Itayose? Itayose is a clearing method used by Japanese commodity exchanges to set prices. It is a form of auction market in which the time of order entry is not distinguished, and an opening price is derived on the principle of price priority.  Understanding Itayose Itayose is a modified version of the Walrasian market. Staff at exchanges that implement the Itayose method will post a provisional price to floor members. These members then submit buy and sell orders to the staff, who subsequently analyze the orders to adjust the provisional price. This process is repeated until a price matches all the buy and sell orders placed by the floor members, clearing all trades. The Itayose Clearing Method A contract price determined by the Itayose method is the price that maximizes the traded volume and minimizes the untraded volume according to the price and time priority rule. The conditions of that rule are that all market orders are executed first; next, all limit orders are executed to sell/buy at prices lower/higher than the execution price and, finally, the following amounts of limit orders to sell or buy are at the execution price. According to the Japan Exchange Group, market orders have a priority based on the order acceptance time and are matched according to price and time priority rule. All the market orders that are not executed by the Itayose method are invalid. Therefore, market orders are not necessarily executed. Also, regardless of whether a transaction by the Itayose method is made, a trading session moves to the Zaraba​​ method​​​​​ after the time to conduct Itayose passes with the exception of when the session ends. An order acceptance period is established in the same way as the beginning of trading, and a transaction occurs by the Itayose method at the same time as the closing of the order acceptance period. If the price determined by closing auction exceeds the defined price range (Executable Price Range in Closing Auction) from the last contract price, a transaction is not made. The Executable Price Range in Closing Auction is the same as the Immediately Executable Price Range. The Rules that Determine Contract Price by the Itayose Method The Japan Exchange Group lays out the following rules for the Itayose method. The following is excerpted from their website: Condition 1: The price where bids and offers match within the range between one tick above the highest order price and one tick below the lowest order price*1.Condition 2: In the case where there are several prices that meet Condition 1, the price that maximizes the traded volume.Condition 3: In the case where there are several prices that meet Condition 2, the price that minimizes the difference between the cumulative volume of sell orders and the cumulative volume of buy orders ("surplus volume").Condition 4: In the case where there are several prices that meet Condition 1, the price will be either of the following: If the cumulative sell volume is larger than the cumulative buy volume at all such prices, the lowest price. If the cumulative buy volume is larger than the cumulative sell volume at all such prices, the highest price; or, the price in Condition 5.Condition 5: Either of the following prices: If the highest price of those that minimizes the surplus volume (limited to the lowest price among those where the surplus volume becomes selling on balance and the highest price among those where the surplus volume becomes buying on balance when the prices of selling on balance and buying on balance are included in the prices where the surplus volume is minimum), the highest price. If there is a Reference Price*2 between the lowest price and the highest price of those prices that minimizes the surplus volume, the Reference Price. If the lowest price of those that minimizes the surplus volume is higher than a Reference Price, the lowest price.

https://www.investopedia.com/terms/h/hot-wallet.asp

Hot Wallet: Definition, Types, Examples, and Safety Tips

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-hot-wallet"></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 Hot Wallet? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A hot wallet is a cryptocurrency wallet that is always connected to the internet or another connected device. Hot wallets are used as temporary key storage and to send and receive cryptocurrency. Usually, their interfaces also allow you to view how many tokens you have available. </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 hot wallet is a wallet that is always connected to the internet; they allow you to store, send, and receive tokens.</li><li>Hot wallets store your private keys that allow you, and only you, to access your cryptocurrency.</li><li>Because hot wallets are connected to the internet, they tend to be somewhat more vulnerable to hacks and theft than cold storage methods.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-hot-wallet-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 Hot Wallet Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> When you buy or mine a cryptocurrency, you must set up a wallet to facilitate transactions if you decide to use it to purchase goods or services. Your <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/">cryptocurrencies</a>, or rather the private keys you use to access the currency, are stored in these wallets when you receive a coin. </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"> When you own a cryptocurrency, you're given <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/private-key.asp">private keys</a> to access it. Public keys are similar to account usernames; they identify the wallet so that the user can receive tokens without revealing their identity. Private keys are similar to personal identification numbers that must be entered when creating a transaction. The wallets that store these keys are usually accessed with usernames and passwords but can also use different login techniques. </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"> Hot wallets are applications connected to the internet and the cryptocurrency infrastructure, which allows you to use them. For a user, the hot wallet is the interface for using and storing your cryptocurrency keys. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> They are different from <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cold-storage.asp">cold wallets</a>, which are devices or applications that store your private keys offline—these can be an application on a device that doesn't connect to the internet or a device that looks like a USB thumb drive that stores your keys. You can even write your keys on a piece of paper, which is considered a cold wallet. To use the cryptocurrency you have in cold storage, you need to transfer the keys to your hot wallet. </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>Cold wallets, also called cold storage, are considered one of the safest methods for securing digital currency.</p></div></div></div> <span class="heading-toc" id="toc-types-of-hot-wallets"></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 Hot Wallets </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> There are various hot wallets available, and many of them are free to download. Some wallets are specifically designed to be used in partnership with particular mobile web applications; you might find one that only works with a particular cryptocurrency or ecosystem. In addition, some cryptocurrency exchanges will only accept transfers to and from specific wallets. </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/best-bitcoin-wallets-5070283">Examples of hot wallets</a> are MetaMask, Coinbase Wallet, and Edge Wallet. MetaMask is designed for transactions using the Ethereum ecosystem. Coinbase Wallet is the wallet for the cryptocurrency exchange Coinbase, and Edge Wallet is designed to accept transactions using all of your digital assets. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Because there are so many wallets with different designs and intents, it's important for you to research hot wallets before downloading and using their services. Wallet developers have varying degrees of expertise, various commitments to security and privacy, and different priorities in mind when creating their wallets. Some might have fees; others might not. You might need to use one wallet that integrates with your internet browser for one currency and another wallet that is a dedicated application. </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_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>On the internet, you might find cryptocurrency cold and hot wallets broken down into many categories like hardware, software, web, desktop, or mobile. All the different categories and definitions exist because many businesses are trying to get you to spend money, and writers, academics, and enthusiasts are trying to standardize cryptocurrency and blockchain definitions or demonstrate their expertise. What's important to remember when you're reading about wallets is that it doesn't matter what it is called:</p><ul><li>If it is connected to another device or the internet, it is a hot wallet.</li><li>If it does not have a connection to another device or the internet, it is a cold wallet.</li><li>Some devices can be both hot and cold.</li></ul></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_26-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> There are several aspects you should consider before deciding on your hot wallet. Most important are its security features and how you use them. Your cryptocurrency is only as safe as the way you store your keys. Any items stored in a hot wallet are vulnerable to hacks, malware, ransomware, or any other method thieves can think of. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> To keep your cryptocurrency safe, consider some of these tips. </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_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>The old saying, "Don't keep all of your eggs in one basket," applies to many financial assets, including cryptocurrency. If you use more than one storage type or strategy, you're minimizing the risks of theft and loss.</p></div></div></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"> Use Your Hot Wallet Only for Transactions </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> It's a good idea to keep only a small portion of your crypto-assets in your hot wallet; you might consider only putting the amount of cryptocurrency you need in it when you need it. This strategy would mean storing most of your assets in a cold wallet and transferring what you need to the hot wallet for immediate or near-future use. </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"> Store Your Assets in an Exchange </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> You could also choose to keep your cryptocurrency tokens in accounts linked to the exchange you use. Some <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin-exchange.asp">exchanges</a> will store your cryptocurrency for you in cold storage. These exchanges either subcontract custodial services and transfer your keys to them or have built data storage methods designed for key storage. </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"> However, if you keep your tokens in an exchange account and an attacker gains access to the exchange's network, you could lose your cryptocurrency in the attack. To help customers if this happens, some exchanges are insured for the loss of customers' assets if they (the exchange) lose them due to theft or failure of their systems and will reimburse you up to a certain amount. </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"> Exchange Your Cryptocurrencies </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> If you maintain a substantial balance of cryptocurrency, you're accepting the risk of drawing the attention of hackers or losing a significant portion of your holdings in an attack. Because many of the top digital currency exchanges allow users to transfer between various fiat currencies and cryptocurrencies, you should only hold small amounts in your wallet. You can convert the rest to your country's currency and place it in your bank account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_44-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_45-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_5-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_5-0"><p>There might be fees for exchanging cryptocurrency for fiat currency and transferring the funds out of the exchange or removing it to store it, but it's worth considering if you're not holding your cryptocurrency as an investment.</p></div></div></div> <span class="heading-toc" id="toc-hot-wallets-and-investing"></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"> Hot Wallets and Investing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tech/what-you-must-know-investing-crypto/">Cryptocurrency investing</a> is similar to stock market investing—you own a cryptocurrency and wait for its fair market value to increase. You could continue holding it or try to sell it to another investor at a profit. However, a hot wallet is a precarious place to store your cryptocurrency investments. Cold storage, such as a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/paper-wallet.asp">paper wallet</a> or other non-connected methods, might serve you better as you wait for your cryptocurrency's value to increase. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> You could also use a custodial cold wallet, such as a reputable, regulated, and insured exchange's cold storage or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/selecting-a-qualified-crypto-custodian-8400929">licensed digital asset custodian</a>. Another option is to invest in a cryptocurrency ETF that holds cryptocurrency so that you gain exposure to these assets without needing to secure them yourself. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_51-0"><span class="heading-toc" id="toc-how-do-i-secure-my-hot-wallet"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Secure My Hot Wallet?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Only keep small amounts in your hot wallet, ensure you back it up, keep the software up to date, encrypt it, and keep your password secure to make sure your wallet is safe.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_53-0"><span class="heading-toc" id="toc-what-are-hot-wallets"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Hot Wallets?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A hot wallet is any software or device designed to hold cryptocurrency private keys with a connection to another device or the internet.</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-is-coinbase-a-hot-wallet"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Coinbase a Hot Wallet?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Coinbase provides a hot wallet for its customers that allows them to interact with the exchange's services.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_57-0"><span class="heading-toc" id="toc-how-much-does-a-hot-wallet-cost"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Does a Hot Wallet Cost?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Many hot wallets are free because they are downloadable software or apps. There are some devices with software uploaded on them that can act as hot and cold wallets. Depending on the options, these can range from less than $100 to hundreds of dollars.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_59-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Hot wallets are any private key storage method that has a connection to another device or the internet. All hot wallets have or are software of some type, so they are vulnerable to hacking, malware, viruses, ransomware, or other methods used by criminals.<br/> </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"> There are many hot wallets available, so it is best to research for the one you prefer and only keep the keys to the crypto you intend to spend in it. Once you use your crypto in your hot wallet, transfer the keys back to cold storage to be safe. </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"> <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=1715437790630326&amp;usg=AOvVaw1jCkAEKqcuasaICoC6d4Sy">warranty and liability disclaimer</a> for more info.</em> </p></div>

## What Is a Hot Wallet? A hot wallet is a cryptocurrency wallet that is always connected to the internet or another connected device. Hot wallets are used as temporary key storage and to send and receive cryptocurrency. Usually, their interfaces also allow you to view how many tokens you have available. ### Key Takeaways * A hot wallet is a wallet that is always connected to the internet; they allow you to store, send, and receive tokens. * Hot wallets store your private keys that allow you, and only you, to access your cryptocurrency. * Because hot wallets are connected to the internet, they tend to be somewhat more vulnerable to hacks and theft than cold storage methods. ## How a Hot Wallet Works When you buy or mine a cryptocurrency, you must set up a wallet to facilitate transactions if you decide to use it to purchase goods or services. Your [cryptocurrencies](https://www.investopedia.com/tech/most-important-cryptocurrencies-other-than-bitcoin/), or rather the private keys you use to access the currency, are stored in these wallets when you receive a coin. When you own a cryptocurrency, you're given [private keys](https://www.investopedia.com/terms/p/private-key.asp) to access it. Public keys are similar to account usernames; they identify the wallet so that the user can receive tokens without revealing their identity. Private keys are similar to personal identification numbers that must be entered when creating a transaction. The wallets that store these keys are usually accessed with usernames and passwords but can also use different login techniques. Hot wallets are applications connected to the internet and the cryptocurrency infrastructure, which allows you to use them. For a user, the hot wallet is the interface for using and storing your cryptocurrency keys. They are different from [cold wallets](https://www.investopedia.com/terms/c/cold-storage.asp), which are devices or applications that store your private keys offline—these can be an application on a device that doesn't connect to the internet or a device that looks like a USB thumb drive that stores your keys. You can even write your keys on a piece of paper, which is considered a cold wallet. To use the cryptocurrency you have in cold storage, you need to transfer the keys to your hot wallet. ### Cold wallets, also called cold storage, are considered one of the safest methods for securing digital currency. ## Types of Hot Wallets There are various hot wallets available, and many of them are free to download. Some wallets are specifically designed to be used in partnership with particular mobile web applications; you might find one that only works with a particular cryptocurrency or ecosystem. In addition, some cryptocurrency exchanges will only accept transfers to and from specific wallets. [Examples of hot wallets](https://www.investopedia.com/best-bitcoin-wallets-5070283) are MetaMask, Coinbase Wallet, and Edge Wallet. MetaMask is designed for transactions using the Ethereum ecosystem. Coinbase Wallet is the wallet for the cryptocurrency exchange Coinbase, and Edge Wallet is designed to accept transactions using all of your digital assets. Because there are so many wallets with different designs and intents, it's important for you to research hot wallets before downloading and using their services. Wallet developers have varying degrees of expertise, various commitments to security and privacy, and different priorities in mind when creating their wallets. Some might have fees; others might not. You might need to use one wallet that integrates with your internet browser for one currency and another wallet that is a dedicated application. ### On the internet, you might find cryptocurrency cold and hot wallets broken down into many categories like hardware, software, web, desktop, or mobile. All the different categories and definitions exist because many businesses are trying to get you to spend money, and writers, academics, and enthusiasts are trying to standardize cryptocurrency and blockchain definitions or demonstrate their expertise. What's important to remember when you're reading about wallets is that it doesn't matter what it is called: * If it is connected to another device or the internet, it is a hot wallet. * If it does not have a connection to another device or the internet, it is a cold wallet. * Some devices can be both hot and cold. ## Special Considerations There are several aspects you should consider before deciding on your hot wallet. Most important are its security features and how you use them. Your cryptocurrency is only as safe as the way you store your keys. Any items stored in a hot wallet are vulnerable to hacks, malware, ransomware, or any other method thieves can think of. To keep your cryptocurrency safe, consider some of these tips. ### The old saying, "Don't keep all of your eggs in one basket," applies to many financial assets, including cryptocurrency. If you use more than one storage type or strategy, you're minimizing the risks of theft and loss. ### Use Your Hot Wallet Only for Transactions It's a good idea to keep only a small portion of your crypto-assets in your hot wallet; you might consider only putting the amount of cryptocurrency you need in it when you need it. This strategy would mean storing most of your assets in a cold wallet and transferring what you need to the hot wallet for immediate or near-future use. ### Store Your Assets in an Exchange You could also choose to keep your cryptocurrency tokens in accounts linked to the exchange you use. Some [exchanges](https://www.investopedia.com/terms/b/bitcoin-exchange.asp) will store your cryptocurrency for you in cold storage. These exchanges either subcontract custodial services and transfer your keys to them or have built data storage methods designed for key storage. However, if you keep your tokens in an exchange account and an attacker gains access to the exchange's network, you could lose your cryptocurrency in the attack. To help customers if this happens, some exchanges are insured for the loss of customers' assets if they (the exchange) lose them due to theft or failure of their systems and will reimburse you up to a certain amount. ### Exchange Your Cryptocurrencies If you maintain a substantial balance of cryptocurrency, you're accepting the risk of drawing the attention of hackers or losing a significant portion of your holdings in an attack. Because many of the top digital currency exchanges allow users to transfer between various fiat currencies and cryptocurrencies, you should only hold small amounts in your wallet. You can convert the rest to your country's currency and place it in your bank account. ### There might be fees for exchanging cryptocurrency for fiat currency and transferring the funds out of the exchange or removing it to store it, but it's worth considering if you're not holding your cryptocurrency as an investment. ## Hot Wallets and Investing [Cryptocurrency investing](https://www.investopedia.com/tech/what-you-must-know-investing-crypto/) is similar to stock market investing—you own a cryptocurrency and wait for its fair market value to increase. You could continue holding it or try to sell it to another investor at a profit. However, a hot wallet is a precarious place to store your cryptocurrency investments. Cold storage, such as a [paper wallet](https://www.investopedia.com/terms/p/paper-wallet.asp) or other non-connected methods, might serve you better as you wait for your cryptocurrency's value to increase. You could also use a custodial cold wallet, such as a reputable, regulated, and insured exchange's cold storage or [licensed digital asset custodian](https://www.investopedia.com/selecting-a-qualified-crypto-custodian-8400929). Another option is to invest in a cryptocurrency ETF that holds cryptocurrency so that you gain exposure to these assets without needing to secure them yourself. ## How Do I Secure My Hot Wallet? Only keep small amounts in your hot wallet, ensure you back it up, keep the software up to date, encrypt it, and keep your password secure to make sure your wallet is safe. ## What Are Hot Wallets? A hot wallet is any software or device designed to hold cryptocurrency private keys with a connection to another device or the internet. ## Is Coinbase a Hot Wallet? Coinbase provides a hot wallet for its customers that allows them to interact with the exchange's services. ## How Much Does a Hot Wallet Cost? Many hot wallets are free because they are downloadable software or apps. There are some devices with software uploaded on them that can act as hot and cold wallets. Depending on the options, these can range from less than $100 to hundreds of dollars. ## The Bottom Line Hot wallets are any private key storage method that has a connection to another device or the internet. All hot wallets have or are software of some type, so they are vulnerable to hacking, malware, viruses, ransomware, or other methods used by criminals. There are many hot wallets available, so it is best to research for the one you prefer and only keep the keys to the crypto you intend to spend in it. Once you use your crypto in your hot wallet, transfer the keys back to cold storage to be safe. *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=1715437790630326&usg=AOvVaw1jCkAEKqcuasaICoC6d4Sy) for more info.*

What Is a Hot Wallet? A hot wallet is a cryptocurrency wallet that is always connected to the internet or another connected device. Hot wallets are used as temporary key storage and to send and receive cryptocurrency. Usually, their interfaces also allow you to view how many tokens you have available. Key Takeaways A hot wallet is a wallet that is always connected to the internet; they allow you to store, send, and receive tokens.Hot wallets store your private keys that allow you, and only you, to access your cryptocurrency.Because hot wallets are connected to the internet, they tend to be somewhat more vulnerable to hacks and theft than cold storage methods. How a Hot Wallet Works When you buy or mine a cryptocurrency, you must set up a wallet to facilitate transactions if you decide to use it to purchase goods or services. Your cryptocurrencies, or rather the private keys you use to access the currency, are stored in these wallets when you receive a coin. When you own a cryptocurrency, you're given private keys to access it. Public keys are similar to account usernames; they identify the wallet so that the user can receive tokens without revealing their identity. Private keys are similar to personal identification numbers that must be entered when creating a transaction. The wallets that store these keys are usually accessed with usernames and passwords but can also use different login techniques. Hot wallets are applications connected to the internet and the cryptocurrency infrastructure, which allows you to use them. For a user, the hot wallet is the interface for using and storing your cryptocurrency keys. They are different from cold wallets, which are devices or applications that store your private keys offline—these can be an application on a device that doesn't connect to the internet or a device that looks like a USB thumb drive that stores your keys. You can even write your keys on a piece of paper, which is considered a cold wallet. To use the cryptocurrency you have in cold storage, you need to transfer the keys to your hot wallet. Cold wallets, also called cold storage, are considered one of the safest methods for securing digital currency. Types of Hot Wallets There are various hot wallets available, and many of them are free to download. Some wallets are specifically designed to be used in partnership with particular mobile web applications; you might find one that only works with a particular cryptocurrency or ecosystem. In addition, some cryptocurrency exchanges will only accept transfers to and from specific wallets. Examples of hot wallets are MetaMask, Coinbase Wallet, and Edge Wallet. MetaMask is designed for transactions using the Ethereum ecosystem. Coinbase Wallet is the wallet for the cryptocurrency exchange Coinbase, and Edge Wallet is designed to accept transactions using all of your digital assets. Because there are so many wallets with different designs and intents, it's important for you to research hot wallets before downloading and using their services. Wallet developers have varying degrees of expertise, various commitments to security and privacy, and different priorities in mind when creating their wallets. Some might have fees; others might not. You might need to use one wallet that integrates with your internet browser for one currency and another wallet that is a dedicated application. On the internet, you might find cryptocurrency cold and hot wallets broken down into many categories like hardware, software, web, desktop, or mobile. All the different categories and definitions exist because many businesses are trying to get you to spend money, and writers, academics, and enthusiasts are trying to standardize cryptocurrency and blockchain definitions or demonstrate their expertise. What's important to remember when you're reading about wallets is that it doesn't matter what it is called:If it is connected to another device or the internet, it is a hot wallet.If it does not have a connection to another device or the internet, it is a cold wallet.Some devices can be both hot and cold. Special Considerations There are several aspects you should consider before deciding on your hot wallet. Most important are its security features and how you use them. Your cryptocurrency is only as safe as the way you store your keys. Any items stored in a hot wallet are vulnerable to hacks, malware, ransomware, or any other method thieves can think of. To keep your cryptocurrency safe, consider some of these tips. The old saying, "Don't keep all of your eggs in one basket," applies to many financial assets, including cryptocurrency. If you use more than one storage type or strategy, you're minimizing the risks of theft and loss. Use Your Hot Wallet Only for Transactions It's a good idea to keep only a small portion of your crypto-assets in your hot wallet; you might consider only putting the amount of cryptocurrency you need in it when you need it. This strategy would mean storing most of your assets in a cold wallet and transferring what you need to the hot wallet for immediate or near-future use. Store Your Assets in an Exchange You could also choose to keep your cryptocurrency tokens in accounts linked to the exchange you use. Some exchanges will store your cryptocurrency for you in cold storage. These exchanges either subcontract custodial services and transfer your keys to them or have built data storage methods designed for key storage. However, if you keep your tokens in an exchange account and an attacker gains access to the exchange's network, you could lose your cryptocurrency in the attack. To help customers if this happens, some exchanges are insured for the loss of customers' assets if they (the exchange) lose them due to theft or failure of their systems and will reimburse you up to a certain amount. Exchange Your Cryptocurrencies If you maintain a substantial balance of cryptocurrency, you're accepting the risk of drawing the attention of hackers or losing a significant portion of your holdings in an attack. Because many of the top digital currency exchanges allow users to transfer between various fiat currencies and cryptocurrencies, you should only hold small amounts in your wallet. You can convert the rest to your country's currency and place it in your bank account. There might be fees for exchanging cryptocurrency for fiat currency and transferring the funds out of the exchange or removing it to store it, but it's worth considering if you're not holding your cryptocurrency as an investment. Hot Wallets and Investing Cryptocurrency investing is similar to stock market investing—you own a cryptocurrency and wait for its fair market value to increase. You could continue holding it or try to sell it to another investor at a profit. However, a hot wallet is a precarious place to store your cryptocurrency investments. Cold storage, such as a paper wallet or other non-connected methods, might serve you better as you wait for your cryptocurrency's value to increase. You could also use a custodial cold wallet, such as a reputable, regulated, and insured exchange's cold storage or licensed digital asset custodian. Another option is to invest in a cryptocurrency ETF that holds cryptocurrency so that you gain exposure to these assets without needing to secure them yourself. How Do I Secure My Hot Wallet? Only keep small amounts in your hot wallet, ensure you back it up, keep the software up to date, encrypt it, and keep your password secure to make sure your wallet is safe. What Are Hot Wallets? A hot wallet is any software or device designed to hold cryptocurrency private keys with a connection to another device or the internet. Is Coinbase a Hot Wallet? Coinbase provides a hot wallet for its customers that allows them to interact with the exchange's services. How Much Does a Hot Wallet Cost? Many hot wallets are free because they are downloadable software or apps. There are some devices with software uploaded on them that can act as hot and cold wallets. Depending on the options, these can range from less than $100 to hundreds of dollars. The Bottom Line Hot wallets are any private key storage method that has a connection to another device or the internet. All hot wallets have or are software of some type, so they are vulnerable to hacking, malware, viruses, ransomware, or other methods used by criminals. There are many hot wallets available, so it is best to research for the one you prefer and only keep the keys to the crypto you intend to spend in it. Once you use your crypto in your hot wallet, transfer the keys back to cold storage to be safe. The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info.

https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp

The 2007–2008 Financial Crisis in Review

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 financial crisis of 2007–2008 was years in the making. By the summer of 2007, financial markets around the world were showing signs that the reckoning was overdue for a years-long binge on cheap credit. Two <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bear-stearns.asp">Bear Stearns</a> hedge funds had collapsed, BNP Paribas was warning investors that they might not be able to withdraw money from three of its funds, and the British bank Northern Rock was about to seek emergency funding from the Bank of England.<span class="ql-inline-citation" data-cite="22"></span><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="23"></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"> Yet despite the warning signs, few investors suspected that the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/011116/3-financial-crises-21st-century.asp">worst crisis in nearly eight decades</a> was about to engulf the global financial system, bringing Wall Street's giants to their knees and triggering the Great Recession. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> It was an epic financial and economic collapse that cost many ordinary people their jobs, their life savings, their homes, or all three. </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 2007–2008 financial crisis developed gradually. Home prices began to fall in early 2006.</li><li>In early 2007, subprime lenders began to file for bankruptcy.</li><li>In June 2007, two big hedge funds failed, weighed down by investments in subprime loans.</li><li>In August 2007, losses from subprime loan investments caused a panic that froze the global lending system.</li><li>In September 2008 Lehman Brothers collapsed in the biggest U.S. bankruptcy ever.</li><li>When the bubble burst, financial institutions were left holding trillions of dollars worth of near-worthless investments in subprime mortgages.</li></ul></div></div></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_9-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_10-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_2-0">What Caused the 2008 Financial Crisis?</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The 2008 financial crisis began with cheap credit and lax lending standards that fueled a housing bubble. When the bubble burst, the banks were left holding trillions of dollars of worthless investments in subprime mortgages. The Great Recession that followed cost many their jobs, their savings, and their homes.</p></div></div></div> <span class="heading-toc" id="toc-sowing-the-seeds-of-the-crisis"></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"> Sowing the Seeds of the Crisis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The seeds of the financial crisis were planted during years of rock-bottom interest rates and loose lending standards that fueled a housing price bubble in the U.S. and elsewhere. </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 began, as usual, with good intentions. Faced with the bursting of the dot-com bubble, a series of corporate accounting scandals, and the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0911/how-september-11-affected-the-u.s.-stock-market.aspx">September 11 terrorist attacks</a>, the Federal Reserve lowered the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalfundsrate.asp">federal funds rate</a> from 6.5% in May 2000 to 1% in June 2003.<span class="ql-inline-citation" data-cite="2"></span><span class="ql-inline-citation" data-cite="3"></span> The aim was to boost the economy by making money available to businesses and consumers at bargain rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The result was an upward spiral in home prices as borrowers took advantage of the low mortgage rates.<span class="ql-inline-citation" data-cite="4"></span> Even <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/subprime-borrower.asp">subprime borrowers</a>, those with poor or no credit history, were able to realize the dream of buying a home. </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 banks then sold those loans on to Wall Street banks, which packaged them into what were billed as low-risk financial instruments such as mortgage-backed securities and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cdo.asp">collateralized debt obligations</a> (CDOs). Soon a big secondary market for originating and distributing <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/subprimeloan.asp">subprime loans</a> developed.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Fueling greater risk-taking among banks, the Securities and Exchange Commission (SEC) in October 2004 relaxed the net <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalrequirement.asp">capital requirements</a> for five investment banks—Goldman Sachs (NYSE: GS), Merrill Lynch (NYSE: MER), Lehman Brothers, Bear Stearns, and Morgan Stanley (NYSE: MS). That freed them to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leverage.asp">leverage</a> their initial investments by up to 30 times or even 40 times. </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-signs-of-trouble"></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"> Signs of Trouble </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Eventually, interest rates started to rise and homeownership reached a saturation point. The Fed started raising rates in June 2004, and two years later the Federal funds rate had reached 5.25%, where it remained until August 2007.<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"> There were early signs of distress. By 2004, U.S. homeownership had peaked at 69.2%.<span class="ql-inline-citation" data-cite="6"></span> Then, in early 2006, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/07/housing_bubble.asp">home prices started to fall</a>.<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_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> This caused real hardship to many Americans. Their homes were worth less than they paid for them. They couldn't sell their houses without owing money to their lenders. If they had adjustable-rate mortgages, their costs were going up as their homes' values were going down. The most vulnerable subprime borrowers were stuck with mortgages they couldn't afford in the first place. </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-important" 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>Subprime mortgage company New Century Financial made nearly $60 billion in loans in 2006, according to the Reuters news service. In 2007, it filed for bankruptcy protection.<span class="ql-inline-citation" data-cite="25"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> As 2007 got underway, one subprime lender after another filed for bankruptcy. During February and March, more than 25 subprime lenders went under. In April, New Century Financial, which specialized in sub-prime lending, filed for bankruptcy and laid off half of its workforce.<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_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> By June, Bear Stearns stopped redemptions in two of its hedge funds, prompting Merrill Lynch to seize $800 million in assets from the funds.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Even these were small matters compared to what was to happen in the months ahead. </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-august-2007-the-dominoes-start-to-fall"></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"> August 2007: The Dominoes Start to Fall </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> It became apparent by August 2007 that the financial markets could not solve the subprime crisis and that the problems were reverberating well beyond the U.S. borders. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interbankmarket.asp">interbank market</a> that keeps money moving around the globe froze completely, largely due to fear of the unknown. Northern Rock had to approach the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/boe.asp">Bank of England</a> for emergency funding due to a liquidity problem. In October 2007, Swiss bank UBS became the first major bank to announce losses—$3.4 billion—from sub-prime-related investments.<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_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> In the coming months, the Federal Reserve and other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/centralbank.asp">central banks</a> would take coordinated action to provide billions of dollars in loans to the global credit markets, which were grinding to a halt as asset prices fell. Meanwhile, financial institutions struggled to assess the value of the trillions of dollars worth of now-toxic mortgage-backed securities that were sitting on their books. </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-march-2008-the-demise-of-bear-stearns"></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"> March 2008: The Demise of Bear Stearns </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> By the winter of 2008, the U.S. economy was in a full-blown recession and, as financial institutions' liquidity struggles continued, stock markets around the world were tumbling the most since the September 11 terrorist attacks. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> In January 2008, the Fed cut its benchmark rate by three-quarters of a percentage point—its biggest cut in a quarter-century, as it sought to slow the economic slide.<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_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> The bad news continued to pour in from all sides. In February, the British government was forced to nationalize Northern Rock.<span class="ql-inline-citation" data-cite="13"></span> In March, global investment bank Bear Stearns, a pillar of Wall Street that dated to 1923, collapsed and was acquired by JPMorgan Chase for pennies on the dollar.<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_50-0"></div> <span class="heading-toc" id="toc-september-2008-the-fall-of-lehman-brothers"></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"> September 2008: The Fall of Lehman Brothers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> By the summer of 2008, the carnage was spreading across the financial sector. IndyMac Bank became one of the largest banks ever to fail in the U.S.,<span class="ql-inline-citation" data-cite="15"></span> and the country's two biggest home lenders, Fannie Mae and Freddie Mac, had been seized by the U.S. government.<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_53-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> Yet the collapse of the venerable Wall Street bank Lehman Brothers in September marked the largest bankruptcy in U.S. history,<span class="ql-inline-citation" data-cite="26"></span> and for many became a symbol of the devastation caused by the global financial crisis. </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"> That same month, financial markets were in free fall, with the major U.S. indexes suffering some of their worst losses on record. The Fed, the Treasury Department, the White House, and Congress struggled to put forward a comprehensive plan to stop the bleeding and restore confidence in the economy. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <span class="heading-toc" id="toc-the-aftermath"></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 Aftermath </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> The Wall Street bailout package was approved in the first week of October 2008.<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_60-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_61-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/tncDs/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Placeholder"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> The package <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/economics/08/government-financial-bailout.asp#bank-rescue-of-2008-or-the-great-recession" rel="noopener noreferrer">included many measures</a>, such as a huge government purchase of "toxic assets," an enormous investment in bank stock shares, and financial lifelines to Fannie Mae and Freddie Mac. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_65-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_66-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0">$440 Billion</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>The amount spent by the government through the Troubled Asset Relief Program (TARP). It got back $442.6 billion after assets bought in the crisis were resold at a profit.<span class="ql-inline-citation" data-cite="27"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> The public indignation was widespread. It appeared that bankers were being rewarded for recklessly tanking the economy. But it got the economy moving again. It also should be noted that the investments in the banks were fully recouped by the government, with interest. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> The passage of the bailout package stabilized the stock markets, which hit bottom in March 2009 and then embarked on the longest bull market in its history. </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"> Still, the economic damage and human suffering were immense. Unemployment reached 10%. About 3.8 million Americans lost their homes to foreclosures.<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_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"> About Dodd-Frank </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> The most ambitious and controversial attempt to prevent such an event from happening again was the passage of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp">Dodd-Frank</a> Wall Street Reform and Consumer Protection Act in 2010. On the financial side, the act restricted some of the riskier activities of the biggest banks, increased government oversight of their activities, and forced them to maintain larger cash reserves. On the consumer side, it attempted to reduce predatory lending.<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_75-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_76-0"> By 2018, some portions of the act had been <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-choice-act.asp">rolled back</a> by the Trump Administration, although an attempt at a more wholesale dismantling of the new regulations failed in the U.S. Senate.<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_77-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> Those regulations are intended to prevent a crisis similar to the 2007–2008 event from happening again. </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"> Which doesn't mean that there won't be another financial crisis in the future. Bubbles have occurred periodically at least since the 1630s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/062315/five-largest-asset-bubbles-history.asp">Dutch Tulip Bubble</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_81-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_82-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_83-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block 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 2007–2008 financial crisis was a global event, not one restricted to the U.S. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/celtictiger.asp">Ireland</a>'s vibrant economy fell off a cliff. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/070115/understanding-downfall-greeces-economy.asp">Greece</a> defaulted on its international debts. <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/piigs.asp">Portugal and Spain</a> suffered from extreme levels of unemployment. Every nation's experience was different and complex.</p></div></div></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_84-0"><span class="heading-toc" id="toc-what-is-a-mortgage-backed-security"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Mortgage-Backed Security?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p><br/></p><p>A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mbs.asp">mortgage-backed security</a> is similar to a bond. It consists of home loans bundled together and sold by the banks that lend the money to Wall Street investors. The point is to profit from the loan interest paid by the mortgage holders.</p><p>In the early 2000s, loan originators encouraged millions to borrow beyond their means to buy homes they couldn't afford. The loans were then sent on to investors in the form of mortgage-backed securities.</p><p>Inevitably, the homeowners who had borrowed beyond their means began to default. Housing prices fell and millions walked away from mortgages that cost more than the house was worth.</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-who-is-to-blame-for-the-great-recession"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Is to Blame for the Great Recession?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Many economists place the greatest part of the blame on lax mortgage lending policies that allowed many consumers to borrow far more than they could afford. But there's plenty of blame to go around, including:</p><ul><li>The predatory lenders who marketed homeownership to people who could not possibly pay back the mortgages they were offered.</li><li>The investment gurus who bought those bad mortgages and rolled them into bundles for resale to investors.</li><li>The agencies who gave those mortgage bundles top investment ratings, making them appear to be safe.</li><li>The investors who failed to check the ratings, or simply took care to unload the bundles to other investors before they blew up.</li></ul><p><br/></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-which-banks-failed-in-2008"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Banks Failed in 2008?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The total number of bank failures linked to the financial crisis cannot be revealed without first reporting this: No depositor in an American bank lost a penny to a bank failure.</p><p>That said, more than 500 banks failed between 2008 and 2015, compared to a total of 25 in the preceding seven years, according to the Federal Reserve of Cleveland.<span class="ql-inline-citation" data-cite="19"></span> Most were small regional banks, and all were acquired by other banks, along with their depositors' accounts.</p><p>The biggest failures were not banks in the traditional Main Street sense but investment banks that catered to institutional investors. These notably included <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/insights/too-big-fail-banks-where-are-they-now/">Lehman Brothers and Bear Stearns</a>. Lehman Brothers was denied a government bailout and shut its doors. JPMorgan Chase bought the ruins of Bear Stearns on the cheap.</p><p>As for the biggest of the big banks, including JPMorgan Chase, Goldman Sachs, Bank of American, and Morgan Stanley, all were, famously, "<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/too-big-to-fail.asp#:~:text=%22Too%20big%20to%20fail%22%20describes,be%20disastrous%20to%20the%20economy.">too big to fail</a>." They took the bailout money, repaid it to the government, and emerged bigger than ever after the recession.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_89-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_90-0"><span class="heading-toc" id="toc-who-made-money-in-the-2008-financial-crisis"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Made Money in the 2008 Financial Crisis?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A number of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0411/5-investors-that-are-both-rich-and-smart.aspx">smart investors made money</a> from the crisis, mostly by picking up pieces from the wreckage.</p><ul><li>Warren Buffett invested billions in companies including Goldman Sachs and General Electric out of a mix of motives that combined patriotism and profit.</li><li>Hedge fund manager John Paulson made a lot of money betting against the U.S. housing market when the bubble formed, and then made a lot more money betting on its recovery after it hit bottom.</li><li>Investor Carl Icahn proved his market-timing talent by selling and buying casino properties before, during, and after the crisis.</li></ul></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_91-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_92-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_93-0"> Bubbles occur all the time in the financial world. The price of a stock or any other commodity can become inflated beyond its intrinsic value. Usually, the damage is limited to losses for a few over-enthusiastic buyers. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_94-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_95-0"> The financial crisis of 2007–2008 was a different kind of bubble. Like only a few others in history, it grew big enough that, when it burst, it damaged entire economies and hurt millions of people, including many who were not speculating in mortgage-backed securities. </p></div>

The financial crisis of 2007–2008 was years in the making. By the summer of 2007, financial markets around the world were showing signs that the reckoning was overdue for a years-long binge on cheap credit. Two [Bear Stearns](https://www.investopedia.com/terms/b/bear-stearns.asp) hedge funds had collapsed, BNP Paribas was warning investors that they might not be able to withdraw money from three of its funds, and the British bank Northern Rock was about to seek emergency funding from the Bank of England. Yet despite the warning signs, few investors suspected that the [worst crisis in nearly eight decades](https://www.investopedia.com/articles/investing/011116/3-financial-crises-21st-century.asp) was about to engulf the global financial system, bringing Wall Street's giants to their knees and triggering the Great Recession. It was an epic financial and economic collapse that cost many ordinary people their jobs, their life savings, their homes, or all three. ### Key Takeaways * The 2007–2008 financial crisis developed gradually. Home prices began to fall in early 2006. * In early 2007, subprime lenders began to file for bankruptcy. * In June 2007, two big hedge funds failed, weighed down by investments in subprime loans. * In August 2007, losses from subprime loan investments caused a panic that froze the global lending system. * In September 2008 Lehman Brothers collapsed in the biggest U.S. bankruptcy ever. * When the bubble burst, financial institutions were left holding trillions of dollars worth of near-worthless investments in subprime mortgages. ### What Caused the 2008 Financial Crisis? The 2008 financial crisis began with cheap credit and lax lending standards that fueled a housing bubble. When the bubble burst, the banks were left holding trillions of dollars of worthless investments in subprime mortgages. The Great Recession that followed cost many their jobs, their savings, and their homes. ## Sowing the Seeds of the Crisis The seeds of the financial crisis were planted during years of rock-bottom interest rates and loose lending standards that fueled a housing price bubble in the U.S. and elsewhere. It began, as usual, with good intentions. Faced with the bursting of the dot-com bubble, a series of corporate accounting scandals, and the [September 11 terrorist attacks](https://www.investopedia.com/financial-edge/0911/how-september-11-affected-the-u.s.-stock-market.aspx), the Federal Reserve lowered the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) from 6.5% in May 2000 to 1% in June 2003. The aim was to boost the economy by making money available to businesses and consumers at bargain rates. The result was an upward spiral in home prices as borrowers took advantage of the low mortgage rates. Even [subprime borrowers](https://www.investopedia.com/terms/s/subprime-borrower.asp), those with poor or no credit history, were able to realize the dream of buying a home. The banks then sold those loans on to Wall Street banks, which packaged them into what were billed as low-risk financial instruments such as mortgage-backed securities and [collateralized debt obligations](https://www.investopedia.com/terms/c/cdo.asp) (CDOs). Soon a big secondary market for originating and distributing [subprime loans](https://www.investopedia.com/terms/s/subprimeloan.asp) developed. Fueling greater risk-taking among banks, the Securities and Exchange Commission (SEC) in October 2004 relaxed the net [capital requirements](https://www.investopedia.com/terms/c/capitalrequirement.asp) for five investment banks—Goldman Sachs (NYSE: GS), Merrill Lynch (NYSE: MER), Lehman Brothers, Bear Stearns, and Morgan Stanley (NYSE: MS). That freed them to [leverage](https://www.investopedia.com/terms/l/leverage.asp) their initial investments by up to 30 times or even 40 times. ## Signs of Trouble Eventually, interest rates started to rise and homeownership reached a saturation point. The Fed started raising rates in June 2004, and two years later the Federal funds rate had reached 5.25%, where it remained until August 2007. There were early signs of distress. By 2004, U.S. homeownership had peaked at 69.2%. Then, in early 2006, [home prices started to fall](https://www.investopedia.com/articles/07/housing_bubble.asp). This caused real hardship to many Americans. Their homes were worth less than they paid for them. They couldn't sell their houses without owing money to their lenders. If they had adjustable-rate mortgages, their costs were going up as their homes' values were going down. The most vulnerable subprime borrowers were stuck with mortgages they couldn't afford in the first place. ### Subprime mortgage company New Century Financial made nearly $60 billion in loans in 2006, according to the Reuters news service. In 2007, it filed for bankruptcy protection. As 2007 got underway, one subprime lender after another filed for bankruptcy. During February and March, more than 25 subprime lenders went under. In April, New Century Financial, which specialized in sub-prime lending, filed for bankruptcy and laid off half of its workforce. By June, Bear Stearns stopped redemptions in two of its hedge funds, prompting Merrill Lynch to seize $800 million in assets from the funds. Even these were small matters compared to what was to happen in the months ahead. ## August 2007: The Dominoes Start to Fall It became apparent by August 2007 that the financial markets could not solve the subprime crisis and that the problems were reverberating well beyond the U.S. borders. The [interbank market](https://www.investopedia.com/terms/i/interbankmarket.asp) that keeps money moving around the globe froze completely, largely due to fear of the unknown. Northern Rock had to approach the [Bank of England](https://www.investopedia.com/terms/b/boe.asp) for emergency funding due to a liquidity problem. In October 2007, Swiss bank UBS became the first major bank to announce losses—$3.4 billion—from sub-prime-related investments. In the coming months, the Federal Reserve and other [central banks](https://www.investopedia.com/terms/c/centralbank.asp) would take coordinated action to provide billions of dollars in loans to the global credit markets, which were grinding to a halt as asset prices fell. Meanwhile, financial institutions struggled to assess the value of the trillions of dollars worth of now-toxic mortgage-backed securities that were sitting on their books. ## March 2008: The Demise of Bear Stearns By the winter of 2008, the U.S. economy was in a full-blown recession and, as financial institutions' liquidity struggles continued, stock markets around the world were tumbling the most since the September 11 terrorist attacks. In January 2008, the Fed cut its benchmark rate by three-quarters of a percentage point—its biggest cut in a quarter-century, as it sought to slow the economic slide. The bad news continued to pour in from all sides. In February, the British government was forced to nationalize Northern Rock. In March, global investment bank Bear Stearns, a pillar of Wall Street that dated to 1923, collapsed and was acquired by JPMorgan Chase for pennies on the dollar. ## September 2008: The Fall of Lehman Brothers By the summer of 2008, the carnage was spreading across the financial sector. IndyMac Bank became one of the largest banks ever to fail in the U.S., and the country's two biggest home lenders, Fannie Mae and Freddie Mac, had been seized by the U.S. government. Yet the collapse of the venerable Wall Street bank Lehman Brothers in September marked the largest bankruptcy in U.S. history, and for many became a symbol of the devastation caused by the global financial crisis. That same month, financial markets were in free fall, with the major U.S. indexes suffering some of their worst losses on record. The Fed, the Treasury Department, the White House, and Congress struggled to put forward a comprehensive plan to stop the bleeding and restore confidence in the economy. ## The Aftermath The Wall Street bailout package was approved in the first week of October 2008. The package [included many measures](https://www.investopedia.com/articles/economics/08/government-financial-bailout.asp#bank-rescue-of-2008-or-the-great-recession), such as a huge government purchase of "toxic assets," an enormous investment in bank stock shares, and financial lifelines to Fannie Mae and Freddie Mac. ### $440 Billion The amount spent by the government through the Troubled Asset Relief Program (TARP). It got back $442.6 billion after assets bought in the crisis were resold at a profit. The public indignation was widespread. It appeared that bankers were being rewarded for recklessly tanking the economy. But it got the economy moving again. It also should be noted that the investments in the banks were fully recouped by the government, with interest. The passage of the bailout package stabilized the stock markets, which hit bottom in March 2009 and then embarked on the longest bull market in its history. Still, the economic damage and human suffering were immense. Unemployment reached 10%. About 3.8 million Americans lost their homes to foreclosures. ### About Dodd-Frank The most ambitious and controversial attempt to prevent such an event from happening again was the passage of the [Dodd-Frank](https://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp) Wall Street Reform and Consumer Protection Act in 2010. On the financial side, the act restricted some of the riskier activities of the biggest banks, increased government oversight of their activities, and forced them to maintain larger cash reserves. On the consumer side, it attempted to reduce predatory lending. By 2018, some portions of the act had been [rolled back](https://www.investopedia.com/terms/f/financial-choice-act.asp) by the Trump Administration, although an attempt at a more wholesale dismantling of the new regulations failed in the U.S. Senate. Those regulations are intended to prevent a crisis similar to the 2007–2008 event from happening again. Which doesn't mean that there won't be another financial crisis in the future. Bubbles have occurred periodically at least since the 1630s [Dutch Tulip Bubble](https://www.investopedia.com/articles/personal-finance/062315/five-largest-asset-bubbles-history.asp). ### The 2007–2008 financial crisis was a global event, not one restricted to the U.S. [Ireland](https://www.investopedia.com/terms/c/celtictiger.asp)'s vibrant economy fell off a cliff. [Greece](https://www.investopedia.com/articles/investing/070115/understanding-downfall-greeces-economy.asp) defaulted on its international debts. [Portugal and Spain](https://www.investopedia.com/terms/p/piigs.asp) suffered from extreme levels of unemployment. Every nation's experience was different and complex. ## What Is a Mortgage-Backed Security? A [mortgage-backed security](https://www.investopedia.com/terms/m/mbs.asp) is similar to a bond. It consists of home loans bundled together and sold by the banks that lend the money to Wall Street investors. The point is to profit from the loan interest paid by the mortgage holders. In the early 2000s, loan originators encouraged millions to borrow beyond their means to buy homes they couldn't afford. The loans were then sent on to investors in the form of mortgage-backed securities. Inevitably, the homeowners who had borrowed beyond their means began to default. Housing prices fell and millions walked away from mortgages that cost more than the house was worth. ## Who Is to Blame for the Great Recession? Many economists place the greatest part of the blame on lax mortgage lending policies that allowed many consumers to borrow far more than they could afford. But there's plenty of blame to go around, including: * The predatory lenders who marketed homeownership to people who could not possibly pay back the mortgages they were offered. * The investment gurus who bought those bad mortgages and rolled them into bundles for resale to investors. * The agencies who gave those mortgage bundles top investment ratings, making them appear to be safe. * The investors who failed to check the ratings, or simply took care to unload the bundles to other investors before they blew up. ## Which Banks Failed in 2008? The total number of bank failures linked to the financial crisis cannot be revealed without first reporting this: No depositor in an American bank lost a penny to a bank failure. That said, more than 500 banks failed between 2008 and 2015, compared to a total of 25 in the preceding seven years, according to the Federal Reserve of Cleveland. Most were small regional banks, and all were acquired by other banks, along with their depositors' accounts. The biggest failures were not banks in the traditional Main Street sense but investment banks that catered to institutional investors. These notably included [Lehman Brothers and Bear Stearns](https://www.investopedia.com/insights/too-big-fail-banks-where-are-they-now/). Lehman Brothers was denied a government bailout and shut its doors. JPMorgan Chase bought the ruins of Bear Stearns on the cheap. As for the biggest of the big banks, including JPMorgan Chase, Goldman Sachs, Bank of American, and Morgan Stanley, all were, famously, "[too big to fail](https://www.investopedia.com/terms/t/too-big-to-fail.asp#:~:text=%22Too%20big%20to%20fail%22%20describes,be%20disastrous%20to%20the%20economy.)." They took the bailout money, repaid it to the government, and emerged bigger than ever after the recession. ## Who Made Money in the 2008 Financial Crisis? A number of [smart investors made money](https://www.investopedia.com/financial-edge/0411/5-investors-that-are-both-rich-and-smart.aspx) from the crisis, mostly by picking up pieces from the wreckage. * Warren Buffett invested billions in companies including Goldman Sachs and General Electric out of a mix of motives that combined patriotism and profit. * Hedge fund manager John Paulson made a lot of money betting against the U.S. housing market when the bubble formed, and then made a lot more money betting on its recovery after it hit bottom. * Investor Carl Icahn proved his market-timing talent by selling and buying casino properties before, during, and after the crisis. ## The Bottom Line Bubbles occur all the time in the financial world. The price of a stock or any other commodity can become inflated beyond its intrinsic value. Usually, the damage is limited to losses for a few over-enthusiastic buyers. The financial crisis of 2007–2008 was a different kind of bubble. Like only a few others in history, it grew big enough that, when it burst, it damaged entire economies and hurt millions of people, including many who were not speculating in mortgage-backed securities.

The financial crisis of 2007–2008 was years in the making. By the summer of 2007, financial markets around the world were showing signs that the reckoning was overdue for a years-long binge on cheap credit. Two Bear Stearns hedge funds had collapsed, BNP Paribas was warning investors that they might not be able to withdraw money from three of its funds, and the British bank Northern Rock was about to seek emergency funding from the Bank of England. Yet despite the warning signs, few investors suspected that the worst crisis in nearly eight decades was about to engulf the global financial system, bringing Wall Street's giants to their knees and triggering the Great Recession. It was an epic financial and economic collapse that cost many ordinary people their jobs, their life savings, their homes, or all three. Key Takeaways The 2007–2008 financial crisis developed gradually. Home prices began to fall in early 2006.In early 2007, subprime lenders began to file for bankruptcy.In June 2007, two big hedge funds failed, weighed down by investments in subprime loans.In August 2007, losses from subprime loan investments caused a panic that froze the global lending system.In September 2008 Lehman Brothers collapsed in the biggest U.S. bankruptcy ever.When the bubble burst, financial institutions were left holding trillions of dollars worth of near-worthless investments in subprime mortgages. What Caused the 2008 Financial Crisis? The 2008 financial crisis began with cheap credit and lax lending standards that fueled a housing bubble. When the bubble burst, the banks were left holding trillions of dollars of worthless investments in subprime mortgages. The Great Recession that followed cost many their jobs, their savings, and their homes. Sowing the Seeds of the Crisis The seeds of the financial crisis were planted during years of rock-bottom interest rates and loose lending standards that fueled a housing price bubble in the U.S. and elsewhere. It began, as usual, with good intentions. Faced with the bursting of the dot-com bubble, a series of corporate accounting scandals, and the September 11 terrorist attacks, the Federal Reserve lowered the federal funds rate from 6.5% in May 2000 to 1% in June 2003. The aim was to boost the economy by making money available to businesses and consumers at bargain rates. The result was an upward spiral in home prices as borrowers took advantage of the low mortgage rates. Even subprime borrowers, those with poor or no credit history, were able to realize the dream of buying a home. The banks then sold those loans on to Wall Street banks, which packaged them into what were billed as low-risk financial instruments such as mortgage-backed securities and collateralized debt obligations (CDOs). Soon a big secondary market for originating and distributing subprime loans developed. Fueling greater risk-taking among banks, the Securities and Exchange Commission (SEC) in October 2004 relaxed the net capital requirements for five investment banks—Goldman Sachs (NYSE: GS), Merrill Lynch (NYSE: MER), Lehman Brothers, Bear Stearns, and Morgan Stanley (NYSE: MS). That freed them to leverage their initial investments by up to 30 times or even 40 times. Signs of Trouble Eventually, interest rates started to rise and homeownership reached a saturation point. The Fed started raising rates in June 2004, and two years later the Federal funds rate had reached 5.25%, where it remained until August 2007. There were early signs of distress. By 2004, U.S. homeownership had peaked at 69.2%. Then, in early 2006, home prices started to fall. This caused real hardship to many Americans. Their homes were worth less than they paid for them. They couldn't sell their houses without owing money to their lenders. If they had adjustable-rate mortgages, their costs were going up as their homes' values were going down. The most vulnerable subprime borrowers were stuck with mortgages they couldn't afford in the first place. Subprime mortgage company New Century Financial made nearly $60 billion in loans in 2006, according to the Reuters news service. In 2007, it filed for bankruptcy protection. As 2007 got underway, one subprime lender after another filed for bankruptcy. During February and March, more than 25 subprime lenders went under. In April, New Century Financial, which specialized in sub-prime lending, filed for bankruptcy and laid off half of its workforce. By June, Bear Stearns stopped redemptions in two of its hedge funds, prompting Merrill Lynch to seize $800 million in assets from the funds. Even these were small matters compared to what was to happen in the months ahead. August 2007: The Dominoes Start to Fall It became apparent by August 2007 that the financial markets could not solve the subprime crisis and that the problems were reverberating well beyond the U.S. borders. The interbank market that keeps money moving around the globe froze completely, largely due to fear of the unknown. Northern Rock had to approach the Bank of England for emergency funding due to a liquidity problem. In October 2007, Swiss bank UBS became the first major bank to announce losses—$3.4 billion—from sub-prime-related investments. In the coming months, the Federal Reserve and other central banks would take coordinated action to provide billions of dollars in loans to the global credit markets, which were grinding to a halt as asset prices fell. Meanwhile, financial institutions struggled to assess the value of the trillions of dollars worth of now-toxic mortgage-backed securities that were sitting on their books. March 2008: The Demise of Bear Stearns By the winter of 2008, the U.S. economy was in a full-blown recession and, as financial institutions' liquidity struggles continued, stock markets around the world were tumbling the most since the September 11 terrorist attacks. In January 2008, the Fed cut its benchmark rate by three-quarters of a percentage point—its biggest cut in a quarter-century, as it sought to slow the economic slide. The bad news continued to pour in from all sides. In February, the British government was forced to nationalize Northern Rock. In March, global investment bank Bear Stearns, a pillar of Wall Street that dated to 1923, collapsed and was acquired by JPMorgan Chase for pennies on the dollar. September 2008: The Fall of Lehman Brothers By the summer of 2008, the carnage was spreading across the financial sector. IndyMac Bank became one of the largest banks ever to fail in the U.S., and the country's two biggest home lenders, Fannie Mae and Freddie Mac, had been seized by the U.S. government. Yet the collapse of the venerable Wall Street bank Lehman Brothers in September marked the largest bankruptcy in U.S. history, and for many became a symbol of the devastation caused by the global financial crisis. That same month, financial markets were in free fall, with the major U.S. indexes suffering some of their worst losses on record. The Fed, the Treasury Department, the White House, and Congress struggled to put forward a comprehensive plan to stop the bleeding and restore confidence in the economy. The Aftermath The Wall Street bailout package was approved in the first week of October 2008. The package included many measures, such as a huge government purchase of "toxic assets," an enormous investment in bank stock shares, and financial lifelines to Fannie Mae and Freddie Mac. $440 Billion The amount spent by the government through the Troubled Asset Relief Program (TARP). It got back $442.6 billion after assets bought in the crisis were resold at a profit. The public indignation was widespread. It appeared that bankers were being rewarded for recklessly tanking the economy. But it got the economy moving again. It also should be noted that the investments in the banks were fully recouped by the government, with interest. The passage of the bailout package stabilized the stock markets, which hit bottom in March 2009 and then embarked on the longest bull market in its history. Still, the economic damage and human suffering were immense. Unemployment reached 10%. About 3.8 million Americans lost their homes to foreclosures. About Dodd-Frank The most ambitious and controversial attempt to prevent such an event from happening again was the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act in 2010. On the financial side, the act restricted some of the riskier activities of the biggest banks, increased government oversight of their activities, and forced them to maintain larger cash reserves. On the consumer side, it attempted to reduce predatory lending. By 2018, some portions of the act had been rolled back by the Trump Administration, although an attempt at a more wholesale dismantling of the new regulations failed in the U.S. Senate. Those regulations are intended to prevent a crisis similar to the 2007–2008 event from happening again. Which doesn't mean that there won't be another financial crisis in the future. Bubbles have occurred periodically at least since the 1630s Dutch Tulip Bubble. The 2007–2008 financial crisis was a global event, not one restricted to the U.S. Ireland's vibrant economy fell off a cliff. Greece defaulted on its international debts. Portugal and Spain suffered from extreme levels of unemployment. Every nation's experience was different and complex. What Is a Mortgage-Backed Security? A mortgage-backed security is similar to a bond. It consists of home loans bundled together and sold by the banks that lend the money to Wall Street investors. The point is to profit from the loan interest paid by the mortgage holders.In the early 2000s, loan originators encouraged millions to borrow beyond their means to buy homes they couldn't afford. The loans were then sent on to investors in the form of mortgage-backed securities.Inevitably, the homeowners who had borrowed beyond their means began to default. Housing prices fell and millions walked away from mortgages that cost more than the house was worth. Who Is to Blame for the Great Recession? Many economists place the greatest part of the blame on lax mortgage lending policies that allowed many consumers to borrow far more than they could afford. But there's plenty of blame to go around, including:The predatory lenders who marketed homeownership to people who could not possibly pay back the mortgages they were offered.The investment gurus who bought those bad mortgages and rolled them into bundles for resale to investors.The agencies who gave those mortgage bundles top investment ratings, making them appear to be safe.The investors who failed to check the ratings, or simply took care to unload the bundles to other investors before they blew up. Which Banks Failed in 2008? The total number of bank failures linked to the financial crisis cannot be revealed without first reporting this: No depositor in an American bank lost a penny to a bank failure.That said, more than 500 banks failed between 2008 and 2015, compared to a total of 25 in the preceding seven years, according to the Federal Reserve of Cleveland. Most were small regional banks, and all were acquired by other banks, along with their depositors' accounts.The biggest failures were not banks in the traditional Main Street sense but investment banks that catered to institutional investors. These notably included Lehman Brothers and Bear Stearns. Lehman Brothers was denied a government bailout and shut its doors. JPMorgan Chase bought the ruins of Bear Stearns on the cheap.As for the biggest of the big banks, including JPMorgan Chase, Goldman Sachs, Bank of American, and Morgan Stanley, all were, famously, "too big to fail." They took the bailout money, repaid it to the government, and emerged bigger than ever after the recession. Who Made Money in the 2008 Financial Crisis? A number of smart investors made money from the crisis, mostly by picking up pieces from the wreckage.Warren Buffett invested billions in companies including Goldman Sachs and General Electric out of a mix of motives that combined patriotism and profit.Hedge fund manager John Paulson made a lot of money betting against the U.S. housing market when the bubble formed, and then made a lot more money betting on its recovery after it hit bottom.Investor Carl Icahn proved his market-timing talent by selling and buying casino properties before, during, and after the crisis. The Bottom Line Bubbles occur all the time in the financial world. The price of a stock or any other commodity can become inflated beyond its intrinsic value. Usually, the damage is limited to losses for a few over-enthusiastic buyers. The financial crisis of 2007–2008 was a different kind of bubble. Like only a few others in history, it grew big enough that, when it burst, it damaged entire economies and hurt millions of people, including many who were not speculating in mortgage-backed securities.

https://www.investopedia.com/top-cd-rates-today-april-5-2024-lock-in-5-or-better-for-3-months-to-3-years-8627704

Top CD Rates Today, April 5, 2024 - Lock in 5% or Better for 3 Months to 3 Years

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>The highest nationally available CD rates held their ground across all terms today.</li> <li>The best overall CD rate in the country remains 5.65%, unveiled this week by <a class="pseudoStyle" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.mutualone.com/client-services/rates-calculators/deposit-rates/&amp;lender=MutualOne%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">MutualOne Bank</a> on a 3-month term.</li> <li>The runner-up is <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&amp;lender=Newtek%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Newtek Bank's</a> 6-month offer paying 5.55% APY.</li> <li>CDs ranging up to 3 years are paying 5.00% or better, letting you extend your rate lock as long as 2027.</li> <li>The <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best CD rates</a> have been gradually easing lower for months. But if the Fed appears ready to make a rate cut—something that could happen this year—they'll begin falling faster.</li> </ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_3-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.6%;"> <img alt="Bar graph showing the top nationally available rate in every CD term - Current as of April 5, 2024" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/Lh3L37n_wQw9Y5wDQm616h-tjrc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-5-2dfc35d90fc048bb91287f6afbf2fd73.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/Lh3L37n_wQw9Y5wDQm616h-tjrc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-5-2dfc35d90fc048bb91287f6afbf2fd73.png" data-srcset="https://www.investopedia.com/thmb/fvDULXPQeOwt17_fDvE67bJ6nsA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-5-2dfc35d90fc048bb91287f6afbf2fd73.png 750w" data-tracking-container="true" height="1256" id="mntl-sc-block-image_1-0" width="2480"/> <noscript> <img alt="Bar graph showing the top nationally available rate in every CD term - Current as of April 5, 2024" class="img--noscript universal-image__image" height="1256" sizes="750px" src="https://www.investopedia.com/thmb/Lh3L37n_wQw9Y5wDQm616h-tjrc=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-5-2dfc35d90fc048bb91287f6afbf2fd73.png" srcset="https://www.investopedia.com/thmb/fvDULXPQeOwt17_fDvE67bJ6nsA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/4-5-2dfc35d90fc048bb91287f6afbf2fd73.png 750w" width="2480"/> </noscript> </div> </div> </figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--ma-rate-table--finance-mma" id="mntl-sc-block_6-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div class="comp ma-rate-table--finance-mma mntl-block" id="ma-rate-table--finance-mma_1-0"></div><!-- end: comp ma-rate-table--finance-mma mntl-block --> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <span class="heading-toc" id="toc-lock-in-540-to-565-apy-for-3-to-12-months"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Lock In 5.40% to 5.65% APY for 3 to 12 Months </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The highest CD returns continue to be available on short-term certificates. After two weeks of the nation-leading rate being <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-6-month-cd-rates-4783267">5.55% APY on a 6-month certificate</a>, still available from Newtek Bank, a new CD took the rate crown this week. MutualOne Bank now offers 5.65% APY on a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-month-cd-rates-5272288">3-month term</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"> In addition to those top two rates, 13 more CDs are paying 5.40% APY or more, with terms of 3 to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650">12 months</a>. Four of those are 5-7 month CDs paying 5.50% APY. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> For those wanting to stretch their rate lock a little further down the road than a year, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650">best 18-month CDs</a> include six offers between 5.15% and 5.25% APY. Those would let you guarantee your return until late 2025.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_15-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/RTCd1/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Ranges of the Top 15 CD rates by term"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-longer-terms-will-secure-your-rate-to-2026or-beyond"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Longer Terms Will Secure Your Rate to 2026—Or Beyond </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Want to guarantee one of today's high CD rates even longer? You can choose a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-2-year-cd-rates-4801682">top 2-year CD</a> paying 5.20%, locking it up until 2026. Or secure a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-year-cd-rates-4782938">5.00% rate as far as 2027</a>. Though that's the longest term offering a rate of 5% or better, you can alternatively opt to guarantee a high-4% rate for as far as 4 or 5 years into the future. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_20-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 104px;"></colgroup> <colgroup span="1" style="width: 111px;"></colgroup> <colgroup span="1" style="width: 112px;"></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><b>CD Terms</b></td> <td><b>Yesterday's Top National Rate</b></td> <td><b>Today's Top National Rate</b></td> <td><b>Day's Change </b>(percentage points)</td> <td><b>Top Rate Provider</b></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-month-cd-rates-5272288" rel="noopener noreferrer">3 months</a></td> <td>5.65% APY</td> <td>5.65% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.mutualone.com/client-services/rates-calculators/deposit-rates/&amp;lender=MutualOne%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">MutualOne Bank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-6-month-cd-rates-4783267" rel="noopener noreferrer">6 months</a></td> <td>5.55% APY</td> <td>5.55% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&amp;lender=Newtek%20Bank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Newtek Bank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650" rel="noopener noreferrer">1 year</a></td> <td>5.40% APY</td> <td>5.40% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.applefcu.org/rates&amp;lender=Apple%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Apple Federal Credit Union</a>, <a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.expeditioncu.com/rates/index.html&amp;lender=Expedition%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Expedition Credit Union</a>, and <a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.nexbankpersonal.com/certificates-of-deposit-cds&amp;lender=NexBank&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">NexBank</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-18-month-cd-rates-5272348" rel="noopener noreferrer">18 months</a></td> <td>5.25% APY</td> <td>5.25% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.nasafcu.com/personal/checking-savings/certificates&amp;lender=NASA%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">NASA Federal Credit Union</a> and <a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://figfcu.org/flex-term-certificate&amp;lender=Farmers%20Insurance%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Farmers Insurance Federal Credit Union</a></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&amp;lender=XCEL%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">2 years</a></td> <td>5.20% APY</td> <td>5.20% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Credit Human</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-year-cd-rates-4782938" rel="noopener noreferrer">3 years</a></td> <td>5.00% APY</td> <td>5.00% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.dollarsavingsdirect.com/securebanking/cdInfo.do&amp;lender=DollarSavingsDirect&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">DollarSavingsDirect</a></td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-5-year-cd-rates-4801473" rel="noopener noreferrer">4 years</a></td> <td>4.80% APY</td> <td>4.80% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.pelicanstatecu.com/rates&amp;lender=Pelican%20State%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Pelican State Credit Union</a></td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.lfcu.org/rates/personal-certificate-rates/&amp;lender=Lafayette%20Federal%20Credit%20Union&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">5 years</a></td> <td>4.70% APY</td> <td>4.70% APY</td> <td>No change</td> <td><a class="null" data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&amp;lender=Credit%20Human&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">Credit Human</a></td> </tr> </tbody> </table> <figcaption>To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <span class="heading-toc" id="toc-cd-rates-are-still-near-historic-highs"></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"> CD Rates Are Still Near Historic Highs </span> </h2> <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/c/certificateofdeposit.asp">Certificate of deposit (CD) rates</a> have inched lower since they climbed to a record high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that paid a least 5.50% APY was 30. Today that count sits at six. </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"> But don't lose sight of how high CD returns still are relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Also keep in mind that snagging the absolute <em>highest</em> APY isn't the only way to win with today's CDs. Since CD rates could fall quite substantially in 2024 and 2025, locking in a long-term rate now— before rates move lower—can be a smart move.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_29-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/UUgCT/1/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="Today's CD rates vs. fall peak vs. 2022"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <span class="heading-toc" id="toc-jumbo-deposits-can-provide-more-cd-options"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> Jumbo Deposits Can Provide More CD Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> The top two jumbo CDs let you earn more than you can with a standard CD. <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://statebnk.com/sbotrates/&amp;lender=State%20Bank%20Credit%20Texas&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">State Bank of Texas</a> is paying 5.50% APY on a 12-month certificate, while <a data-affiliate-link-rewriter="sub_1=${REQUEST_ID}&amp;sub_2=${DOC_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.myebanc.com/online-products/online-time-deposits/&amp;lender=My%20eBanc&amp;type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ" rel="nofollow">My eBanc</a> offers 5.49% APY for 6 months. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Beware that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-cd-rates-4797766">the best jumbo CD rates</a> don't <em>always</em> pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in six of the terms below, so it's always wise to shop both certificate types before making a final decision. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_36-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 92px;"></colgroup> <colgroup span="1" style="width: 147px;"></colgroup> <colgroup span="1" style="width: 159px;"></colgroup> <colgroup span="1" style="width: 144px;"></colgroup> <tbody data-check="-1"> <tr> <td><b>CD Term</b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-bank-cd-rates-4801462" rel="noopener noreferrer">Today's Top National Bank Rate</a></b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214" rel="noopener noreferrer">Today's Top National Credit Union Rate</a></b></td> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-cd-rates-4797766" rel="noopener noreferrer">Today's Top National Jumbo Rate</a></b></td> </tr> <tr> <td>3 months</td> <td>5.65% APY*</td> <td>5.30% APY</td> <td>5.20% APY</td> </tr> <tr> <td>6 months</td> <td>5.55% APY*</td> <td>5.50% APY</td> <td>5.49% APY</td> </tr> <tr> <td>1 year</td> <td>5.40% APY</td> <td>5.40% APY</td> <td>5.50% APY*</td> </tr> <tr> <td>18 months</td> <td>5.15% APY</td> <td>5.25% APY</td> <td>5.41% APY*</td> </tr> <tr> <td>2 years</td> <td>4.85% APY</td> <td>5.20% APY*</td> <td>4.96% APY</td> </tr> <tr> <td>3 years</td> <td>5.00% APY*</td> <td>5.00% APY*</td> <td>4.97% APY</td> </tr> <tr> <td>4 years</td> <td>4.55% APY</td> <td>4.80% APY*</td> <td>4.48% APY</td> </tr> <tr> <td>5 years</td> <td>4.55% APY</td> <td>4.70% APY*</td> <td>4.37% APY</td> </tr> </tbody> </table> <figcaption>*Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <span class="heading-toc" id="toc-where-are-cd-rates-headed-in-2024"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-heading__text"> Where Are CD Rates Headed in 2024? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> To combat decades-high inflation, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalreservebank.asp">Federal Reserve</a> aggressively hiked the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalfundsrate.asp">federal funds rate</a> between March 2022 and July 2023, raising the benchmark rate to its highest level in 22 years. That's important to savers because when the fed funds rate rises, banks and credit unions increase the interest rates they're willing to pay on customer deposits. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> As a result, this past fall saw historically favorable conditions for CD shoppers, as well as for anyone holding cash in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">high-yield savings</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-money-market-accounts-5096917">money market account</a>. Rates on CDs rose to an October-November peak that was the highest we've seen in two decades. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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/9JCCy/1/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="Top CD Rates Since December 2021"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> But since its last rate hike in July, the Fed has been in a holding pattern. On March 20, the central bank announced it would <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723">maintain the fed fund rate at its current level</a>, the fifth meeting in a row it's done so.<span class="ql-inline-citation" data-cite="32"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> That's because <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a> has been cooling, allowing the Fed to stop raising interest rates. But further inflation progress has been elusive, putting the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. Reiterating the Fed's recent meeting statement, Fed Chair Jerome Powell spoke this week about how the first rate cut could still be a ways off. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> "We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent. Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy," Powell said in prepared remarks.<span class="ql-inline-citation" data-cite="43"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Federal Reserve Gov. Chris Waller expressed a similar sentiment last week, saying inflation and job gains data from this quarter have reinforced his earlier view that "there is no rush" to cut interest rates.<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_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Economic indicators released after Waller's comments add ammunition to the argument that the economy is running strong and a rate cut isn't needed right away. Indeed, this morning's jobs number came in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/employers-hired-far-more-than-expected-in-march-8625280">50% higher than most economists had projected</a>, fueling speculation that the Fed may need to keep rates higher for longer than originally expected. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> At its March 20 meeting, the median prediction from members of the Fed's rate-setting committee was for three rate reductions this year.<span class="ql-inline-citation" data-cite="41"></span> But confidence in that prediction is softening among fed funds futures traders. According to the CME Group's FedWatch Tool, only about half of traders are betting on a first rate cut by June, down from a strong majority earlier in the week. Similarly, only half are forecasting three or more cuts by the end of 2024, also down from a handy majority just a few days ago.<span class="ql-inline-citation" data-cite="39"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> It still seems likely the Fed will find it appropriate to lower its benchmark rate sometime this year. But Fed moves several months into the future are unpredictable, and until more data come in, it's impossible to say if 2024 rate cuts will come to fruition. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> As a result, CD rates could continue their recent plateau. If at some point it becomes clear the Fed is ready to make a first rate cut, that would drive CD rates down more quickly. But it appears a Fed move could potentially be months away. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> The central bank will hold six more rate-setting meetings in 2024, with the next one scheduled for April 30 through May 1.<span class="ql-inline-citation" data-cite="42"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_64-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633" id="mntl-sc-block-featuredlink__link_1-0" rel="nocaes"><span class="link__wrapper">Best High-Yield Savings Accounts for May 2024—Up to 5.55%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_66-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-cd-rates-4770214" id="mntl-sc-block-featuredlink__link_2-0" rel="nocaes"><span class="link__wrapper">Best CD Rates for May 2024: Up to 5.51%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_68-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/best-money-market-accounts-5096917" id="mntl-sc-block-featuredlink__link_3-0" rel="nocaes"><span class="link__wrapper">Best Money Market Account Rates for May 2024—Up to 5.35%</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_70-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_71-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher.</p></div></div></div> <span class="heading-toc" id="toc-how-we-find-the-best-cd-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_72-0"> <span class="mntl-sc-block-heading__text"> How We Find the Best CD Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic-insured-account.asp">FDIC</a> for banks, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/ncua-insured-institution.asp">NCUA</a> for credit unions), and the CD's minimum initial deposit must not exceed $25,000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816">read our full methodology</a>.<br/> </p></div>

### Key Takeaways * The highest nationally available CD rates held their ground across all terms today. * The best overall CD rate in the country remains 5.65%, unveiled this week by [MutualOne Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.mutualone.com/client-services/rates-calculators/deposit-rates/&lender=MutualOne%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) on a 3-month term. * The runner-up is [Newtek Bank's](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&lender=Newtek%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) 6-month offer paying 5.55% APY. * CDs ranging up to 3 years are paying 5.00% or better, letting you extend your rate lock as long as 2027. * The [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) have been gradually easing lower for months. But if the Fed appears ready to make a rate cut—something that could happen this year—they'll begin falling faster. ![Bar graph showing the top nationally available rate in every CD term - Current as of April 5, 2024]() :max_bytes(150000):strip_icc()/4-5-2dfc35d90fc048bb91287f6afbf2fd73.png) Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. ## Lock In 5.40% to 5.65% APY for 3 to 12 Months The highest CD returns continue to be available on short-term certificates. After two weeks of the nation-leading rate being [5.55% APY on a 6-month certificate](https://www.investopedia.com/best-6-month-cd-rates-4783267), still available from Newtek Bank, a new CD took the rate crown this week. MutualOne Bank now offers 5.65% APY on a [3-month term](https://www.investopedia.com/best-3-month-cd-rates-5272288). In addition to those top two rates, 13 more CDs are paying 5.40% APY or more, with terms of 3 to [12 months](https://www.investopedia.com/best-1-year-cd-rates-4796650). Four of those are 5-7 month CDs paying 5.50% APY. For those wanting to stretch their rate lock a little further down the road than a year, the [best 18-month CDs](https://www.investopedia.com/best-1-year-cd-rates-4796650) include six offers between 5.15% and 5.25% APY. Those would let you guarantee your return until late 2025. ## Longer Terms Will Secure Your Rate to 2026—Or Beyond Want to guarantee one of today's high CD rates even longer? You can choose a [top 2-year CD](https://www.investopedia.com/best-2-year-cd-rates-4801682) paying 5.20%, locking it up until 2026. Or secure a [5.00% rate as far as 2027](https://www.investopedia.com/best-3-year-cd-rates-4782938). Though that's the longest term offering a rate of 5% or better, you can alternatively opt to guarantee a high-4% rate for as far as 4 or 5 years into the future. | **CD Terms** | **Yesterday's Top National Rate** | **Today's Top National Rate** | **Day's Change** (percentage points) | **Top Rate Provider** | | --- | --- | --- | --- | --- | | [3 months](https://www.investopedia.com/best-3-month-cd-rates-5272288) | 5.65% APY | 5.65% APY | No change | [MutualOne Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.mutualone.com/client-services/rates-calculators/deposit-rates/&lender=MutualOne%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [6 months](https://www.investopedia.com/best-6-month-cd-rates-4783267) | 5.55% APY | 5.55% APY | No change | [Newtek Bank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.newtekbank.com/certificate-of-deposit/&lender=Newtek%20Bank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [1 year](https://www.investopedia.com/best-1-year-cd-rates-4796650) | 5.40% APY | 5.40% APY | No change | [Apple Federal Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.applefcu.org/rates&lender=Apple%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ), [Expedition Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.expeditioncu.com/rates/index.html&lender=Expedition%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ), and [NexBank](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.nexbankpersonal.com/certificates-of-deposit-cds&lender=NexBank&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [18 months](https://www.investopedia.com/best-18-month-cd-rates-5272348) | 5.25% APY | 5.25% APY | No change | [NASA Federal Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.nasafcu.com/personal/checking-savings/certificates&lender=NASA%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) and [Farmers Insurance Federal Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://figfcu.org/flex-term-certificate&lender=Farmers%20Insurance%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [2 years](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.xcelfcu.org/Explore/Resources/Rates&lender=XCEL%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 5.20% APY | 5.20% APY | No change | [Credit Human](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&lender=Credit%20Human&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [3 years](https://www.investopedia.com/best-3-year-cd-rates-4782938) | 5.00% APY | 5.00% APY | No change | [DollarSavingsDirect](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.dollarsavingsdirect.com/securebanking/cdInfo.do&lender=DollarSavingsDirect&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [4 years](https://www.investopedia.com/best-5-year-cd-rates-4801473) | 4.80% APY | 4.80% APY | No change | [Pelican State Credit Union](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.pelicanstatecu.com/rates&lender=Pelican%20State%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | | [5 years](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.lfcu.org/rates/personal-certificate-rates/&lender=Lafayette%20Federal%20Credit%20Union&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | 4.70% APY | 4.70% APY | No change | [Credit Human](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.credithuman.com/investments-planning/certificates-iras/share-certificate&lender=Credit%20Human&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) | To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above. ## CD Rates Are Still Near Historic Highs [Certificate of deposit (CD) rates](https://www.investopedia.com/terms/c/certificateofdeposit.asp) have inched lower since they climbed to a record high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that paid a least 5.50% APY was 30. Today that count sits at six. But don't lose sight of how high CD returns still are relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. Also keep in mind that snagging the absolute *highest* APY isn't the only way to win with today's CDs. Since CD rates could fall quite substantially in 2024 and 2025, locking in a long-term rate now— before rates move lower—can be a smart move. ## Jumbo Deposits Can Provide More CD Options The top two jumbo CDs let you earn more than you can with a standard CD. [State Bank of Texas](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://statebnk.com/sbotrates/&lender=State%20Bank%20Credit%20Texas&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) is paying 5.50% APY on a 12-month certificate, while [My eBanc](https://finance.mediaalpha.com/dotdash/direct-link.html?cu=https://www.myebanc.com/online-products/online-time-deposits/&lender=My%20eBanc&type=CD;rENpvBV_7IwwTpHRgbEQg9JlSH1hUgpLivAI0es52Cmr1l6igsUu2KIAy6Xb-greXxpicNNpXRTca2hxVAxvB75b-Hs8JQ) offers 5.49% APY for 6 months. Beware that [the best jumbo CD rates](https://www.investopedia.com/best-jumbo-cd-rates-4797766) don't *always* pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in six of the terms below, so it's always wise to shop both certificate types before making a final decision. | **CD Term** | **[Today's Top National Bank Rate](https://www.investopedia.com/best-bank-cd-rates-4801462)** | **[Today's Top National Credit Union Rate](https://www.investopedia.com/best-cd-rates-4770214)** | **[Today's Top National Jumbo Rate](https://www.investopedia.com/best-jumbo-cd-rates-4797766)** | | --- | --- | --- | --- | | 3 months | 5.65% APY\* | 5.30% APY | 5.20% APY | | 6 months | 5.55% APY\* | 5.50% APY | 5.49% APY | | 1 year | 5.40% APY | 5.40% APY | 5.50% APY\* | | 18 months | 5.15% APY | 5.25% APY | 5.41% APY\* | | 2 years | 4.85% APY | 5.20% APY\* | 4.96% APY | | 3 years | 5.00% APY\* | 5.00% APY\* | 4.97% APY | | 4 years | 4.55% APY | 4.80% APY\* | 4.48% APY | | 5 years | 4.55% APY | 4.70% APY\* | 4.37% APY | \*Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above. ## Where Are CD Rates Headed in 2024? To combat decades-high inflation, the [Federal Reserve](https://www.investopedia.com/terms/f/federalreservebank.asp) aggressively hiked the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) between March 2022 and July 2023, raising the benchmark rate to its highest level in 22 years. That's important to savers because when the fed funds rate rises, banks and credit unions increase the interest rates they're willing to pay on customer deposits. As a result, this past fall saw historically favorable conditions for CD shoppers, as well as for anyone holding cash in a [high-yield savings](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) or [money market account](https://www.investopedia.com/best-money-market-accounts-5096917). Rates on CDs rose to an October-November peak that was the highest we've seen in two decades. But since its last rate hike in July, the Fed has been in a holding pattern. On March 20, the central bank announced it would [maintain the fed fund rate at its current level](https://www.investopedia.com/federal-reserve-fomc-meeting-march-2024-8611723), the fifth meeting in a row it's done so. That's because [inflation](https://www.investopedia.com/terms/i/inflation.asp) has been cooling, allowing the Fed to stop raising interest rates. But further inflation progress has been elusive, putting the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. Reiterating the Fed's recent meeting statement, Fed Chair Jerome Powell spoke this week about how the first rate cut could still be a ways off. "We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent. Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy," Powell said in prepared remarks. Federal Reserve Gov. Chris Waller expressed a similar sentiment last week, saying inflation and job gains data from this quarter have reinforced his earlier view that "there is no rush" to cut interest rates. Economic indicators released after Waller's comments add ammunition to the argument that the economy is running strong and a rate cut isn't needed right away. Indeed, this morning's jobs number came in [50% higher than most economists had projected](https://www.investopedia.com/employers-hired-far-more-than-expected-in-march-8625280), fueling speculation that the Fed may need to keep rates higher for longer than originally expected. At its March 20 meeting, the median prediction from members of the Fed's rate-setting committee was for three rate reductions this year. But confidence in that prediction is softening among fed funds futures traders. According to the CME Group's FedWatch Tool, only about half of traders are betting on a first rate cut by June, down from a strong majority earlier in the week. Similarly, only half are forecasting three or more cuts by the end of 2024, also down from a handy majority just a few days ago. It still seems likely the Fed will find it appropriate to lower its benchmark rate sometime this year. But Fed moves several months into the future are unpredictable, and until more data come in, it's impossible to say if 2024 rate cuts will come to fruition. As a result, CD rates could continue their recent plateau. If at some point it becomes clear the Fed is ready to make a first rate cut, that would drive CD rates down more quickly. But it appears a Fed move could potentially be months away. The central bank will hold six more rate-setting meetings in 2024, with the next one scheduled for April 30 through May 1. [Best High-Yield Savings Accounts for May 2024—Up to 5.55%](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) [Best CD Rates for May 2024: Up to 5.51%](https://www.investopedia.com/best-cd-rates-4770214) [Best Money Market Account Rates for May 2024—Up to 5.35%](https://www.investopedia.com/best-money-market-accounts-5096917) ### Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher. ## How We Find the Best CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured ([FDIC](https://www.investopedia.com/terms/f/fdic-insured-account.asp) for banks, [NCUA](https://www.investopedia.com/terms/n/ncua-insured-institution.asp) for credit unions), and the CD's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, [read our full methodology](https://www.investopedia.com/methodology-for-savings-accounts-and-certificates-of-deposit-rankings-7255816).

Key Takeaways The highest nationally available CD rates held their ground across all terms today. The best overall CD rate in the country remains 5.65%, unveiled this week by MutualOne Bank on a 3-month term. The runner-up is Newtek Bank's 6-month offer paying 5.55% APY. CDs ranging up to 3 years are paying 5.00% or better, letting you extend your rate lock as long as 2027. The best CD rates have been gradually easing lower for months. But if the Fed appears ready to make a rate cut—something that could happen this year—they'll begin falling faster. Below you'll find featured rates available from our partners, followed by details from our ranking of the best CDs available nationwide. Lock In 5.40% to 5.65% APY for 3 to 12 Months The highest CD returns continue to be available on short-term certificates. After two weeks of the nation-leading rate being 5.55% APY on a 6-month certificate, still available from Newtek Bank, a new CD took the rate crown this week. MutualOne Bank now offers 5.65% APY on a 3-month term. In addition to those top two rates, 13 more CDs are paying 5.40% APY or more, with terms of 3 to 12 months. Four of those are 5-7 month CDs paying 5.50% APY. For those wanting to stretch their rate lock a little further down the road than a year, the best 18-month CDs include six offers between 5.15% and 5.25% APY. Those would let you guarantee your return until late 2025. Longer Terms Will Secure Your Rate to 2026—Or Beyond Want to guarantee one of today's high CD rates even longer? You can choose a top 2-year CD paying 5.20%, locking it up until 2026. Or secure a 5.00% rate as far as 2027. Though that's the longest term offering a rate of 5% or better, you can alternatively opt to guarantee a high-4% rate for as far as 4 or 5 years into the future. CD Terms Yesterday's Top National Rate Today's Top National Rate Day's Change (percentage points) Top Rate Provider 3 months 5.65% APY 5.65% APY No change MutualOne Bank 6 months 5.55% APY 5.55% APY No change Newtek Bank 1 year 5.40% APY 5.40% APY No change Apple Federal Credit Union, Expedition Credit Union, and NexBank 18 months 5.25% APY 5.25% APY No change NASA Federal Credit Union and Farmers Insurance Federal Credit Union 2 years 5.20% APY 5.20% APY No change Credit Human 3 years 5.00% APY 5.00% APY No change DollarSavingsDirect 4 years 4.80% APY 4.80% APY No change Pelican State Credit Union 5 years 4.70% APY 4.70% APY No change Credit Human To view the top 15–20 nationwide rates in any term, click on the desired term length in the left column above. CD Rates Are Still Near Historic Highs Certificate of deposit (CD) rates have inched lower since they climbed to a record high of 6.50% in October. At the start of February, the number of CDs in our daily ranking that paid a least 5.50% APY was 30. Today that count sits at six. But don't lose sight of how high CD returns still are relative to the past 20 years. Locking in a yield in the 4% to 5% range for a year or more down the road is still a great earning opportunity. Also keep in mind that snagging the absolute highest APY isn't the only way to win with today's CDs. Since CD rates could fall quite substantially in 2024 and 2025, locking in a long-term rate now— before rates move lower—can be a smart move. Jumbo Deposits Can Provide More CD Options The top two jumbo CDs let you earn more than you can with a standard CD. State Bank of Texas is paying 5.50% APY on a 12-month certificate, while My eBanc offers 5.49% APY for 6 months. Beware that the best jumbo CD rates don't always pay more than standard certificates. Often, you can do just as well—or better—with a standard CD. That's the case right now in six of the terms below, so it's always wise to shop both certificate types before making a final decision. CD Term Today's Top National Bank Rate Today's Top National Credit Union Rate Today's Top National Jumbo Rate 3 months 5.65% APY* 5.30% APY 5.20% APY 6 months 5.55% APY* 5.50% APY 5.49% APY 1 year 5.40% APY 5.40% APY 5.50% APY* 18 months 5.15% APY 5.25% APY 5.41% APY* 2 years 4.85% APY 5.20% APY* 4.96% APY 3 years 5.00% APY* 5.00% APY* 4.97% APY 4 years 4.55% APY 4.80% APY* 4.48% APY 5 years 4.55% APY 4.70% APY* 4.37% APY *Indicates the highest APY offered in each term. To view our lists of the top-paying CDs across terms for bank, credit union, and jumbo certificates, click on the column headers above. Where Are CD Rates Headed in 2024? To combat decades-high inflation, the Federal Reserve aggressively hiked the federal funds rate between March 2022 and July 2023, raising the benchmark rate to its highest level in 22 years. That's important to savers because when the fed funds rate rises, banks and credit unions increase the interest rates they're willing to pay on customer deposits. As a result, this past fall saw historically favorable conditions for CD shoppers, as well as for anyone holding cash in a high-yield savings or money market account. Rates on CDs rose to an October-November peak that was the highest we've seen in two decades. But since its last rate hike in July, the Fed has been in a holding pattern. On March 20, the central bank announced it would maintain the fed fund rate at its current level, the fifth meeting in a row it's done so. That's because inflation has been cooling, allowing the Fed to stop raising interest rates. But further inflation progress has been elusive, putting the central bank in wait-and-see mode as it looks for evidence that inflation is falling enough to justify lowering the federal funds rate. Reiterating the Fed's recent meeting statement, Fed Chair Jerome Powell spoke this week about how the first rate cut could still be a ways off. "We do not expect that it will be appropriate to lower our policy rate until we have greater confidence that inflation is moving sustainably down toward 2 percent. Given the strength of the economy and progress on inflation so far, we have time to let the incoming data guide our decisions on policy," Powell said in prepared remarks. Federal Reserve Gov. Chris Waller expressed a similar sentiment last week, saying inflation and job gains data from this quarter have reinforced his earlier view that "there is no rush" to cut interest rates. Economic indicators released after Waller's comments add ammunition to the argument that the economy is running strong and a rate cut isn't needed right away. Indeed, this morning's jobs number came in 50% higher than most economists had projected, fueling speculation that the Fed may need to keep rates higher for longer than originally expected. At its March 20 meeting, the median prediction from members of the Fed's rate-setting committee was for three rate reductions this year. But confidence in that prediction is softening among fed funds futures traders. According to the CME Group's FedWatch Tool, only about half of traders are betting on a first rate cut by June, down from a strong majority earlier in the week. Similarly, only half are forecasting three or more cuts by the end of 2024, also down from a handy majority just a few days ago. It still seems likely the Fed will find it appropriate to lower its benchmark rate sometime this year. But Fed moves several months into the future are unpredictable, and until more data come in, it's impossible to say if 2024 rate cuts will come to fruition. As a result, CD rates could continue their recent plateau. If at some point it becomes clear the Fed is ready to make a first rate cut, that would drive CD rates down more quickly. But it appears a Fed move could potentially be months away. The central bank will hold six more rate-setting meetings in 2024, with the next one scheduled for April 30 through May 1. Best High-Yield Savings Accounts for May 2024—Up to 5.55% Best CD Rates for May 2024: Up to 5.51% Best Money Market Account Rates for May 2024—Up to 5.35% Note that the "top rates" quoted here are the highest nationally available rates Investopedia has identified in its daily rate research on hundreds of banks and credit unions. This is much different than the national average, which includes all banks offering a CD with that term, including many large banks that pay a pittance in interest. Thus, the national averages are always quite low, while the top rates you can unearth by shopping around are often 5, 10, or even 15 times higher. How We Find the Best CD Rates Every business day, Investopedia tracks the rate data of more than 200 banks and credit unions that offer CDs to customers nationwide and determines daily rankings of the top-paying certificates in every major term. To qualify for our lists, the institution must be federally insured (FDIC for banks, NCUA for credit unions), and the CD's minimum initial deposit must not exceed $25,000. Banks must be available in at least 40 states. And while some credit unions require you to donate to a specific charity or association to become a member if you don't meet other eligibility criteria (e.g., you don't live in a certain area or work in a certain kind of job), we exclude credit unions whose donation requirement is $40 or more. For more about how we choose the best rates, read our full methodology.

https://www.investopedia.com/terms/t/tax-indentification-number-tin.asp

What Is a Tax Identification Number (TIN)?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-tax-identification-number-tin"></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 Tax Identification Number (TIN)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A Tax Identification Number (TIN) is a nine-digit number used by the Internal Revenue Service (IRS) to identify taxpayers. Also known as a taxpayer identification number, one type of TIN includes Social Security numbers (SSNs) issued by the Social Security Administration (SSA). </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>Tax identification numbers are nine-digit tracking numbers used by the IRS.</li><li>The IRS issues all U.S. tax I.D. numbers except for Social Security numbers, issued by the Social Security Administration.</li><li>Tax filers must include their TIN on tax-related documents and when claiming benefits.</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="Tax Identification Number " class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/ODQykASltOkoZ4uVTYIX1cOcVhQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/tax-indentification-number-tin.asp-30a92e7158164a03921914a81532f9ab.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/ODQykASltOkoZ4uVTYIX1cOcVhQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/tax-indentification-number-tin.asp-30a92e7158164a03921914a81532f9ab.jpg" data-srcset="https://www.investopedia.com/thmb/o-B0dieYYfH9NbHRrPOz_PIwcjA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/tax-indentification-number-tin.asp-30a92e7158164a03921914a81532f9ab.jpg 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Tax Identification Number " class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/ODQykASltOkoZ4uVTYIX1cOcVhQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/tax-indentification-number-tin.asp-30a92e7158164a03921914a81532f9ab.jpg" srcset="https://www.investopedia.com/thmb/o-B0dieYYfH9NbHRrPOz_PIwcjA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/tax-indentification-number-tin.asp-30a92e7158164a03921914a81532f9ab.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 / Ellen Lindner</p></span> </figcaption></figure> <span class="heading-toc" id="toc-types-of-tax-identification-numbers-tin"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Types of Tax Identification Numbers (TIN) </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <li><strong>Social Security number (SSN): </strong>The most common tax identification number issued to U.S. citizens, permanent residents, and certain temporary residents by 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</a>. These numbers are formatted as XXX-XX-XXXX. The SSN is required to secure legal employment in the U.S. and to receive Social Security benefits and other government services.<span class="ql-inline-citation" data-cite="1"></span></li> <li><strong>Individual Taxpayer Identification Number (ITIN):</strong> Issued by the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irs.asp">Internal Revenue Service (IRS)</a> to certain nonresident and resident aliens, their spouses, and their dependents when they're ineligible for SSNs. They're arranged in the same format as an SSN (XXX-XX-XXXX). The <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/getting-personal-loans-itin-7643887">Individual Taxpayer Identification Number (ITIN)</a> always begins with a 9. The applicant must complete Form W-7 and submit documents supporting their resident status to get an individual tax ID number.<span class="ql-inline-citation" data-cite="3"></span></li> <li><strong>Employer Identification Number (EIN):</strong> Used by the IRS to identify corporations, trusts, and estates that must pay taxes. Just like SSNs, employer tax ID numbers are nine digits but they're read as XX-XXXXXXX. Those who qualify for an <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/employer-identification-number.asp">Employer Identification Number (EIN)</a> must apply for and use it to report their capital gains and income for taxation purposes.<span class="ql-inline-citation" data-cite="4"></span></li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li><strong>Adoption Tax Identification Number:</strong> The ATIN applies to domestic adoptions when the adoptive parents cannot obtain the child's SSN to complete their tax returns. The child must be a U.S. citizen or permanent resident to qualify and the adoption must be pending.<span class="ql-inline-citation" data-cite="5"></span></li> <li><strong>Preparer Tax Identification Number:</strong> The IRS requires a PTIN on each tax return filed. Any tax preparer who charges to complete all or part of a tax return for another individual must have and use a PTIN.<span class="ql-inline-citation" data-cite="7"></span><br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_10-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-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>A child must have an SSN before a parent can claim them as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dependent.asp">dependent</a> for income tax purposes so parents voluntarily apply for the number on behalf of their children.<span class="ql-inline-citation" data-cite="2"></span></p></div></div></div> <span class="heading-toc" id="toc-when-is-a-tin-required"></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"> When Is a TIN Required? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> A taxpayer identification number identifies individuals, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/corporation.asp">corporations</a>, and entities such as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/non-profitorganization.asp">nonprofit organizations (NPOs)</a>. The TIN is mandatory for anyone filing annual <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxreturn.asp">tax returns</a> with the IRS and the agency uses it to track taxpayers.<span class="ql-inline-citation" data-cite="9"></span>A taxpayer identification number is required: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <li><strong>For credit: </strong>Banks and other lenders require Social Security numbers on credit applications. This information is then relayed to the credit bureaus to ensure that the right person fills out the application. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-reporting-agency.asp">credit reporting agencies</a> also use TINs, notably SSNs, to report and track an individual's credit history.</li> <li><strong>For employment:</strong> Employers require an SSN from anyone applying for employment. This ensures that the individual is authorized to work in the United States. Employers verify the numbers with the issuing agency.</li> <li><strong>For state agencies:</strong> Businesses also require state identification numbers for tax purposes to file with their state tax agencies. State taxing authorities issue the I.D. number directly to the filer.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_17-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_18-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>The abbreviation TIN stands for "tax identification number" or "taxpayer identification number."</p></div></div></div> <span class="heading-toc" id="toc-global-tins"></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"> Global TINs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Almost every country uses TINs for various reasons. Canada uses <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/102915/does-canada-have-social-security-numbers.asp">Social Insurance Numbers (SINs)</a> for employment, tax, benefits, and credit purposes.<span class="ql-inline-citation" data-cite="10"></span> The SIN is a nine-digit unique identifier that's formatted as XXX-XXX-XXX. Countries in the European Union also use TINs that help government agencies identify taxpayers and allow entities to invest money across the Union.<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_22-0"><span class="heading-toc" id="toc-who-needs-a-tax-identification-number"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Needs a Tax Identification Number?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>To work in the United States or file taxes with the IRS, individuals need a TIN. A taxpayer identification number allows individuals to take advantage of benefits or services offered by the government, run their day-to-day business operations, and report their taxes.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_24-0"><span class="heading-toc" id="toc-are-tins-available-online"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are TINs Available Online?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The agency that issues a TIN will provide individuals with an official document with their unique identifier. TINs are not available online because they are considered sensitive information.</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-is-a-taxpayer-identification-number-the-same-as-a-social-security-number"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is a Taxpayer Identification Number the Same as a Social Security Number?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A Social Security number is an example of a TIN. It allows individuals to seek employment in the United States, to obtain credit with banks and other lenders, and file income tax returns.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_28-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> A taxpayer identification number or TIN is necessary to work in the United States and file a tax return. Individuals can get a Social Security number through the Social Security Administration or obtain an Individual Taxpayer Identification number or a number for a business directly from the IRS. </p></div>

## What Is a Tax Identification Number (TIN)? A Tax Identification Number (TIN) is a nine-digit number used by the Internal Revenue Service (IRS) to identify taxpayers. Also known as a taxpayer identification number, one type of TIN includes Social Security numbers (SSNs) issued by the Social Security Administration (SSA). ### Key Takeaways * Tax identification numbers are nine-digit tracking numbers used by the IRS. * The IRS issues all U.S. tax I.D. numbers except for Social Security numbers, issued by the Social Security Administration. * Tax filers must include their TIN on tax-related documents and when claiming benefits. ![Tax Identification Number ]() :max_bytes(150000):strip_icc()/tax-indentification-number-tin.asp-30a92e7158164a03921914a81532f9ab.jpg) Investopedia / Ellen Lindner ## Types of Tax Identification Numbers (TIN) * **Social Security number (SSN):** The most common tax identification number issued to U.S. citizens, permanent residents, and certain temporary residents by the [Social Security Administration](https://www.investopedia.com/terms/s/ssa.asp). These numbers are formatted as XXX-XX-XXXX. The SSN is required to secure legal employment in the U.S. and to receive Social Security benefits and other government services. * **Individual Taxpayer Identification Number (ITIN):** Issued by the [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp) to certain nonresident and resident aliens, their spouses, and their dependents when they're ineligible for SSNs. They're arranged in the same format as an SSN (XXX-XX-XXXX). The [Individual Taxpayer Identification Number (ITIN)](https://www.investopedia.com/getting-personal-loans-itin-7643887) always begins with a 9. The applicant must complete Form W-7 and submit documents supporting their resident status to get an individual tax ID number. * **Employer Identification Number (EIN):** Used by the IRS to identify corporations, trusts, and estates that must pay taxes. Just like SSNs, employer tax ID numbers are nine digits but they're read as XX-XXXXXXX. Those who qualify for an [Employer Identification Number (EIN)](https://www.investopedia.com/terms/e/employer-identification-number.asp) must apply for and use it to report their capital gains and income for taxation purposes. * **Adoption Tax Identification Number:** The ATIN applies to domestic adoptions when the adoptive parents cannot obtain the child's SSN to complete their tax returns. The child must be a U.S. citizen or permanent resident to qualify and the adoption must be pending. * **Preparer Tax Identification Number:** The IRS requires a PTIN on each tax return filed. Any tax preparer who charges to complete all or part of a tax return for another individual must have and use a PTIN. ### A child must have an SSN before a parent can claim them as a [dependent](https://www.investopedia.com/terms/d/dependent.asp) for income tax purposes so parents voluntarily apply for the number on behalf of their children. ## When Is a TIN Required? A taxpayer identification number identifies individuals, [corporations](https://www.investopedia.com/terms/c/corporation.asp), and entities such as [nonprofit organizations (NPOs)](https://www.investopedia.com/terms/n/non-profitorganization.asp). The TIN is mandatory for anyone filing annual [tax returns](https://www.investopedia.com/terms/t/taxreturn.asp) with the IRS and the agency uses it to track taxpayers.A taxpayer identification number is required: * **For credit:** Banks and other lenders require Social Security numbers on credit applications. This information is then relayed to the credit bureaus to ensure that the right person fills out the application. The [credit reporting agencies](https://www.investopedia.com/terms/c/credit-reporting-agency.asp) also use TINs, notably SSNs, to report and track an individual's credit history. * **For employment:** Employers require an SSN from anyone applying for employment. This ensures that the individual is authorized to work in the United States. Employers verify the numbers with the issuing agency. * **For state agencies:** Businesses also require state identification numbers for tax purposes to file with their state tax agencies. State taxing authorities issue the I.D. number directly to the filer. ### The abbreviation TIN stands for "tax identification number" or "taxpayer identification number." ## Global TINs Almost every country uses TINs for various reasons. Canada uses [Social Insurance Numbers (SINs)](https://www.investopedia.com/ask/answers/102915/does-canada-have-social-security-numbers.asp) for employment, tax, benefits, and credit purposes. The SIN is a nine-digit unique identifier that's formatted as XXX-XXX-XXX. Countries in the European Union also use TINs that help government agencies identify taxpayers and allow entities to invest money across the Union. ## Who Needs a Tax Identification Number? To work in the United States or file taxes with the IRS, individuals need a TIN. A taxpayer identification number allows individuals to take advantage of benefits or services offered by the government, run their day-to-day business operations, and report their taxes. ## Are TINs Available Online? The agency that issues a TIN will provide individuals with an official document with their unique identifier. TINs are not available online because they are considered sensitive information. ## Is a Taxpayer Identification Number the Same as a Social Security Number? A Social Security number is an example of a TIN. It allows individuals to seek employment in the United States, to obtain credit with banks and other lenders, and file income tax returns. ## The Bottom Line A taxpayer identification number or TIN is necessary to work in the United States and file a tax return. Individuals can get a Social Security number through the Social Security Administration or obtain an Individual Taxpayer Identification number or a number for a business directly from the IRS.

What Is a Tax Identification Number (TIN)? A Tax Identification Number (TIN) is a nine-digit number used by the Internal Revenue Service (IRS) to identify taxpayers. Also known as a taxpayer identification number, one type of TIN includes Social Security numbers (SSNs) issued by the Social Security Administration (SSA). Key Takeaways Tax identification numbers are nine-digit tracking numbers used by the IRS.The IRS issues all U.S. tax I.D. numbers except for Social Security numbers, issued by the Social Security Administration.Tax filers must include their TIN on tax-related documents and when claiming benefits. Investopedia / Ellen Lindner Types of Tax Identification Numbers (TIN) Social Security number (SSN): The most common tax identification number issued to U.S. citizens, permanent residents, and certain temporary residents by the Social Security Administration. These numbers are formatted as XXX-XX-XXXX. The SSN is required to secure legal employment in the U.S. and to receive Social Security benefits and other government services. Individual Taxpayer Identification Number (ITIN): Issued by the Internal Revenue Service (IRS) to certain nonresident and resident aliens, their spouses, and their dependents when they're ineligible for SSNs. They're arranged in the same format as an SSN (XXX-XX-XXXX). The Individual Taxpayer Identification Number (ITIN) always begins with a 9. The applicant must complete Form W-7 and submit documents supporting their resident status to get an individual tax ID number. Employer Identification Number (EIN): Used by the IRS to identify corporations, trusts, and estates that must pay taxes. Just like SSNs, employer tax ID numbers are nine digits but they're read as XX-XXXXXXX. Those who qualify for an Employer Identification Number (EIN) must apply for and use it to report their capital gains and income for taxation purposes. Adoption Tax Identification Number: The ATIN applies to domestic adoptions when the adoptive parents cannot obtain the child's SSN to complete their tax returns. The child must be a U.S. citizen or permanent resident to qualify and the adoption must be pending. Preparer Tax Identification Number: The IRS requires a PTIN on each tax return filed. Any tax preparer who charges to complete all or part of a tax return for another individual must have and use a PTIN. A child must have an SSN before a parent can claim them as a dependent for income tax purposes so parents voluntarily apply for the number on behalf of their children. When Is a TIN Required? A taxpayer identification number identifies individuals, corporations, and entities such as nonprofit organizations (NPOs). The TIN is mandatory for anyone filing annual tax returns with the IRS and the agency uses it to track taxpayers.A taxpayer identification number is required: For credit: Banks and other lenders require Social Security numbers on credit applications. This information is then relayed to the credit bureaus to ensure that the right person fills out the application. The credit reporting agencies also use TINs, notably SSNs, to report and track an individual's credit history. For employment: Employers require an SSN from anyone applying for employment. This ensures that the individual is authorized to work in the United States. Employers verify the numbers with the issuing agency. For state agencies: Businesses also require state identification numbers for tax purposes to file with their state tax agencies. State taxing authorities issue the I.D. number directly to the filer. The abbreviation TIN stands for "tax identification number" or "taxpayer identification number." Global TINs Almost every country uses TINs for various reasons. Canada uses Social Insurance Numbers (SINs) for employment, tax, benefits, and credit purposes. The SIN is a nine-digit unique identifier that's formatted as XXX-XXX-XXX. Countries in the European Union also use TINs that help government agencies identify taxpayers and allow entities to invest money across the Union. Who Needs a Tax Identification Number? To work in the United States or file taxes with the IRS, individuals need a TIN. A taxpayer identification number allows individuals to take advantage of benefits or services offered by the government, run their day-to-day business operations, and report their taxes. Are TINs Available Online? The agency that issues a TIN will provide individuals with an official document with their unique identifier. TINs are not available online because they are considered sensitive information. Is a Taxpayer Identification Number the Same as a Social Security Number? A Social Security number is an example of a TIN. It allows individuals to seek employment in the United States, to obtain credit with banks and other lenders, and file income tax returns. The Bottom Line A taxpayer identification number or TIN is necessary to work in the United States and file a tax return. Individuals can get a Social Security number through the Social Security Administration or obtain an Individual Taxpayer Identification number or a number for a business directly from the IRS.

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

Maintenance Margin: Definition and Comparison to Margin Accounts

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-maintenance-margin"></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 Maintenance Margin? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Maintenance margin is the minimum equity an investor must hold in the margin account after the purchase has been made; it is currently set at 25% of the total value of the securities in a margin account as per <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> requirements.<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>Maintenance margin is the minimum amount of equity that an investor must maintain in the margin account after the purchase has been made.</li><li>Maintenance margin is currently set at 25% of the total value of the securities in a margin account as per FINRA requirements.<span class="ql-inline-citation" data-cite="1"></span></li><li>The investor may be hit with a margin call if the account equity falls below the maintenance margin threshold which may necessitate that the investor liquidate positions until the requirement is satisfied.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-maintenance-margin"></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 Maintenance Margin </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Although FINRA requires a 25% minimum maintenance margin, many brokerage firms may require that as much as 30% to 40% of the securities' total value should be available.<span class="ql-inline-citation" data-cite="2"></span> Maintenance margin is also called a minimum maintenance or maintenance requirement. </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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marginaccount.asp">margin account</a> is an account with a brokerage firm that allows an investor to buy securities including stocks, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond.asp">bonds</a> or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/option.asp">options</a>—all with cash loaned by the broker. All margin accounts, or purchasing securities on margin, have strict rules and regulations. The maintenance margin is one such rule.<span class="ql-inline-citation" data-cite="2"></span> It stipulates the minimum amount of equity—the total value of securities in the margin account minus anything borrowed from the brokerage firm—that must be in a margin account at all times as long as the investor holds on to the securities purchased. </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"> So if an investor has $10,000 worth of equity in their margin account, they must maintain a minimum amount of $2,500 in the margin account. If the value of their equity increases to $15,000, then the maintenance margin also rises to $3,750. The investor is hit with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/margincall.asp">margin call</a> if the value of securities falls below the maintenance margin. </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"> Margin trading is regulated by the federal government and other self-regulatory agencies in an effort to mitigate potentially crippling losses for both investors and brokerages. There are multiple regulators of margin trading, the most important of which are the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/frb.asp">Federal Reserve Board</a> and FINRA.<span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-margin-accounts-vs-maintenance-margins"></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"> Margin Accounts vs. Maintenance Margins </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Investors and brokerage firms must sign an agreement before opening a margin account. According to the terms of the agreement set forth by FINRA and the Federal Reserve Board, the account requires a minimum margin be met before investors can trade on the account. The minimum or initial margin must be at least $2,000 in cash or securities.<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_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The Federal Reserve Board’s<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/regulationt.asp"> Regulation T (Reg T)</a> sets a limit on how much an investor can borrow, which is up to 50% of the price of the security purchased.<span class="ql-inline-citation" data-cite="1"></span> Some brokers require more than a 50% deposit from the investor.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Once an investor buys a security on margin, the maintenance margin goes into effect with FINRA requiring that at least 25% of the total market value of the securities be in the account at all times.<span class="ql-inline-citation" data-cite="1"></span> Still, many brokers can require more as stipulated in the margin agreement.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> If the equity in a margin account falls below the maintenance margin, the broker issues a margin call, which requires that the investor deposit more cash into the margin account bring the level of funds up to the maintenance margin or liquidate securities in order to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/crossmargining.asp">fulfill the maintenance amount</a>. The broker reserves the right to sell the securities in a margin account, sometimes without consulting the investor, to meet the maintenance margin. Typically the investor will receive a warning from their broker first, and only upon continued <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/12/what-happens-cannot-pay-margin-call.asp">failure to pay the margin call</a> will action be taken. A <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federal-call.asp">Federal Call</a> is a special kind of margin call issued by the federal government.<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_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>Maintenance minimums also eliminate some of the risk to the brokerage in case the investor defaults on the loan.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Initial and maintenance account limits, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/052115/what-are-different-types-margin-calls.asp">maintenance and Reg T margin calls</a>, and FINRA regulations all exist because margin trading has the potential to incur skyrocketing gains—as well as colossal losses. Such losses are a huge financial risk and, if left unchecked, can unsettle the securities markets, as well as potentially disrupt the entire financial market. </p></div>

## What Is Maintenance Margin? Maintenance margin is the minimum equity an investor must hold in the margin account after the purchase has been made; it is currently set at 25% of the total value of the securities in a margin account as per [Financial Industry Regulatory Authority (FINRA)](https://www.investopedia.com/terms/f/finra.asp) requirements. ### Key Takeaways * Maintenance margin is the minimum amount of equity that an investor must maintain in the margin account after the purchase has been made. * Maintenance margin is currently set at 25% of the total value of the securities in a margin account as per FINRA requirements. * The investor may be hit with a margin call if the account equity falls below the maintenance margin threshold which may necessitate that the investor liquidate positions until the requirement is satisfied. ## Understanding Maintenance Margin Although FINRA requires a 25% minimum maintenance margin, many brokerage firms may require that as much as 30% to 40% of the securities' total value should be available. Maintenance margin is also called a minimum maintenance or maintenance requirement. A [margin account](https://www.investopedia.com/terms/m/marginaccount.asp) is an account with a brokerage firm that allows an investor to buy securities including stocks, [bonds](https://www.investopedia.com/terms/b/bond.asp) or [options](https://www.investopedia.com/terms/o/option.asp)—all with cash loaned by the broker. All margin accounts, or purchasing securities on margin, have strict rules and regulations. The maintenance margin is one such rule. It stipulates the minimum amount of equity—the total value of securities in the margin account minus anything borrowed from the brokerage firm—that must be in a margin account at all times as long as the investor holds on to the securities purchased. So if an investor has $10,000 worth of equity in their margin account, they must maintain a minimum amount of $2,500 in the margin account. If the value of their equity increases to $15,000, then the maintenance margin also rises to $3,750. The investor is hit with a [margin call](https://www.investopedia.com/terms/m/margincall.asp) if the value of securities falls below the maintenance margin. Margin trading is regulated by the federal government and other self-regulatory agencies in an effort to mitigate potentially crippling losses for both investors and brokerages. There are multiple regulators of margin trading, the most important of which are the [Federal Reserve Board](https://www.investopedia.com/terms/f/frb.asp) and FINRA. ## Margin Accounts vs. Maintenance Margins Investors and brokerage firms must sign an agreement before opening a margin account. According to the terms of the agreement set forth by FINRA and the Federal Reserve Board, the account requires a minimum margin be met before investors can trade on the account. The minimum or initial margin must be at least $2,000 in cash or securities. The Federal Reserve Board’s [Regulation T (Reg T)](https://www.investopedia.com/terms/r/regulationt.asp) sets a limit on how much an investor can borrow, which is up to 50% of the price of the security purchased. Some brokers require more than a 50% deposit from the investor. Once an investor buys a security on margin, the maintenance margin goes into effect with FINRA requiring that at least 25% of the total market value of the securities be in the account at all times. Still, many brokers can require more as stipulated in the margin agreement. If the equity in a margin account falls below the maintenance margin, the broker issues a margin call, which requires that the investor deposit more cash into the margin account bring the level of funds up to the maintenance margin or liquidate securities in order to [fulfill the maintenance amount](https://www.investopedia.com/terms/c/crossmargining.asp). The broker reserves the right to sell the securities in a margin account, sometimes without consulting the investor, to meet the maintenance margin. Typically the investor will receive a warning from their broker first, and only upon continued [failure to pay the margin call](https://www.investopedia.com/ask/answers/12/what-happens-cannot-pay-margin-call.asp) will action be taken. A [Federal Call](https://www.investopedia.com/terms/f/federal-call.asp) is a special kind of margin call issued by the federal government. ### Maintenance minimums also eliminate some of the risk to the brokerage in case the investor defaults on the loan. Initial and maintenance account limits, [maintenance and Reg T margin calls](https://www.investopedia.com/ask/answers/052115/what-are-different-types-margin-calls.asp), and FINRA regulations all exist because margin trading has the potential to incur skyrocketing gains—as well as colossal losses. Such losses are a huge financial risk and, if left unchecked, can unsettle the securities markets, as well as potentially disrupt the entire financial market.

What Is Maintenance Margin? Maintenance margin is the minimum equity an investor must hold in the margin account after the purchase has been made; it is currently set at 25% of the total value of the securities in a margin account as per Financial Industry Regulatory Authority (FINRA) requirements. Key Takeaways Maintenance margin is the minimum amount of equity that an investor must maintain in the margin account after the purchase has been made.Maintenance margin is currently set at 25% of the total value of the securities in a margin account as per FINRA requirements.The investor may be hit with a margin call if the account equity falls below the maintenance margin threshold which may necessitate that the investor liquidate positions until the requirement is satisfied. Understanding Maintenance Margin Although FINRA requires a 25% minimum maintenance margin, many brokerage firms may require that as much as 30% to 40% of the securities' total value should be available. Maintenance margin is also called a minimum maintenance or maintenance requirement. A margin account is an account with a brokerage firm that allows an investor to buy securities including stocks, bonds or options—all with cash loaned by the broker. All margin accounts, or purchasing securities on margin, have strict rules and regulations. The maintenance margin is one such rule. It stipulates the minimum amount of equity—the total value of securities in the margin account minus anything borrowed from the brokerage firm—that must be in a margin account at all times as long as the investor holds on to the securities purchased. So if an investor has $10,000 worth of equity in their margin account, they must maintain a minimum amount of $2,500 in the margin account. If the value of their equity increases to $15,000, then the maintenance margin also rises to $3,750. The investor is hit with a margin call if the value of securities falls below the maintenance margin. Margin trading is regulated by the federal government and other self-regulatory agencies in an effort to mitigate potentially crippling losses for both investors and brokerages. There are multiple regulators of margin trading, the most important of which are the Federal Reserve Board and FINRA. Margin Accounts vs. Maintenance Margins Investors and brokerage firms must sign an agreement before opening a margin account. According to the terms of the agreement set forth by FINRA and the Federal Reserve Board, the account requires a minimum margin be met before investors can trade on the account. The minimum or initial margin must be at least $2,000 in cash or securities. The Federal Reserve Board’s Regulation T (Reg T) sets a limit on how much an investor can borrow, which is up to 50% of the price of the security purchased. Some brokers require more than a 50% deposit from the investor. Once an investor buys a security on margin, the maintenance margin goes into effect with FINRA requiring that at least 25% of the total market value of the securities be in the account at all times. Still, many brokers can require more as stipulated in the margin agreement. If the equity in a margin account falls below the maintenance margin, the broker issues a margin call, which requires that the investor deposit more cash into the margin account bring the level of funds up to the maintenance margin or liquidate securities in order to fulfill the maintenance amount. The broker reserves the right to sell the securities in a margin account, sometimes without consulting the investor, to meet the maintenance margin. Typically the investor will receive a warning from their broker first, and only upon continued failure to pay the margin call will action be taken. A Federal Call is a special kind of margin call issued by the federal government. Maintenance minimums also eliminate some of the risk to the brokerage in case the investor defaults on the loan. Initial and maintenance account limits, maintenance and Reg T margin calls, and FINRA regulations all exist because margin trading has the potential to incur skyrocketing gains—as well as colossal losses. Such losses are a huge financial risk and, if left unchecked, can unsettle the securities markets, as well as potentially disrupt the entire financial market.

https://www.investopedia.com/ny-ag-sues-gemini-dcg-for-defrauding-customers-8363749

New York AG Sues Gemini, Genesis, DCG for Defrauding Customers

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>Cryptocurrency companies Gemini, Genesis, and DCG are being sued by New York Attorney General Letitia James for defrauding customers.</li><li>Crypto exchange Gemini is accused of lying to investors about the risks involved in the Gemini Earn program, while Gemini, Genesis, and the two companies' CEOs are charged with defrauding both investors and the public in an effort to conceal more than $1.1 billion in losses.</li><li>According to an investigation, nearly 60% of Genesis's loans were tied up with former FTX CEO Sam Bankman-Fried's Alameda Research at one point.</li><li>Despite the legal and regulatory clampdown on the largest crypto companies in 2023, the industry is still hopeful for the approval of a spot bitcoin ETF in the coming months.</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"> New York State Attorney General Letitia James is suing cryptocurrency firms Gemini, Genesis, and Digital Currency Group (DCG) on charges of fraud in a lawsuit announced 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"> The suit alleges that Genesis and DCG hid $1.1 billion in losses and Gemini lied to investors about its Gemini Earn program.<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"> At the heart of the case against these three <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/crypto-winter-5496605">crypto</a> companies is <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tech/gemini-winklevoss-bitcoin-exchange/">Gemini</a>'s Earn program, which the lawsuit alleges was marketed as a low-risk investment opportunity for users of the exchange. According to an investigation conducted by the Office of the New York State Attorney General (OAG), Gemini's internal analysis of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/genesis-files-for-bankruptcy-7097358">Genesis</a>'s financials indicated that the crypto firm was a risky partner for the Gemini Earn program. </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"> Specifically, the suit alleges Gemini was aware of the under-secured nature of Genesis's loans and that a nearly 60% concentration of those loans was held by Alameda Research, which was the investment firm affiliated with the now-bankrupt crypto exchange <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ftx-exchange-5200842">FTX</a>. FTX and Alameda Research founder Sam Bankman-Fried is <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-to-expect-at-sam-bankman-fried-s-trial-starting-next-week-7975966">currently on trial</a> for criminal charges related to that crypto exchange's collapse. </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"> Genesis is accused by the attorney general's office of lying to its investors, the public, and Gemini regarding the state of their finances following major losses from borrowers now-defunct <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/crypto-hedge-fund-three-arrows-capital-enters-liquidation-5499238">Three Arrows Capital</a> and Babel Finance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Additionally, Genesis is alleged to have told Gemini it regularly audited its borrowers when the firm hadn't done so with Three Arrows Capital in more than two years. The lawsuit points to a specific post on X (formerly Twitter) made by Genesis as an example of a false statement made to the public in which it is claimed, "The Genesis balance sheet is strong and our business is operating normally.”<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"> The collapse of Gemini Earn caused an alleged $1 billion in losses for consumers, with some Gemini customers losing their entire life savings. More than 230,000 investors are said to have been affected by these losses. James is seeking <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/recovery-rate.asp">recovery</a> of lost funds for Gemini's users, in addition to a ban on Gemini, Genesis, and DCG from operating in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/london-vs-new-york-financial-districts-7552437">New York's financial</a> investment industry. </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"> "Hard-working New Yorkers and investors around the country lost more than a billion dollars because they were fed blatant lies that their money would be safe and grow if they invested it in Gemini Earn," James said. </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 biggest names in the crypto industry, including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sec-sues-coinbase-for-operating-an-unregistered-exchange-7508669">Coinbase</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sec-files-13-charges-against-binance-and-founder-changpeng-zhao-7508246">Binance</a>, in 2023 face lawsuits in the U.S. for a variety of regulatory violations. In spite of those actions, the industry is still hopeful that the approval of a bitcoin spot exchange-traded fund (ETF), <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/court-rules-sec-was-wrong-to-block-bitcoin-etf-7963127">including an offering from DCG's Grayscale Investments</a>, could be right around the corner. </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 * Cryptocurrency companies Gemini, Genesis, and DCG are being sued by New York Attorney General Letitia James for defrauding customers. * Crypto exchange Gemini is accused of lying to investors about the risks involved in the Gemini Earn program, while Gemini, Genesis, and the two companies' CEOs are charged with defrauding both investors and the public in an effort to conceal more than $1.1 billion in losses. * According to an investigation, nearly 60% of Genesis's loans were tied up with former FTX CEO Sam Bankman-Fried's Alameda Research at one point. * Despite the legal and regulatory clampdown on the largest crypto companies in 2023, the industry is still hopeful for the approval of a spot bitcoin ETF in the coming months. New York State Attorney General Letitia James is suing cryptocurrency firms Gemini, Genesis, and Digital Currency Group (DCG) on charges of fraud in a lawsuit announced Thursday. The suit alleges that Genesis and DCG hid $1.1 billion in losses and Gemini lied to investors about its Gemini Earn program. At the heart of the case against these three [crypto](https://www.investopedia.com/crypto-winter-5496605) companies is [Gemini](https://www.investopedia.com/tech/gemini-winklevoss-bitcoin-exchange/)'s Earn program, which the lawsuit alleges was marketed as a low-risk investment opportunity for users of the exchange. According to an investigation conducted by the Office of the New York State Attorney General (OAG), Gemini's internal analysis of [Genesis](https://www.investopedia.com/genesis-files-for-bankruptcy-7097358)'s financials indicated that the crypto firm was a risky partner for the Gemini Earn program. Specifically, the suit alleges Gemini was aware of the under-secured nature of Genesis's loans and that a nearly 60% concentration of those loans was held by Alameda Research, which was the investment firm affiliated with the now-bankrupt crypto exchange [FTX](https://www.investopedia.com/ftx-exchange-5200842). FTX and Alameda Research founder Sam Bankman-Fried is [currently on trial](https://www.investopedia.com/what-to-expect-at-sam-bankman-fried-s-trial-starting-next-week-7975966) for criminal charges related to that crypto exchange's collapse. Genesis is accused by the attorney general's office of lying to its investors, the public, and Gemini regarding the state of their finances following major losses from borrowers now-defunct [Three Arrows Capital](https://www.investopedia.com/crypto-hedge-fund-three-arrows-capital-enters-liquidation-5499238) and Babel Finance. Additionally, Genesis is alleged to have told Gemini it regularly audited its borrowers when the firm hadn't done so with Three Arrows Capital in more than two years. The lawsuit points to a specific post on X (formerly Twitter) made by Genesis as an example of a false statement made to the public in which it is claimed, "The Genesis balance sheet is strong and our business is operating normally.” The collapse of Gemini Earn caused an alleged $1 billion in losses for consumers, with some Gemini customers losing their entire life savings. More than 230,000 investors are said to have been affected by these losses. James is seeking [recovery](https://www.investopedia.com/terms/r/recovery-rate.asp) of lost funds for Gemini's users, in addition to a ban on Gemini, Genesis, and DCG from operating in [New York's financial](https://www.investopedia.com/london-vs-new-york-financial-districts-7552437) investment industry. "Hard-working New Yorkers and investors around the country lost more than a billion dollars because they were fed blatant lies that their money would be safe and grow if they invested it in Gemini Earn," James said. The biggest names in the crypto industry, including [Coinbase](https://www.investopedia.com/sec-sues-coinbase-for-operating-an-unregistered-exchange-7508669) and [Binance](https://www.investopedia.com/sec-files-13-charges-against-binance-and-founder-changpeng-zhao-7508246), in 2023 face lawsuits in the U.S. for a variety of regulatory violations. In spite of those actions, the industry is still hopeful that the approval of a bitcoin spot exchange-traded fund (ETF), [including an offering from DCG's Grayscale Investments](https://www.investopedia.com/court-rules-sec-was-wrong-to-block-bitcoin-etf-7963127), could be right around the corner. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Cryptocurrency companies Gemini, Genesis, and DCG are being sued by New York Attorney General Letitia James for defrauding customers.Crypto exchange Gemini is accused of lying to investors about the risks involved in the Gemini Earn program, while Gemini, Genesis, and the two companies' CEOs are charged with defrauding both investors and the public in an effort to conceal more than $1.1 billion in losses.According to an investigation, nearly 60% of Genesis's loans were tied up with former FTX CEO Sam Bankman-Fried's Alameda Research at one point.Despite the legal and regulatory clampdown on the largest crypto companies in 2023, the industry is still hopeful for the approval of a spot bitcoin ETF in the coming months. New York State Attorney General Letitia James is suing cryptocurrency firms Gemini, Genesis, and Digital Currency Group (DCG) on charges of fraud in a lawsuit announced Thursday. The suit alleges that Genesis and DCG hid $1.1 billion in losses and Gemini lied to investors about its Gemini Earn program. At the heart of the case against these three crypto companies is Gemini's Earn program, which the lawsuit alleges was marketed as a low-risk investment opportunity for users of the exchange. According to an investigation conducted by the Office of the New York State Attorney General (OAG), Gemini's internal analysis of Genesis's financials indicated that the crypto firm was a risky partner for the Gemini Earn program. Specifically, the suit alleges Gemini was aware of the under-secured nature of Genesis's loans and that a nearly 60% concentration of those loans was held by Alameda Research, which was the investment firm affiliated with the now-bankrupt crypto exchange FTX. FTX and Alameda Research founder Sam Bankman-Fried is currently on trial for criminal charges related to that crypto exchange's collapse. Genesis is accused by the attorney general's office of lying to its investors, the public, and Gemini regarding the state of their finances following major losses from borrowers now-defunct Three Arrows Capital and Babel Finance. Additionally, Genesis is alleged to have told Gemini it regularly audited its borrowers when the firm hadn't done so with Three Arrows Capital in more than two years. The lawsuit points to a specific post on X (formerly Twitter) made by Genesis as an example of a false statement made to the public in which it is claimed, "The Genesis balance sheet is strong and our business is operating normally.” The collapse of Gemini Earn caused an alleged $1 billion in losses for consumers, with some Gemini customers losing their entire life savings. More than 230,000 investors are said to have been affected by these losses. James is seeking recovery of lost funds for Gemini's users, in addition to a ban on Gemini, Genesis, and DCG from operating in New York's financial investment industry. "Hard-working New Yorkers and investors around the country lost more than a billion dollars because they were fed blatant lies that their money would be safe and grow if they invested it in Gemini Earn," James said. The biggest names in the crypto industry, including Coinbase and Binance, in 2023 face lawsuits in the U.S. for a variety of regulatory violations. In spite of those actions, the industry is still hopeful that the approval of a bitcoin spot exchange-traded fund (ETF), including an offering from DCG's Grayscale Investments, could be right around the corner. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

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

What is EMA? How to Use Exponential Moving Average With Formula

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-exponential-moving-average-ema"></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 Exponential Moving Average (EMA)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> An exponential moving average (EMA) is a type of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/movingaverage.asp">moving average (MA)</a> that places a greater weight and significance on the most recent data points.<span class="ql-inline-citation" data-cite="2"></span> The exponential moving average is also referred to as the exponentially <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/weighted.asp">weighted</a> moving average. An exponentially weighted moving average reacts more significantly to recent price changes than a simple moving average <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sma.asp">simple moving average (SMA)</a>, which applies an equal weight to all observations in the period. </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 EMA is a moving average that places a greater weight and significance on the most recent data points.</li><li>Like all moving averages, this technical indicator is used to produce buy and sell signals based on crossovers and divergences from the historical average.</li><li>Traders often use several different EMA lengths, such as 10-day, 50-day, and 200-day moving averages.</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="Exponential Moving Average" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/wt48p9srYgCz8oufhg7-dCKFHRk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Exponential-Moving-Average-eb1cb1860f3f4768892091ddcfec5b34.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/wt48p9srYgCz8oufhg7-dCKFHRk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Exponential-Moving-Average-eb1cb1860f3f4768892091ddcfec5b34.png" data-srcset="https://www.investopedia.com/thmb/hjl2p2V0PePvJd3tgHXAPA5cMro=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Exponential-Moving-Average-eb1cb1860f3f4768892091ddcfec5b34.png 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Exponential Moving Average" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/wt48p9srYgCz8oufhg7-dCKFHRk=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Exponential-Moving-Average-eb1cb1860f3f4768892091ddcfec5b34.png" srcset="https://www.investopedia.com/thmb/hjl2p2V0PePvJd3tgHXAPA5cMro=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Exponential-Moving-Average-eb1cb1860f3f4768892091ddcfec5b34.png 750w" width="1500"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Daniel Fishel</p></span> </figcaption></figure> <span class="heading-toc" id="toc-formula-for-exponential-moving-average-ema"></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"> Formula for Exponential Moving Average (EMA) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <span data-value="\begin{aligned} &amp;\begin{aligned} EMA_{\text{Today}}=&amp;\left(\text{Value}_{\text{Today}}\ast\left(\frac{\text{Smoothing}}{1+\text{Days}}\right)\right)\\ &amp;+EMA_{\text{Yesterday}}\ast\left(1-\left(\frac{\text{Smoothing}}{1+\text{Days}}\right)\right)\end{aligned}\\ &amp;\textbf{where:}\\ &amp;EMA=\text{Exponential moving average} \end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mrow> <mtable> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtable> <mtr> <mtd> <mstyle> <mrow> <mi> E </mi> <mi> M </mi> <msub> <mi> A </mi> <mtext> Today </mtext> </msub> <mo> = </mo> </mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mrow> <mo> ( </mo> <msub> <mtext> Value </mtext> <mtext> Today </mtext> </msub> <mo> ∗ </mo> <mrow> <mo> ( </mo> <mfrac> <mrow> <mtext> Smoothing </mtext> </mrow> <mrow> <mn> 1 </mn> <mo> + </mo> <mtext> Days </mtext> </mrow> </mfrac> <mo> ) </mo> </mrow> <mo> ) </mo> </mrow> </mrow> </mstyle> </mtd> </mtr> </mtable> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> where: </mtext> </mrow> </mstyle> </mtd> </mtr> </mtable> </mrow> <annotation encoding="application/x-tex"> \begin{aligned} &amp;\begin{aligned} EMA_{\text{Today}}=&amp;\left(\text{Value}_{\text{Today}}\ast\left(\frac{\text{Smoothing}}{1+\text{Days}}\right)\right)\\ &amp;+EMA_{\text{Yesterday}}\ast\left(1-\left(\frac{\text{Smoothing}}{1+\text{Days}}\right)\right)\end{aligned}\\ &amp;\textbf{where:}\\ &amp;EMA=\text{Exponential moving average} \end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="strut"></span><span class="strut bottom"></span><span class="base"><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span><span class="col-align-l"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord mathit">E</span><span class="mord mathit">M</span><span class="mord"><span class="mord mathit">A</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord text mtight"><span class="mord mathrm mtight">Today</span></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span></span><span class="mrel">=</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span><span class="col-align-l"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="minner"><span class="mopen delimcenter"><span class="delimsizing size3">(</span></span><span class="mord"><span class="mord text"><span class="mord mathrm">Value</span></span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord text mtight"><span class="mord mathrm mtight">Today</span></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span></span><span class="mbin">∗</span><span class="minner"><span class="mopen delimcenter"><span class="delimsizing size3">(</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 mathrm">1</span><span class="mbin">+</span><span class="mord text"><span class="mord mathrm">Days</span></span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord text"><span class="mord mathrm">Smoothing</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mclose delimcenter"><span class="delimsizing size3">)</span></span></span><span class="mclose delimcenter"><span class="delimsizing size3">)</span></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span></span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord mathbf">where:</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> While there are many possible choices for the smoothing factor, the most common choice is: </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>Smoothing = 2</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"> That gives the most recent observation more weight. If the smoothing factor is increased, more recent observations have more influence on the EMA. </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-calculating-the-ema"></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"> Calculating the EMA </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/122314/what-exponential-moving-average-ema-formula-and-how-ema-calculated.asp" rel="noopener noreferrer">Calculating the EMA</a> requires one more observation than the SMA. Suppose that you want to use 20 days as the number of observations for the EMA. Then, you must wait until the 20th day to obtain the SMA. On the 21st day, you can then use the SMA from the previous day as the first EMA for yesterday. </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:58.2%;"> <img class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/aDfknIl2Pvzdsmo8eBYR8p0pvJs=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/EMA-5c535d5a46e0fb000181fa56.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/aDfknIl2Pvzdsmo8eBYR8p0pvJs=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/EMA-5c535d5a46e0fb000181fa56.png" data-srcset="https://www.investopedia.com/thmb/lgGyd389sFm1zo9nkxY8uWcUp1E=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/EMA-5c535d5a46e0fb000181fa56.png 750w" data-tracking-container="true" height="896" id="mntl-sc-block-image_2-0" width="1538"/> <noscript> <img class="img--noscript universal-image__image" height="896" sizes="750px" src="https://www.investopedia.com/thmb/aDfknIl2Pvzdsmo8eBYR8p0pvJs=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/EMA-5c535d5a46e0fb000181fa56.png" srcset="https://www.investopedia.com/thmb/lgGyd389sFm1zo9nkxY8uWcUp1E=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/EMA-5c535d5a46e0fb000181fa56.png 750w" width="1538"/> </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">TradingView.</span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The calculation for the SMA is straightforward. It is simply the sum of the stock's closing prices during a time period, divided by the number of observations for that period. For example, a 20-day SMA is just the sum of the closing prices for the past 20 trading days, divided by 20.<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"> Next, you must calculate the multiplier for smoothing (weighting) the EMA, which typically follows the formula: [2 ÷ (number of observations + 1)]. For a 20-day moving average, the multiplier would be [2/(20+1)]= 0.0952. </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"> Finally, the following formula is used to calculate the current EMA:<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> <li>EMA = Closing price x multiplier + EMA (previous day) x (1-multiplier)</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> The EMA gives a higher weight to recent prices, while the SMA assigns equal weight to all values. The weighting given to the most recent price is greater for a shorter-period EMA than for a longer-period EMA.<span class="ql-inline-citation" data-cite="5"></span> For example, an 18.18% multiplier is applied to the most recent price data for a 10-period EMA, while the weight is only 9.52% for a 20-period EMA. </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 are also slight variations of the EMA arrived at by using the open, high, low, or median price instead of using the closing price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-square figure-high-res" id="mntl-sc-block_32-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:85.1%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/-OCnjH4IkP7kjf7msNsXxuKVNdg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Exponential_Moving_Average_EMA_Aug_2020-01-3bacd080c9ac450595fe7daa9148a65b.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/-OCnjH4IkP7kjf7msNsXxuKVNdg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Exponential_Moving_Average_EMA_Aug_2020-01-3bacd080c9ac450595fe7daa9148a65b.jpg" data-srcset="https://www.investopedia.com/thmb/bVFVGa07BAiSneXcDYoXzIF_ONA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Exponential_Moving_Average_EMA_Aug_2020-01-3bacd080c9ac450595fe7daa9148a65b.jpg 750w" data-tracking-container="true" height="3938" id="mntl-sc-block-image_3-0" width="4626"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3938" sizes="750px" src="https://www.investopedia.com/thmb/-OCnjH4IkP7kjf7msNsXxuKVNdg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Exponential_Moving_Average_EMA_Aug_2020-01-3bacd080c9ac450595fe7daa9148a65b.jpg" srcset="https://www.investopedia.com/thmb/bVFVGa07BAiSneXcDYoXzIF_ONA=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Exponential_Moving_Average_EMA_Aug_2020-01-3bacd080c9ac450595fe7daa9148a65b.jpg 750w" width="4626"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_3-0"> <span class="figure-article-caption-owner">Image by Sabrina Jiang © Investopedia 2020</span> </figcaption></figure> <span class="heading-toc" id="toc-what-does-the-ema-tell-you"></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 Does the EMA Tell You? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> The 12- and 26-day exponential moving averages (EMAs) are often the most quoted and analyzed short-term averages. The 12- and 26-day are used to create indicators like the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/macd.asp">moving average convergence divergence (MACD)</a> and the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/ppo.asp">percentage price oscillator (PPO)</a>.<span class="ql-inline-citation" data-cite="6"></span><span class="ql-inline-citation" data-cite="7"></span> In general, the 50- and 200-day EMAs are used as indicators for long-term trends.<span class="ql-inline-citation" data-cite="4"></span> When a stock price crosses its 200-day moving average, it is a technical signal that a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reversal.asp">reversal</a> has occurred. </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"> Traders who employ <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> find moving averages very useful and insightful when applied correctly. However, they also realize that these signals can create havoc when used improperly or misinterpreted. All the moving averages commonly used in technical analysis are <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/laggingindicator.asp">lagging indicators</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Consequently, the conclusions drawn from applying a moving average to a particular market chart should be to confirm a market move or indicate its strength. The optimal time to enter the market often passes before a moving average shows that the trend has changed. </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"> An EMA does serve to alleviate the negative impact of lags to some extent. Because the EMA calculation places more weight on the latest data, it “hugs” the price action a bit more tightly and reacts more quickly. This is desirable when an EMA is used to derive a trading entry signal. </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"> Like all moving average indicators, EMAs are much better suited for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trending-market.asp">trending markets</a>. When the market is in a strong and sustained uptrend, the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/122314/what-are-best-technical-indicators-complement-exponential-moving-average-ema.asp">EMA indicator line</a> will also show an uptrend and vice-versa for a downtrend. A vigilant trader will pay attention to both the direction of the EMA line and the relation of the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rateofchange.asp">rate of change</a> from one bar to the next. For example, suppose the price action of a strong uptrend begins to flatten and reverse. From an <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/opportunitycost.asp">opportunity cost</a> point of view, it might be time to switch to a more bullish investment. </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-examples-of-how-to-use-the-ema"></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"> Examples of How to Use the EMA </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> EMAs are commonly used in conjunction with other indicators to confirm significant market moves and to gauge their validity. For traders who trade <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/intraday.asp" rel="noopener noreferrer">intraday</a> and fast-moving markets, the EMA is more applicable. Quite often, traders use EMAs to determine a trading bias. If an EMA on a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dailychart.asp" rel="noopener noreferrer">daily chart</a> shows a strong upward trend, an intraday trader’s strategy may be to trade only on the long side. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <span class="heading-toc" id="toc-the-difference-between-ema-and-sma"></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 Difference Between EMA and SMA </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> The major <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/difference-between-simple-exponential-moving-average/">difference between an EMA and an SMA</a> is the sensitivity each one shows to changes in the data used in its calculation. </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"> More specifically, the EMA gives higher weights to recent prices, while the SMA assigns equal weights to all values. The two averages are similar because they are interpreted in the same manner and are both commonly used by technical traders to smooth out price fluctuations. </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"> Since EMAs place a higher weighting on recent data than on older data, they are more responsive to the latest <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-change.asp">price changes</a> than SMAs. That makes the results from EMAs more timely and explains why they are preferred by many traders.<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_53-0"></div> <span class="heading-toc" id="toc-limitations-of-the-ema"></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"> Limitations of the EMA </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> It is unclear whether or not more emphasis should be placed on the most recent days in the time period. Many traders believe that new data better reflects the current trend of the security. At the same time, others feel that overweighting recent dates creates a bias that leads to more false alarms. </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"> Similarly, the EMA relies wholly on historical data. Many economists believe that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/04/022004.asp" rel="noopener noreferrer">markets are efficient</a>, which means that current market prices already reflect all available information. If markets are indeed efficient, using historical data should tell us nothing about the future direction of asset prices. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_59-0"><span class="heading-toc" id="toc-what-is-a-good-exponential-moving-average"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Good Exponential Moving Average?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The longer-day EMAs (i.e. 50 and 200-day) tend to be used more by long-term investors, while short-term investors tend to use 8- and 20-day EMAs. </p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_61-0"><span class="heading-toc" id="toc-is-exponential-moving-average-better-than-simple-moving-average"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Exponential Moving Average Better Than Simple Moving Average?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The EMA focused more on recent price moves, which means it tends to respond more quickly to price changes than the SMA.<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_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-do-you-read-exponential-moving-averages"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Read Exponential Moving Averages?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Investors tend to interpret a rising EMA as a support to price action and a falling EMA as a resistance. With that interpretation, investors look to buy when the price is near the rising EMA and sell when the price is near the falling EMA.<span class="ql-inline-citation" data-cite="8"></span><br/></p><p><br/></p></div> </div></div>

## What Is an Exponential Moving Average (EMA)? An exponential moving average (EMA) is a type of [moving average (MA)](https://www.investopedia.com/terms/m/movingaverage.asp) that places a greater weight and significance on the most recent data points. The exponential moving average is also referred to as the exponentially [weighted](https://www.investopedia.com/terms/w/weighted.asp) moving average. An exponentially weighted moving average reacts more significantly to recent price changes than a simple moving average [simple moving average (SMA)](https://www.investopedia.com/terms/s/sma.asp), which applies an equal weight to all observations in the period. ### Key Takeaways * The EMA is a moving average that places a greater weight and significance on the most recent data points. * Like all moving averages, this technical indicator is used to produce buy and sell signals based on crossovers and divergences from the historical average. * Traders often use several different EMA lengths, such as 10-day, 50-day, and 200-day moving averages. ![Exponential Moving Average]() :max_bytes(150000):strip_icc()/Exponential-Moving-Average-eb1cb1860f3f4768892091ddcfec5b34.png) Investopedia / Daniel Fishel ## Formula for Exponential Moving Average (EMA)  E M A Today = ( Value Today ∗ ( Smoothing 1 + Days ) ) where: \begin{aligned} &\begin{aligned} EMA\_{\text{Today}}=&\left(\text{Value}\_{\text{Today}}\ast\left(\frac{\text{Smoothing}}{1+\text{Days}}\right)\right)\\ &+EMA\_{\text{Yesterday}}\ast\left(1-\left(\frac{\text{Smoothing}}{1+\text{Days}}\right)\right)\end{aligned}\\ &\textbf{where:}\\ &EMA=\text{Exponential moving average} \end{aligned} ​EMAToday​=​(ValueToday​∗(1+DaysSmoothing​))​where:​ While there are many possible choices for the smoothing factor, the most common choice is: * Smoothing = 2 That gives the most recent observation more weight. If the smoothing factor is increased, more recent observations have more influence on the EMA. ## Calculating the EMA [Calculating the EMA](https://www.investopedia.com/ask/answers/122314/what-exponential-moving-average-ema-formula-and-how-ema-calculated.asp) requires one more observation than the SMA. Suppose that you want to use 20 days as the number of observations for the EMA. Then, you must wait until the 20th day to obtain the SMA. On the 21st day, you can then use the SMA from the previous day as the first EMA for yesterday. ![]() :max_bytes(150000):strip_icc()/EMA-5c535d5a46e0fb000181fa56.png) TradingView. The calculation for the SMA is straightforward. It is simply the sum of the stock's closing prices during a time period, divided by the number of observations for that period. For example, a 20-day SMA is just the sum of the closing prices for the past 20 trading days, divided by 20. Next, you must calculate the multiplier for smoothing (weighting) the EMA, which typically follows the formula: [2 ÷ (number of observations + 1)]. For a 20-day moving average, the multiplier would be [2/(20+1)]= 0.0952. Finally, the following formula is used to calculate the current EMA: * EMA = Closing price x multiplier + EMA (previous day) x (1-multiplier) The EMA gives a higher weight to recent prices, while the SMA assigns equal weight to all values. The weighting given to the most recent price is greater for a shorter-period EMA than for a longer-period EMA. For example, an 18.18% multiplier is applied to the most recent price data for a 10-period EMA, while the weight is only 9.52% for a 20-period EMA. There are also slight variations of the EMA arrived at by using the open, high, low, or median price instead of using the closing price. ![Image]() :max_bytes(150000):strip_icc()/dotdash_Final_Exponential_Moving_Average_EMA_Aug_2020-01-3bacd080c9ac450595fe7daa9148a65b.jpg) Image by Sabrina Jiang © Investopedia 2020 ## What Does the EMA Tell You? The 12- and 26-day exponential moving averages (EMAs) are often the most quoted and analyzed short-term averages. The 12- and 26-day are used to create indicators like the [moving average convergence divergence (MACD)](https://www.investopedia.com/terms/m/macd.asp) and the [percentage price oscillator (PPO)](https://www.investopedia.com/terms/p/ppo.asp). In general, the 50- and 200-day EMAs are used as indicators for long-term trends. When a stock price crosses its 200-day moving average, it is a technical signal that a [reversal](https://www.investopedia.com/terms/r/reversal.asp) has occurred. Traders who employ [technical analysis](https://www.investopedia.com/terms/t/technicalanalysis.asp) find moving averages very useful and insightful when applied correctly. However, they also realize that these signals can create havoc when used improperly or misinterpreted. All the moving averages commonly used in technical analysis are [lagging indicators](https://www.investopedia.com/terms/l/laggingindicator.asp). Consequently, the conclusions drawn from applying a moving average to a particular market chart should be to confirm a market move or indicate its strength. The optimal time to enter the market often passes before a moving average shows that the trend has changed. An EMA does serve to alleviate the negative impact of lags to some extent. Because the EMA calculation places more weight on the latest data, it “hugs” the price action a bit more tightly and reacts more quickly. This is desirable when an EMA is used to derive a trading entry signal. Like all moving average indicators, EMAs are much better suited for [trending markets](https://www.investopedia.com/terms/t/trending-market.asp). When the market is in a strong and sustained uptrend, the [EMA indicator line](https://www.investopedia.com/ask/answers/122314/what-are-best-technical-indicators-complement-exponential-moving-average-ema.asp) will also show an uptrend and vice-versa for a downtrend. A vigilant trader will pay attention to both the direction of the EMA line and the relation of the [rate of change](https://www.investopedia.com/terms/r/rateofchange.asp) from one bar to the next. For example, suppose the price action of a strong uptrend begins to flatten and reverse. From an [opportunity cost](https://www.investopedia.com/terms/o/opportunitycost.asp) point of view, it might be time to switch to a more bullish investment. ## Examples of How to Use the EMA EMAs are commonly used in conjunction with other indicators to confirm significant market moves and to gauge their validity. For traders who trade [intraday](https://www.investopedia.com/terms/i/intraday.asp) and fast-moving markets, the EMA is more applicable. Quite often, traders use EMAs to determine a trading bias. If an EMA on a [daily chart](https://www.investopedia.com/terms/d/dailychart.asp) shows a strong upward trend, an intraday trader’s strategy may be to trade only on the long side. ## The Difference Between EMA and SMA The major [difference between an EMA and an SMA](https://www.investopedia.com/ask/answers/difference-between-simple-exponential-moving-average/) is the sensitivity each one shows to changes in the data used in its calculation. More specifically, the EMA gives higher weights to recent prices, while the SMA assigns equal weights to all values. The two averages are similar because they are interpreted in the same manner and are both commonly used by technical traders to smooth out price fluctuations. Since EMAs place a higher weighting on recent data than on older data, they are more responsive to the latest [price changes](https://www.investopedia.com/terms/p/price-change.asp) than SMAs. That makes the results from EMAs more timely and explains why they are preferred by many traders. ## Limitations of the EMA It is unclear whether or not more emphasis should be placed on the most recent days in the time period. Many traders believe that new data better reflects the current trend of the security. At the same time, others feel that overweighting recent dates creates a bias that leads to more false alarms. Similarly, the EMA relies wholly on historical data. Many economists believe that [markets are efficient](https://www.investopedia.com/articles/basics/04/022004.asp), which means that current market prices already reflect all available information. If markets are indeed efficient, using historical data should tell us nothing about the future direction of asset prices. ## What Is a Good Exponential Moving Average? The longer-day EMAs (i.e. 50 and 200-day) tend to be used more by long-term investors, while short-term investors tend to use 8- and 20-day EMAs.  ## Is Exponential Moving Average Better Than Simple Moving Average? The EMA focused more on recent price moves, which means it tends to respond more quickly to price changes than the SMA. ## How Do You Read Exponential Moving Averages? Investors tend to interpret a rising EMA as a support to price action and a falling EMA as a resistance. With that interpretation, investors look to buy when the price is near the rising EMA and sell when the price is near the falling EMA.

What Is an Exponential Moving Average (EMA)? An exponential moving average (EMA) is a type of moving average (MA) that places a greater weight and significance on the most recent data points. The exponential moving average is also referred to as the exponentially weighted moving average. An exponentially weighted moving average reacts more significantly to recent price changes than a simple moving average simple moving average (SMA), which applies an equal weight to all observations in the period. Key Takeaways The EMA is a moving average that places a greater weight and significance on the most recent data points.Like all moving averages, this technical indicator is used to produce buy and sell signals based on crossovers and divergences from the historical average.Traders often use several different EMA lengths, such as 10-day, 50-day, and 200-day moving averages. Investopedia / Daniel Fishel Formula for Exponential Moving Average (EMA)  E M A Today = ( Value Today ∗ ( Smoothing 1 + Days ) ) where: \begin{aligned} &\begin{aligned} EMA_{\text{Today}}=&\left(\text{Value}_{\text{Today}}\ast\left(\frac{\text{Smoothing}}{1+\text{Days}}\right)\right)\\ &+EMA_{\text{Yesterday}}\ast\left(1-\left(\frac{\text{Smoothing}}{1+\text{Days}}\right)\right)\end{aligned}\\ &\textbf{where:}\\ &EMA=\text{Exponential moving average} \end{aligned} ​EMAToday​=​(ValueToday​∗(1+DaysSmoothing​))​where:​ While there are many possible choices for the smoothing factor, the most common choice is: Smoothing = 2 That gives the most recent observation more weight. If the smoothing factor is increased, more recent observations have more influence on the EMA. Calculating the EMA Calculating the EMA requires one more observation than the SMA. Suppose that you want to use 20 days as the number of observations for the EMA. Then, you must wait until the 20th day to obtain the SMA. On the 21st day, you can then use the SMA from the previous day as the first EMA for yesterday. TradingView. The calculation for the SMA is straightforward. It is simply the sum of the stock's closing prices during a time period, divided by the number of observations for that period. For example, a 20-day SMA is just the sum of the closing prices for the past 20 trading days, divided by 20. Next, you must calculate the multiplier for smoothing (weighting) the EMA, which typically follows the formula: [2 ÷ (number of observations + 1)]. For a 20-day moving average, the multiplier would be [2/(20+1)]= 0.0952. Finally, the following formula is used to calculate the current EMA: EMA = Closing price x multiplier + EMA (previous day) x (1-multiplier) The EMA gives a higher weight to recent prices, while the SMA assigns equal weight to all values. The weighting given to the most recent price is greater for a shorter-period EMA than for a longer-period EMA. For example, an 18.18% multiplier is applied to the most recent price data for a 10-period EMA, while the weight is only 9.52% for a 20-period EMA. There are also slight variations of the EMA arrived at by using the open, high, low, or median price instead of using the closing price. Image by Sabrina Jiang © Investopedia 2020 What Does the EMA Tell You? The 12- and 26-day exponential moving averages (EMAs) are often the most quoted and analyzed short-term averages. The 12- and 26-day are used to create indicators like the moving average convergence divergence (MACD) and the percentage price oscillator (PPO). In general, the 50- and 200-day EMAs are used as indicators for long-term trends. When a stock price crosses its 200-day moving average, it is a technical signal that a reversal has occurred. Traders who employ technical analysis find moving averages very useful and insightful when applied correctly. However, they also realize that these signals can create havoc when used improperly or misinterpreted. All the moving averages commonly used in technical analysis are lagging indicators. Consequently, the conclusions drawn from applying a moving average to a particular market chart should be to confirm a market move or indicate its strength. The optimal time to enter the market often passes before a moving average shows that the trend has changed. An EMA does serve to alleviate the negative impact of lags to some extent. Because the EMA calculation places more weight on the latest data, it “hugs” the price action a bit more tightly and reacts more quickly. This is desirable when an EMA is used to derive a trading entry signal. Like all moving average indicators, EMAs are much better suited for trending markets. When the market is in a strong and sustained uptrend, the EMA indicator line will also show an uptrend and vice-versa for a downtrend. A vigilant trader will pay attention to both the direction of the EMA line and the relation of the rate of change from one bar to the next. For example, suppose the price action of a strong uptrend begins to flatten and reverse. From an opportunity cost point of view, it might be time to switch to a more bullish investment. Examples of How to Use the EMA EMAs are commonly used in conjunction with other indicators to confirm significant market moves and to gauge their validity. For traders who trade intraday and fast-moving markets, the EMA is more applicable. Quite often, traders use EMAs to determine a trading bias. If an EMA on a daily chart shows a strong upward trend, an intraday trader’s strategy may be to trade only on the long side. The Difference Between EMA and SMA The major difference between an EMA and an SMA is the sensitivity each one shows to changes in the data used in its calculation. More specifically, the EMA gives higher weights to recent prices, while the SMA assigns equal weights to all values. The two averages are similar because they are interpreted in the same manner and are both commonly used by technical traders to smooth out price fluctuations. Since EMAs place a higher weighting on recent data than on older data, they are more responsive to the latest price changes than SMAs. That makes the results from EMAs more timely and explains why they are preferred by many traders. Limitations of the EMA It is unclear whether or not more emphasis should be placed on the most recent days in the time period. Many traders believe that new data better reflects the current trend of the security. At the same time, others feel that overweighting recent dates creates a bias that leads to more false alarms. Similarly, the EMA relies wholly on historical data. Many economists believe that markets are efficient, which means that current market prices already reflect all available information. If markets are indeed efficient, using historical data should tell us nothing about the future direction of asset prices. What Is a Good Exponential Moving Average? The longer-day EMAs (i.e. 50 and 200-day) tend to be used more by long-term investors, while short-term investors tend to use 8- and 20-day EMAs.  Is Exponential Moving Average Better Than Simple Moving Average? The EMA focused more on recent price moves, which means it tends to respond more quickly to price changes than the SMA. How Do You Read Exponential Moving Averages? Investors tend to interpret a rising EMA as a support to price action and a falling EMA as a resistance. With that interpretation, investors look to buy when the price is near the rising EMA and sell when the price is near the falling EMA.

https://www.investopedia.com/investing-in-rare-coins-5217604

Is It a Good Idea to Invest in Rare Coins?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Collectibles are an asset type that can help investors diversify their portfolios away from stocks and bonds. Unlike securities, the value of collectibles typically isn’t tied to market trends. Instead, their worth is influenced by a range of different factors, including demand. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> With coin collecting, as with collecting other items, the more rare the coin, the more valuable it is. investing in rare coins has the advantage of potentially providing significant profits. However, it also has downsides to consider, including the fact that earning money investing in rare coins takes time. </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 the pros and cons of investing in rare coins, and how to include rare coins in your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolio</a>. </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>Rare coins can add diversity to a portfolio that is focused on stocks and bonds.</li><li>Investing in rare coins can potentially provide long-term gains, but it is not ideal for short-term profits.</li><li>The rare-coin market can fluctuate like the stock market as demand for a particular coin increases and wanes.</li><li>In general, rare coins are a fairly nonvolatile asset type.</li></ul></div></div></div> <span class="heading-toc" id="toc-is-investing-in-rare-coins-a-good-investment"></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"> Is Investing in Rare Coins a Good Investment? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Historically, rare coins have offered significant profit potential above and beyond the underlying metal value of a coin. Prices of elite coins have <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/appreciation.asp">appreciated</a> more than 1,000% from 1976 to 1980 and 600% from 1982 to 1989, according to Finest Known, a rare-coin newsletter.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Investing in rare coins is no substitute for traditional investments to reach your financial goals. However, this asset can help you <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversify your portfolio</a> and reduce <a data-component="link" data-ordinal="2" 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_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The rare-coin market has changed significantly over the past few decades. Grading coins, or verifying their authenticity and defining standards, was opened to third-party grading services in the 1980s, which helped remove some of the risks of investment. Also, the internet brought the opportunity to access more knowledge online about coin collecting, rare coins, and buying coins. </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"> If you’re just getting started investing in rare coins, consider connecting with a mentor who can guide you through researching the value and potential future value of coins. You can also learn about this field by collecting through coin shows, reading books and articles, talking to coin dealers, and joining coin clubs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-subheading__text"> Balancing Your Coin Portfolio </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Just as with any investment, a balanced coin portfolio reduces your risk of market fluctuations and provides greater potential for returns. Having a variety of U.S. coins, precious metals like gold bullion coins, and classic gold coins like the double eagle can improve your portfolio’s diversity. </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"> Rare-coin collecting is not ideal for making short-term gains. Coin flipping is a strategy that aims for short-term gains with coins, but it can be risky. With this strategy, you buy a low-mintage coin directly from the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mint.asp">mint</a> and then try to quickly sell it for a larger profit. You could lose money if you miss the opportunity to sell quickly or the market becomes flooded. </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"> Avoid Bubbles </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The rare-coin market isn’t free from market fluctuation. In fact, it can even be volatile at times. Coin prices depend on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/law-of-supply-demand.asp">supply and demand</a>. If a demand for a particular coin or series of coins gains in popularity, the price can soar—only to crash later if the coin’s popularity decreases. </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"> Coins Aren’t Like Shares of Stock </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> One difference of investing in rare coins compared to shares of a company is that coins are not alike, while a share of a particular company is worth the same as another share. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> For example, two 1913 Buffalo nickels may not be the exact same price even if the coins have identical variations and the same grading. They may be valued differently because of subtle differences in the coin, such as one looking slightly better than the other. Investing in rare coins is more unpredictable in that way.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_31-0"><span class="heading-toc" id="toc-whats-the-best-way-to-get-started-investing-in-rare-coins"></span> <h2 class="mntl-sc-block-questionandanswer__question">What’s the best way to get started investing in rare coins?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The best way to start investing in rare coins is to find a mentor who can guide you through how to determine the value of rare coins. You can also read books and articles on the topic, attend coin shows, or join coin clubs. Familiarize yourself with how coins are valued so that you can better predict potential returns.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_33-0"><span class="heading-toc" id="toc-what-is-a-person-who-collects-coins-called"></span> <h2 class="mntl-sc-block-questionandanswer__question">What is a person who collects coins called?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Someone who collects coins is called a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/numismatics.asp">numismatist</a>. Numismatists include collectors, scholars, and dealers. The American Numismatic Association is a nonprofit dedicated to educating people about coin collecting.<span class="ql-inline-citation" data-cite="3"></span><br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_35-0"><span class="heading-toc" id="toc-do-rare-coins-go-up-in-value"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do rare coins go up in value?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Generally, rare coins increase in value over the long term and can provide significant gains in many cases. However, keep in mind that there are no guarantees for how a coin will change in value.</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"> Unlike buying stocks from a reputable broker, rare-coin investing can be more complicated. Be aware of the potential for counterfeit or doctored coins, which the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://pngdealers.org/" rel="nofollow">Professional Numismatists Guild (PNG)</a> defines as altering a coin’s surface to diminish or conceal defects and misrepresent its condition and value. </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"> Experts can nearly always detect an altered coin, but a beginner may be fooled. Only buy coins from reputable coin dealers and coins that are certified by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.pcgs.com/" rel="sponsored nofollow">Professional Coin Grading Service (PCGS)</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.ngccoin.com/">Numismatic Guaranty Co. (NGC)</a> or one of the three third-party coin grading services.  </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"> Rare-coin investing can be not only an interesting hobby but also a potentially profitable way to invest money for the long term as part of a balanced portfolio. </p></div>

Collectibles are an asset type that can help investors diversify their portfolios away from stocks and bonds. Unlike securities, the value of collectibles typically isn’t tied to market trends. Instead, their worth is influenced by a range of different factors, including demand. With coin collecting, as with collecting other items, the more rare the coin, the more valuable it is. investing in rare coins has the advantage of potentially providing significant profits. However, it also has downsides to consider, including the fact that earning money investing in rare coins takes time. Learn more about the pros and cons of investing in rare coins, and how to include rare coins in your [portfolio](https://www.investopedia.com/terms/p/portfolio.asp). ### Key Takeaways * Rare coins can add diversity to a portfolio that is focused on stocks and bonds. * Investing in rare coins can potentially provide long-term gains, but it is not ideal for short-term profits. * The rare-coin market can fluctuate like the stock market as demand for a particular coin increases and wanes. * In general, rare coins are a fairly nonvolatile asset type. ## Is Investing in Rare Coins a Good Investment? Historically, rare coins have offered significant profit potential above and beyond the underlying metal value of a coin. Prices of elite coins have [appreciated](https://www.investopedia.com/terms/a/appreciation.asp) more than 1,000% from 1976 to 1980 and 600% from 1982 to 1989, according to Finest Known, a rare-coin newsletter. Investing in rare coins is no substitute for traditional investments to reach your financial goals. However, this asset can help you [diversify your portfolio](https://www.investopedia.com/terms/d/diversification.asp) and reduce [risk](https://www.investopedia.com/terms/r/risk.asp). The rare-coin market has changed significantly over the past few decades. Grading coins, or verifying their authenticity and defining standards, was opened to third-party grading services in the 1980s, which helped remove some of the risks of investment. Also, the internet brought the opportunity to access more knowledge online about coin collecting, rare coins, and buying coins. If you’re just getting started investing in rare coins, consider connecting with a mentor who can guide you through researching the value and potential future value of coins. You can also learn about this field by collecting through coin shows, reading books and articles, talking to coin dealers, and joining coin clubs. ### Balancing Your Coin Portfolio Just as with any investment, a balanced coin portfolio reduces your risk of market fluctuations and provides greater potential for returns. Having a variety of U.S. coins, precious metals like gold bullion coins, and classic gold coins like the double eagle can improve your portfolio’s diversity. Rare-coin collecting is not ideal for making short-term gains. Coin flipping is a strategy that aims for short-term gains with coins, but it can be risky. With this strategy, you buy a low-mintage coin directly from the [mint](https://www.investopedia.com/terms/m/mint.asp) and then try to quickly sell it for a larger profit. You could lose money if you miss the opportunity to sell quickly or the market becomes flooded. ### Avoid Bubbles The rare-coin market isn’t free from market fluctuation. In fact, it can even be volatile at times. Coin prices depend on [supply and demand](https://www.investopedia.com/terms/l/law-of-supply-demand.asp). If a demand for a particular coin or series of coins gains in popularity, the price can soar—only to crash later if the coin’s popularity decreases. ### Coins Aren’t Like Shares of Stock One difference of investing in rare coins compared to shares of a company is that coins are not alike, while a share of a particular company is worth the same as another share. For example, two 1913 Buffalo nickels may not be the exact same price even if the coins have identical variations and the same grading. They may be valued differently because of subtle differences in the coin, such as one looking slightly better than the other. Investing in rare coins is more unpredictable in that way. ## What’s the best way to get started investing in rare coins? The best way to start investing in rare coins is to find a mentor who can guide you through how to determine the value of rare coins. You can also read books and articles on the topic, attend coin shows, or join coin clubs. Familiarize yourself with how coins are valued so that you can better predict potential returns. ## What is a person who collects coins called? Someone who collects coins is called a [numismatist](https://www.investopedia.com/terms/n/numismatics.asp). Numismatists include collectors, scholars, and dealers. The American Numismatic Association is a nonprofit dedicated to educating people about coin collecting. ## Do rare coins go up in value? Generally, rare coins increase in value over the long term and can provide significant gains in many cases. However, keep in mind that there are no guarantees for how a coin will change in value. ## The Bottom Line Unlike buying stocks from a reputable broker, rare-coin investing can be more complicated. Be aware of the potential for counterfeit or doctored coins, which the [Professional Numismatists Guild (PNG)](https://pngdealers.org/) defines as altering a coin’s surface to diminish or conceal defects and misrepresent its condition and value. Experts can nearly always detect an altered coin, but a beginner may be fooled. Only buy coins from reputable coin dealers and coins that are certified by [Professional Coin Grading Service (PCGS)](https://www.pcgs.com/) or [Numismatic Guaranty Co. (NGC)](https://www.ngccoin.com/) or one of the three third-party coin grading services.  Rare-coin investing can be not only an interesting hobby but also a potentially profitable way to invest money for the long term as part of a balanced portfolio.

Collectibles are an asset type that can help investors diversify their portfolios away from stocks and bonds. Unlike securities, the value of collectibles typically isn’t tied to market trends. Instead, their worth is influenced by a range of different factors, including demand. With coin collecting, as with collecting other items, the more rare the coin, the more valuable it is. investing in rare coins has the advantage of potentially providing significant profits. However, it also has downsides to consider, including the fact that earning money investing in rare coins takes time. Learn more about the pros and cons of investing in rare coins, and how to include rare coins in your portfolio. Key Takeaways Rare coins can add diversity to a portfolio that is focused on stocks and bonds.Investing in rare coins can potentially provide long-term gains, but it is not ideal for short-term profits.The rare-coin market can fluctuate like the stock market as demand for a particular coin increases and wanes.In general, rare coins are a fairly nonvolatile asset type. Is Investing in Rare Coins a Good Investment? Historically, rare coins have offered significant profit potential above and beyond the underlying metal value of a coin. Prices of elite coins have appreciated more than 1,000% from 1976 to 1980 and 600% from 1982 to 1989, according to Finest Known, a rare-coin newsletter. Investing in rare coins is no substitute for traditional investments to reach your financial goals. However, this asset can help you diversify your portfolio and reduce risk. The rare-coin market has changed significantly over the past few decades. Grading coins, or verifying their authenticity and defining standards, was opened to third-party grading services in the 1980s, which helped remove some of the risks of investment. Also, the internet brought the opportunity to access more knowledge online about coin collecting, rare coins, and buying coins. If you’re just getting started investing in rare coins, consider connecting with a mentor who can guide you through researching the value and potential future value of coins. You can also learn about this field by collecting through coin shows, reading books and articles, talking to coin dealers, and joining coin clubs. Balancing Your Coin Portfolio Just as with any investment, a balanced coin portfolio reduces your risk of market fluctuations and provides greater potential for returns. Having a variety of U.S. coins, precious metals like gold bullion coins, and classic gold coins like the double eagle can improve your portfolio’s diversity. Rare-coin collecting is not ideal for making short-term gains. Coin flipping is a strategy that aims for short-term gains with coins, but it can be risky. With this strategy, you buy a low-mintage coin directly from the mint and then try to quickly sell it for a larger profit. You could lose money if you miss the opportunity to sell quickly or the market becomes flooded. Avoid Bubbles The rare-coin market isn’t free from market fluctuation. In fact, it can even be volatile at times. Coin prices depend on supply and demand. If a demand for a particular coin or series of coins gains in popularity, the price can soar—only to crash later if the coin’s popularity decreases. Coins Aren’t Like Shares of Stock One difference of investing in rare coins compared to shares of a company is that coins are not alike, while a share of a particular company is worth the same as another share. For example, two 1913 Buffalo nickels may not be the exact same price even if the coins have identical variations and the same grading. They may be valued differently because of subtle differences in the coin, such as one looking slightly better than the other. Investing in rare coins is more unpredictable in that way. What’s the best way to get started investing in rare coins? The best way to start investing in rare coins is to find a mentor who can guide you through how to determine the value of rare coins. You can also read books and articles on the topic, attend coin shows, or join coin clubs. Familiarize yourself with how coins are valued so that you can better predict potential returns. What is a person who collects coins called? Someone who collects coins is called a numismatist. Numismatists include collectors, scholars, and dealers. The American Numismatic Association is a nonprofit dedicated to educating people about coin collecting. Do rare coins go up in value? Generally, rare coins increase in value over the long term and can provide significant gains in many cases. However, keep in mind that there are no guarantees for how a coin will change in value. The Bottom Line Unlike buying stocks from a reputable broker, rare-coin investing can be more complicated. Be aware of the potential for counterfeit or doctored coins, which the Professional Numismatists Guild (PNG) defines as altering a coin’s surface to diminish or conceal defects and misrepresent its condition and value. Experts can nearly always detect an altered coin, but a beginner may be fooled. Only buy coins from reputable coin dealers and coins that are certified by Professional Coin Grading Service (PCGS) or Numismatic Guaranty Co. (NGC) or one of the three third-party coin grading services.  Rare-coin investing can be not only an interesting hobby but also a potentially profitable way to invest money for the long term as part of a balanced portfolio.

https://www.investopedia.com/assessing-the-robinhood-ipo-5187047

Robinhood IPO: What You Need to Know

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-robinhood-ipo-details"></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"> Robinhood IPO Details </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Robinhood Markets Inc. is an online <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokerage-company.asp">brokerage</a> company with a stock trading and investing app aimed at younger <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retailinvestor.asp">retail investors</a>. The company, an early adopter of zero-commission trades, filed for an <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipo.asp">initial public offering (IPO)</a>, submitting an <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec-form-s-1.asp">S-1</a> registration form to the <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">Securities and Exchange Commission (SEC)</a> on July 1, 2021.<span class="ql-inline-citation" data-cite="18"></span> Robinhood previously filed a confidential IPO on March 23, 2021.<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_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> On July 28, 2021, Robinhood sold shares in its IPO at $38 per share ahead of its public debut on the Nasdaq on July 29, raising close to $2 billion. The company, which will trade under the ticker symbol HOOD, sold 52.4 million shares, valuing it at $32 billion, which was slightly lower than forecast. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> A confidential IPO allows a company to submit an initial draft of its S-1 to the SEC, which only needs to be made public 15 days before any promotional <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/roadshow.asp">roadshow</a> or, if there's no roadshow, 15 days before the IPO.<span class="ql-inline-citation" data-cite="4"></span> The advantage of filing confidentially is that the company has more control over its IPO date and can make changes to its IPO filing without needing to manage public relations. </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"> On July 19, 2021, Robinhood released an amendment to its S-1 form announcing it would be selling 52.4 million shares and its founders and CFO would be selling another 2.6 million, for a total of 55 million shares. It also includes a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/greenshoe.asp">greenshoe option</a> for 5.5 million additional shares.<span class="ql-inline-citation" data-cite="18"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/robinhood-review-4587919">Robinhood's eponymous app</a> lets users trade over 5,000 stocks and seven <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cryptocurrency.asp">cryptocurrencies</a> on its platform. In addition, users can trade in <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/adr.asp">American Depository Receipts (ADRs)</a> for 650 globally listed companies and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/optionscontract.asp">options contracts</a> for stocks listed on U.S. exchanges and <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange traded funds (ETFs)</a>. </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-whatyouneedtoknow" 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_1-0">Key Takeaways </h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Robinhood is a California-based fintech company with a stock trading and investing app targeted to younger retail investors.</li><li>Robinhood priced its shares at $38 per share on July 28, raising close to $2 billion, valuing the company at $32 billion.</li><li>Robinhood has raised a total of $5.6 billion from private investors and was reportedly valued at $40 billion at its most recent funding round in February 2021.</li><li>The company generated $522.2 million in revenue in Q1 of FY 2021 and reported net losses of $1.4 billion.</li><li>Robinhood was charged by the SEC in December 2020 with delivering subpar trade execution to its customers, and it has been in the news extensively in 2021 due to its popularity with traders involved in the GameStop short squeeze.</li></ul></div></div></div> <span class="heading-toc" id="toc-robinhood-founding-and-history"></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"> Robinhood Founding and History </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Robinhood was founded in 2013 by Stanford graduates Vlad Tenev and Baiju Bhatt. The duo had prior experience on Wall Street before launching Robinhood, having previously founded Celeris, a trading technology firm, and Chronos Research, which sold fintech software to investment banks.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The Robinhood app was launched in April 2013 as an app for tracking stocks, in an attempt to create an equivalent of Yahoo Finance for mobile devices.<span class="ql-inline-citation" data-cite="6"></span> Yahoo and Google Finance went mobile, pushing Robinhood out of that space, so Robinhood raised $16 million from well-known venture capitalists, including Andreessen Horowitz and Ribbit Capital, and pivoted to become a brokerage.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Robinhood as we now know it formally launched in Apple's App Store in December 2014. Since then, it has grown in popularity and its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/monthly-active-user-mau.asp">monthly active user (MAU)</a> base had expanded to about 17.7 million as of March 31, 2021.<span class="ql-inline-citation" data-cite="19"></span><span class="ql-inline-citation" data-cite="14"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Robinhood has been in the news extensively in 2021 due to its popularity with the <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> who carried out the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/short-sellers-lose-usd5-05-billion-in-bet-against-gamestop-5097616">GameStop short squeeze</a>. Increased trading activity on its platform, however, led to rising demand for <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/margin.asp">margin</a> and the app halted trading activity for GameStop's stock on its platform. The company was also forced to raise additional capital from investors to meet its capital requirements.<span class="ql-inline-citation" data-cite="14"></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_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> That incident brought Robinhood under criticism and regulatory scrutiny, and its chief executive officer and co-founder Vlad Tenev <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/robinhood-reddit-citadel-defend-their-actions-before-congress-5113190">had to testify before Congress</a> concerning Robinhood's role in the controversy. </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-robinhood-company-financials"></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"> Robinhood Company Financials </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Robinhood is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commission.asp">commission</a>-free brokerage, meaning users do not have to pay fees to trade stocks on its platform. Trading fees have been the traditional way brokerages made money; in the absence of these fees, Robinhood has had to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/020515/how-robinhood-makes-money.asp">find other ways to generate revenue</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Robinhood's biggest source of revenue is from a practice called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/paymentoforderflow.asp">payment for order flow (PFOF)</a>. PFOF refers to money that brokerages receive for directing their customers' trades to particular <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketmaker.asp">market makers</a>. Market makers are firms that match buyers and sellers of stocks or other securities. They make money by pocketing the difference between how much the buyer of a stock pays for the stock and the price at which the seller sells it. In order to ensure that there are always buyers and sellers to match up, they pay brokers like Robinhood to send them orders. </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"> Brokerages are obligated to find the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bestexecution.asp">best execution</a> of trades for their customers, which primarily means that they try to get the best price for trades in the most timely manner. PFOF presents the possibility for a conflict of interest because a brokerage may be paid more to send orders to a market maker who will give worse prices to their customers. Robinhood says it still gets the best execution for its customers, writing on its website that payments from market makers "aren’t considered when your brokerage orders are routed."<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_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> In the recently submitted S-1 form, Robinhood provided financial results for Q1 of its 2021 fiscal year, which ended March 31, 2021, and results for FY 2020, which ended Dec. 31, 2020. The company generated $522.2 million in revenue in Q1 FY 2021, more than quadrupling on a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/y/year-over-year.asp">year-over-year (YOY)</a> basis. However, Robinhood's net losses ballooned, rising to $1.4 billion in Q1 2021 from $52.5 million in Q1 FY 2020. For FY 2020, annual revenue grew 245.5% to $958.8 million, helping the company generate a net income of $7.4 million compared to a net loss of $106.6 million the previous year.<span class="ql-inline-citation" data-cite="20"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Nearly 81% of Robinhood's revenues in Q1 FY 2021 were transaction-based revenues, generated from PFOF, including what the company calls transaction rebates on cryptocurrency trades. About 12% of total revenue was from interest, either charged on margin accounts or from putting customers' uninvested cash in bank accounts and keeping the interest. Finally, close to 8% was generated from other sources, such as subscriptions for Robinhood's premium Gold membership, which allows users to trade on margin.<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_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Robinhood's net cumulative funded accounts, a key metric that gauges the number of accounts into which users made an initial deposit or money transfer during a specified period, rose 150% YOY to 18 million in Q1 FY 2021.<span class="ql-inline-citation" data-cite="22"></span> The company's total <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bookvalue.asp">book value</a>, the difference between its assets and liabilities, as of the end of the first quarter, was $6.2 billion. Total <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashandcashequivalents.asp">cash and cash equivalents</a> on Robinhood's balance sheet at the end of the quarter were $4.8 billion.<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_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> On July 19, 2021, Robinhood released preliminary estimated financial information for the quarter ending June 30, 2021. Because they were preliminary, all numbers were given as estimated ranges. Robinhood's revenue was between $546 million and $574 million, its net losses were between -$537 million and -$487 million, and its estimated number of net cumulative funded accounts was 22.5 million. If that estimate is correct, it would be a substantial increase even over its Q1 numbers, much less its YOY numbers. However, it is unclear how much of the boost is a temporary uptick due to the popularity of trading in meme stocks or a longer-term trend.<span class="ql-inline-citation" data-cite="26"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_40-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 285px;"></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">Robinhood Key Financials</th> </tr> </thead> <tbody data-check="-1"> <tr> <td> </td> <td>Q1 FY 2021</td> <td>Q1 FY 2020</td> </tr> <tr> <td>Revenue ($M)</td> <td>522.2</td> <td>127.6</td> </tr> <tr> <td>Net Loss ($M)</td> <td>1,444.8</td> <td>52.5</td> </tr> <tr> <td>Net Cumulative Funded Accounts (M)</td> <td>18</td> <td>7.2</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> ^{Source: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.sec.gov/Archives/edgar/data/1783879/000162828021013318/robinhoods-1.htm#ib5a32e8afc3b422193a2f2891a49e0c9_847" rel="noopener noreferrer">Robinhood S-1</a>} </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <span class="heading-toc" id="toc-how-much-is-robinhood-worth"></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"> How Much Is Robinhood Worth?  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> According to online public database Crunchbase, Robinhood has raised a total of $5.6 billion from investors over 24 funding rounds. The most recent round on Feb. 1, 2021, raised $2.4 billion.<span class="ql-inline-citation" data-cite="13"></span> Robinhood was valued at $40 billion at its February funding round, substantially higher than the $11.7 billion valuation from its September 2020 round.<span class="ql-inline-citation" data-cite="12"></span> Among its major backers are Kleiner Perkins, Andreessen Horowitz, and Google Ventures.<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_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Robinhood's Founders, Tenev and Bhatt, hold 54.4 million and 80.2 million shares, respectively. After selling about 1.3 million shares each, they have 26.3% and 39% of total voting power over the company due to their control of the company's B-shares, which carry much greater voting power than common shares.<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_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> At its IPO price of $38 a share, Robinhood has a valuation of approximately $32 billion. </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-additional-company-details"></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"> Additional Company Details </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> One notable factor that could complicate Robinhood's IPO is Securities and Exchange Commission (SEC) Chair Gary Gensler's current focus on reviewing PFOF as a practice. He announced on June 9, 2021, at a conference that the SEC was investigating the role market markers play in the structure of the stock market as well as the role of PFOF.<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_53-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> This is more salient because Robinhood has already been in trouble for not delivering best execution on its orders. In December 2020, the SEC found that "Robinhood falsely claimed in a website FAQ between October 2018 and June 2019 that its execution quality matched or beat that of its competitors. The [SEC's] order finds that Robinhood provided inferior trade prices."<span class="ql-inline-citation" data-cite="11"></span> The SEC said that this practice cost its customers $34.1 million, even when accounting for the savings customers gained by not having to pay commissions. Though Robinhood did not admit to or deny the SEC's filings, it did agree to pay $65 million to settle the charges.<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_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> However, the SEC has not announced any specific changes or reforms based on this review. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_58-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Online brokerage firm Robinhood offered its stock Nasdaq exchange under the ticker "HOOD" for $38 a share. The company is selling upward of 57.9 million, with its founders and CFO selling another 2.6 million shares between them. The company expects to raise roughly $2 billion from the IPO, rising to $2.3 billion if the underwriters exercise their greenshoe option. </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>

## Robinhood IPO Details Robinhood Markets Inc. is an online [brokerage](https://www.investopedia.com/terms/b/brokerage-company.asp) company with a stock trading and investing app aimed at younger [retail investors](https://www.investopedia.com/terms/r/retailinvestor.asp). The company, an early adopter of zero-commission trades, filed for an [initial public offering (IPO)](https://www.investopedia.com/terms/i/ipo.asp), submitting an [S-1](https://www.investopedia.com/terms/s/sec-form-s-1.asp) registration form to the [Securities and Exchange Commission (SEC)](https://www.investopedia.com/terms/s/sec.asp) on July 1, 2021. Robinhood previously filed a confidential IPO on March 23, 2021. On July 28, 2021, Robinhood sold shares in its IPO at $38 per share ahead of its public debut on the Nasdaq on July 29, raising close to $2 billion. The company, which will trade under the ticker symbol HOOD, sold 52.4 million shares, valuing it at $32 billion, which was slightly lower than forecast. A confidential IPO allows a company to submit an initial draft of its S-1 to the SEC, which only needs to be made public 15 days before any promotional [roadshow](https://www.investopedia.com/terms/r/roadshow.asp) or, if there's no roadshow, 15 days before the IPO. The advantage of filing confidentially is that the company has more control over its IPO date and can make changes to its IPO filing without needing to manage public relations. On July 19, 2021, Robinhood released an amendment to its S-1 form announcing it would be selling 52.4 million shares and its founders and CFO would be selling another 2.6 million, for a total of 55 million shares. It also includes a [greenshoe option](https://www.investopedia.com/terms/g/greenshoe.asp) for 5.5 million additional shares. [Robinhood's eponymous app](https://www.investopedia.com/robinhood-review-4587919) lets users trade over 5,000 stocks and seven [cryptocurrencies](https://www.investopedia.com/terms/c/cryptocurrency.asp) on its platform. In addition, users can trade in [American Depository Receipts (ADRs)](https://www.investopedia.com/terms/a/adr.asp) for 650 globally listed companies and [options contracts](https://www.investopedia.com/terms/o/optionscontract.asp) for stocks listed on U.S. exchanges and [exchange traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp). ### Key Takeaways * Robinhood is a California-based fintech company with a stock trading and investing app targeted to younger retail investors. * Robinhood priced its shares at $38 per share on July 28, raising close to $2 billion, valuing the company at $32 billion. * Robinhood has raised a total of $5.6 billion from private investors and was reportedly valued at $40 billion at its most recent funding round in February 2021. * The company generated $522.2 million in revenue in Q1 of FY 2021 and reported net losses of $1.4 billion. * Robinhood was charged by the SEC in December 2020 with delivering subpar trade execution to its customers, and it has been in the news extensively in 2021 due to its popularity with traders involved in the GameStop short squeeze. ## Robinhood Founding and History Robinhood was founded in 2013 by Stanford graduates Vlad Tenev and Baiju Bhatt. The duo had prior experience on Wall Street before launching Robinhood, having previously founded Celeris, a trading technology firm, and Chronos Research, which sold fintech software to investment banks. The Robinhood app was launched in April 2013 as an app for tracking stocks, in an attempt to create an equivalent of Yahoo Finance for mobile devices. Yahoo and Google Finance went mobile, pushing Robinhood out of that space, so Robinhood raised $16 million from well-known venture capitalists, including Andreessen Horowitz and Ribbit Capital, and pivoted to become a brokerage. Robinhood as we now know it formally launched in Apple's App Store in December 2014. Since then, it has grown in popularity and its [monthly active user (MAU)](https://www.investopedia.com/terms/m/monthly-active-user-mau.asp) base had expanded to about 17.7 million as of March 31, 2021. Robinhood has been in the news extensively in 2021 due to its popularity with the [retail investors](https://www.investopedia.com/terms/r/retailinvestor.asp) who carried out the [GameStop short squeeze](https://www.investopedia.com/short-sellers-lose-usd5-05-billion-in-bet-against-gamestop-5097616). Increased trading activity on its platform, however, led to rising demand for [margin](https://www.investopedia.com/terms/m/margin.asp) and the app halted trading activity for GameStop's stock on its platform. The company was also forced to raise additional capital from investors to meet its capital requirements. That incident brought Robinhood under criticism and regulatory scrutiny, and its chief executive officer and co-founder Vlad Tenev [had to testify before Congress](https://www.investopedia.com/robinhood-reddit-citadel-defend-their-actions-before-congress-5113190) concerning Robinhood's role in the controversy. ## Robinhood Company Financials Robinhood is a [commission](https://www.investopedia.com/terms/c/commission.asp)-free brokerage, meaning users do not have to pay fees to trade stocks on its platform. Trading fees have been the traditional way brokerages made money; in the absence of these fees, Robinhood has had to [find other ways to generate revenue](https://www.investopedia.com/articles/active-trading/020515/how-robinhood-makes-money.asp). Robinhood's biggest source of revenue is from a practice called [payment for order flow (PFOF)](https://www.investopedia.com/terms/p/paymentoforderflow.asp). PFOF refers to money that brokerages receive for directing their customers' trades to particular [market makers](https://www.investopedia.com/terms/m/marketmaker.asp). Market makers are firms that match buyers and sellers of stocks or other securities. They make money by pocketing the difference between how much the buyer of a stock pays for the stock and the price at which the seller sells it. In order to ensure that there are always buyers and sellers to match up, they pay brokers like Robinhood to send them orders. Brokerages are obligated to find the [best execution](https://www.investopedia.com/terms/b/bestexecution.asp) of trades for their customers, which primarily means that they try to get the best price for trades in the most timely manner. PFOF presents the possibility for a conflict of interest because a brokerage may be paid more to send orders to a market maker who will give worse prices to their customers. Robinhood says it still gets the best execution for its customers, writing on its website that payments from market makers "aren’t considered when your brokerage orders are routed." In the recently submitted S-1 form, Robinhood provided financial results for Q1 of its 2021 fiscal year, which ended March 31, 2021, and results for FY 2020, which ended Dec. 31, 2020. The company generated $522.2 million in revenue in Q1 FY 2021, more than quadrupling on a [year-over-year (YOY)](https://www.investopedia.com/terms/y/year-over-year.asp) basis. However, Robinhood's net losses ballooned, rising to $1.4 billion in Q1 2021 from $52.5 million in Q1 FY 2020. For FY 2020, annual revenue grew 245.5% to $958.8 million, helping the company generate a net income of $7.4 million compared to a net loss of $106.6 million the previous year. Nearly 81% of Robinhood's revenues in Q1 FY 2021 were transaction-based revenues, generated from PFOF, including what the company calls transaction rebates on cryptocurrency trades. About 12% of total revenue was from interest, either charged on margin accounts or from putting customers' uninvested cash in bank accounts and keeping the interest. Finally, close to 8% was generated from other sources, such as subscriptions for Robinhood's premium Gold membership, which allows users to trade on margin. Robinhood's net cumulative funded accounts, a key metric that gauges the number of accounts into which users made an initial deposit or money transfer during a specified period, rose 150% YOY to 18 million in Q1 FY 2021. The company's total [book value](https://www.investopedia.com/terms/b/bookvalue.asp), the difference between its assets and liabilities, as of the end of the first quarter, was $6.2 billion. Total [cash and cash equivalents](https://www.investopedia.com/terms/c/cashandcashequivalents.asp) on Robinhood's balance sheet at the end of the quarter were $4.8 billion. On July 19, 2021, Robinhood released preliminary estimated financial information for the quarter ending June 30, 2021. Because they were preliminary, all numbers were given as estimated ranges. Robinhood's revenue was between $546 million and $574 million, its net losses were between -$537 million and -$487 million, and its estimated number of net cumulative funded accounts was 22.5 million. If that estimate is correct, it would be a substantial increase even over its Q1 numbers, much less its YOY numbers. However, it is unclear how much of the boost is a temporary uptick due to the popularity of trading in meme stocks or a longer-term trend. | Robinhood Key Financials | | | | --- | --- | --- | | | Q1 FY 2021 | Q1 FY 2020 | | Revenue ($M) | 522.2 | 127.6 | | Net Loss ($M) | 1,444.8 | 52.5 | | Net Cumulative Funded Accounts (M) | 18 | 7.2 | Source: [Robinhood S-1](https://www.sec.gov/Archives/edgar/data/1783879/000162828021013318/robinhoods-1.htm#ib5a32e8afc3b422193a2f2891a49e0c9_847) ## How Much Is Robinhood Worth? According to online public database Crunchbase, Robinhood has raised a total of $5.6 billion from investors over 24 funding rounds. The most recent round on Feb. 1, 2021, raised $2.4 billion. Robinhood was valued at $40 billion at its February funding round, substantially higher than the $11.7 billion valuation from its September 2020 round. Among its major backers are Kleiner Perkins, Andreessen Horowitz, and Google Ventures. Robinhood's Founders, Tenev and Bhatt, hold 54.4 million and 80.2 million shares, respectively. After selling about 1.3 million shares each, they have 26.3% and 39% of total voting power over the company due to their control of the company's B-shares, which carry much greater voting power than common shares. At its IPO price of $38 a share, Robinhood has a valuation of approximately $32 billion. ## Additional Company Details One notable factor that could complicate Robinhood's IPO is Securities and Exchange Commission (SEC) Chair Gary Gensler's current focus on reviewing PFOF as a practice. He announced on June 9, 2021, at a conference that the SEC was investigating the role market markers play in the structure of the stock market as well as the role of PFOF. This is more salient because Robinhood has already been in trouble for not delivering best execution on its orders. In December 2020, the SEC found that "Robinhood falsely claimed in a website FAQ between October 2018 and June 2019 that its execution quality matched or beat that of its competitors. The [SEC's] order finds that Robinhood provided inferior trade prices." The SEC said that this practice cost its customers $34.1 million, even when accounting for the savings customers gained by not having to pay commissions. Though Robinhood did not admit to or deny the SEC's filings, it did agree to pay $65 million to settle the charges. However, the SEC has not announced any specific changes or reforms based on this review. ## The Bottom Line Online brokerage firm Robinhood offered its stock Nasdaq exchange under the ticker "HOOD" for $38 a share. The company is selling upward of 57.9 million, with its founders and CFO selling another 2.6 million shares between them. The company expects to raise roughly $2 billion from the IPO, rising to $2.3 billion if the underwriters exercise their greenshoe option. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Robinhood IPO Details Robinhood Markets Inc. is an online brokerage company with a stock trading and investing app aimed at younger retail investors. The company, an early adopter of zero-commission trades, filed for an initial public offering (IPO), submitting an S-1 registration form to the Securities and Exchange Commission (SEC) on July 1, 2021. Robinhood previously filed a confidential IPO on March 23, 2021. On July 28, 2021, Robinhood sold shares in its IPO at $38 per share ahead of its public debut on the Nasdaq on July 29, raising close to $2 billion. The company, which will trade under the ticker symbol HOOD, sold 52.4 million shares, valuing it at $32 billion, which was slightly lower than forecast. A confidential IPO allows a company to submit an initial draft of its S-1 to the SEC, which only needs to be made public 15 days before any promotional roadshow or, if there's no roadshow, 15 days before the IPO. The advantage of filing confidentially is that the company has more control over its IPO date and can make changes to its IPO filing without needing to manage public relations. On July 19, 2021, Robinhood released an amendment to its S-1 form announcing it would be selling 52.4 million shares and its founders and CFO would be selling another 2.6 million, for a total of 55 million shares. It also includes a greenshoe option for 5.5 million additional shares. Robinhood's eponymous app lets users trade over 5,000 stocks and seven cryptocurrencies on its platform. In addition, users can trade in American Depository Receipts (ADRs) for 650 globally listed companies and options contracts for stocks listed on U.S. exchanges and exchange traded funds (ETFs). Key Takeaways Robinhood is a California-based fintech company with a stock trading and investing app targeted to younger retail investors.Robinhood priced its shares at $38 per share on July 28, raising close to $2 billion, valuing the company at $32 billion.Robinhood has raised a total of $5.6 billion from private investors and was reportedly valued at $40 billion at its most recent funding round in February 2021.The company generated $522.2 million in revenue in Q1 of FY 2021 and reported net losses of $1.4 billion.Robinhood was charged by the SEC in December 2020 with delivering subpar trade execution to its customers, and it has been in the news extensively in 2021 due to its popularity with traders involved in the GameStop short squeeze. Robinhood Founding and History Robinhood was founded in 2013 by Stanford graduates Vlad Tenev and Baiju Bhatt. The duo had prior experience on Wall Street before launching Robinhood, having previously founded Celeris, a trading technology firm, and Chronos Research, which sold fintech software to investment banks. The Robinhood app was launched in April 2013 as an app for tracking stocks, in an attempt to create an equivalent of Yahoo Finance for mobile devices. Yahoo and Google Finance went mobile, pushing Robinhood out of that space, so Robinhood raised $16 million from well-known venture capitalists, including Andreessen Horowitz and Ribbit Capital, and pivoted to become a brokerage. Robinhood as we now know it formally launched in Apple's App Store in December 2014. Since then, it has grown in popularity and its monthly active user (MAU) base had expanded to about 17.7 million as of March 31, 2021. Robinhood has been in the news extensively in 2021 due to its popularity with the retail investors who carried out the GameStop short squeeze. Increased trading activity on its platform, however, led to rising demand for margin and the app halted trading activity for GameStop's stock on its platform. The company was also forced to raise additional capital from investors to meet its capital requirements. That incident brought Robinhood under criticism and regulatory scrutiny, and its chief executive officer and co-founder Vlad Tenev had to testify before Congress concerning Robinhood's role in the controversy. Robinhood Company Financials Robinhood is a commission-free brokerage, meaning users do not have to pay fees to trade stocks on its platform. Trading fees have been the traditional way brokerages made money; in the absence of these fees, Robinhood has had to find other ways to generate revenue. Robinhood's biggest source of revenue is from a practice called payment for order flow (PFOF). PFOF refers to money that brokerages receive for directing their customers' trades to particular market makers. Market makers are firms that match buyers and sellers of stocks or other securities. They make money by pocketing the difference between how much the buyer of a stock pays for the stock and the price at which the seller sells it. In order to ensure that there are always buyers and sellers to match up, they pay brokers like Robinhood to send them orders. Brokerages are obligated to find the best execution of trades for their customers, which primarily means that they try to get the best price for trades in the most timely manner. PFOF presents the possibility for a conflict of interest because a brokerage may be paid more to send orders to a market maker who will give worse prices to their customers. Robinhood says it still gets the best execution for its customers, writing on its website that payments from market makers "aren’t considered when your brokerage orders are routed." In the recently submitted S-1 form, Robinhood provided financial results for Q1 of its 2021 fiscal year, which ended March 31, 2021, and results for FY 2020, which ended Dec. 31, 2020. The company generated $522.2 million in revenue in Q1 FY 2021, more than quadrupling on a year-over-year (YOY) basis. However, Robinhood's net losses ballooned, rising to $1.4 billion in Q1 2021 from $52.5 million in Q1 FY 2020. For FY 2020, annual revenue grew 245.5% to $958.8 million, helping the company generate a net income of $7.4 million compared to a net loss of $106.6 million the previous year. Nearly 81% of Robinhood's revenues in Q1 FY 2021 were transaction-based revenues, generated from PFOF, including what the company calls transaction rebates on cryptocurrency trades. About 12% of total revenue was from interest, either charged on margin accounts or from putting customers' uninvested cash in bank accounts and keeping the interest. Finally, close to 8% was generated from other sources, such as subscriptions for Robinhood's premium Gold membership, which allows users to trade on margin. Robinhood's net cumulative funded accounts, a key metric that gauges the number of accounts into which users made an initial deposit or money transfer during a specified period, rose 150% YOY to 18 million in Q1 FY 2021. The company's total book value, the difference between its assets and liabilities, as of the end of the first quarter, was $6.2 billion. Total cash and cash equivalents on Robinhood's balance sheet at the end of the quarter were $4.8 billion. On July 19, 2021, Robinhood released preliminary estimated financial information for the quarter ending June 30, 2021. Because they were preliminary, all numbers were given as estimated ranges. Robinhood's revenue was between $546 million and $574 million, its net losses were between -$537 million and -$487 million, and its estimated number of net cumulative funded accounts was 22.5 million. If that estimate is correct, it would be a substantial increase even over its Q1 numbers, much less its YOY numbers. However, it is unclear how much of the boost is a temporary uptick due to the popularity of trading in meme stocks or a longer-term trend. Robinhood Key Financials   Q1 FY 2021 Q1 FY 2020 Revenue ($M) 522.2 127.6 Net Loss ($M) 1,444.8 52.5 Net Cumulative Funded Accounts (M) 18 7.2 Source: Robinhood S-1 How Much Is Robinhood Worth?  According to online public database Crunchbase, Robinhood has raised a total of $5.6 billion from investors over 24 funding rounds. The most recent round on Feb. 1, 2021, raised $2.4 billion. Robinhood was valued at $40 billion at its February funding round, substantially higher than the $11.7 billion valuation from its September 2020 round. Among its major backers are Kleiner Perkins, Andreessen Horowitz, and Google Ventures. Robinhood's Founders, Tenev and Bhatt, hold 54.4 million and 80.2 million shares, respectively. After selling about 1.3 million shares each, they have 26.3% and 39% of total voting power over the company due to their control of the company's B-shares, which carry much greater voting power than common shares. At its IPO price of $38 a share, Robinhood has a valuation of approximately $32 billion. Additional Company Details One notable factor that could complicate Robinhood's IPO is Securities and Exchange Commission (SEC) Chair Gary Gensler's current focus on reviewing PFOF as a practice. He announced on June 9, 2021, at a conference that the SEC was investigating the role market markers play in the structure of the stock market as well as the role of PFOF. This is more salient because Robinhood has already been in trouble for not delivering best execution on its orders. In December 2020, the SEC found that "Robinhood falsely claimed in a website FAQ between October 2018 and June 2019 that its execution quality matched or beat that of its competitors. The [SEC's] order finds that Robinhood provided inferior trade prices." The SEC said that this practice cost its customers $34.1 million, even when accounting for the savings customers gained by not having to pay commissions. Though Robinhood did not admit to or deny the SEC's filings, it did agree to pay $65 million to settle the charges. However, the SEC has not announced any specific changes or reforms based on this review. The Bottom Line Online brokerage firm Robinhood offered its stock Nasdaq exchange under the ticker "HOOD" for $38 a share. The company is selling upward of 57.9 million, with its founders and CFO selling another 2.6 million shares between them. The company expects to raise roughly $2 billion from the IPO, rising to $2.3 billion if the underwriters exercise their greenshoe option. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

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

Preliminary Prospectus: What it Means, How it Works

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-preliminary-prospectus"></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 Preliminary Prospectus? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A preliminary prospectus is a first draft registration statement that a firm files prior to proceeding with an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipo.asp">initial public offering (IPO)</a> of their securities. The document, filed with the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">Securities and Exchange Commission</a> (SEC), is intended to provide pertinent information to prospective shareholders about the company's business, managers, strategic initiatives, financial statements, and ownership structure. The preliminary prospectus <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/teaser.asp">solicits expressions of interest in the new issue</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 preliminary prospectus—also known as a red herring—provides potential investors with vital information regarding a company or product prior to the Initial Public Offering of said company or product. </li><li>A preliminary prospectus is released prior to any official offer becoming effective. </li><li>The information in a preliminary prospectus can include a company’s plan, the intended use of funds, financial statements, and details regarding management. </li><li>The preliminary prospectus precedes the final prospectus, which offers a price range and issue size for the IPO. </li><li>A preliminary prospectus is often accompanied by a roadshow, wherein a company tries to build interest in their offering.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-preliminary-prospectus-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 Preliminary Prospectus Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The SEC requires that companies print their preliminary <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/prospectus.asp">prospectus</a> with red ink on the left side of the cover. As a result, the document has been nicknamed the "<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/redherring.asp">red herring</a>." A preliminary prospectus has a bold disclaimer on the cover page that states that the registration has not yet become effective. The information that the prospectus contains is, therefore, incomplete and subject to change. Until the registration becomes effective, the securities may not be sold, and the issuer may not accept any offers to buy. </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 preliminary prospectus contains information on the company and the intended use of proceeds from the offering. The company provides details about the products and services that it offers, the market potential for those offerings, its financial statements, and details about company management and major shareholders. The prospectus also contains a legal opinion and information about the risks of the issue. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Once the registration statement becomes effective, the company disseminates a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/finalprospectus.asp">final prospectus</a> that contains the IPO price range and issue size. Expressions of interest then convert to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/order.asp">orders</a> for the issue at the buyer's option. The minimum period between a registration statement filing and its <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/effectivedate.asp">effective date</a> is 20 days. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_13-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_14-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>A roadshow can be a vital accompaniment to a preliminary prospectus, serving as an educational resource for those who may not be familiar with the company. </p></div></div></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_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"> The preliminary prospectus comes in tandem with the issuer’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/roadshow.asp">IPO roadshow</a>. In a roadshow, the company’s senior management and the underwriters travel around the country to present to analysts and fund managers to generate excitement for the company’s securities. Roadshows are critical to the success of initial offerings. </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"> A roadshow may be limited to a single country or may include international stops, depending on the type, size, and hype around the company. In 2012, for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-theory/11/how-an-ipo-is-valued.asp">example</a>, Facebook started its roadshow in New York City and made stops in Boston, Chicago, Denver, and eight other cities. These are relatively standard stops for roadshows within the United States. Underwriters often run the roadshows, utilizing their financial and deal-making expertise. </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"> Facebook began its roadshow presentation with a video, which differed in many respects from other company presentations. In contrast with a traditional powerpoint presentation, Facebook’s video had higher production values and included a soundtrack. It explained Facebook’s business, mission, and thesis about social connectivity and technological change for someone without a background in the industry. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> After some pushback from investors that the video took up too much time in the presentation, Facebook dropped it from the second half of its roadshow and instead let senior management speak. Combined with a preliminary prospectus, this information helped Facebook’s investors make their final decisions. </p></div>

## What Is a Preliminary Prospectus? A preliminary prospectus is a first draft registration statement that a firm files prior to proceeding with an [initial public offering (IPO)](https://www.investopedia.com/terms/i/ipo.asp) of their securities. The document, filed with the [Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) (SEC), is intended to provide pertinent information to prospective shareholders about the company's business, managers, strategic initiatives, financial statements, and ownership structure. The preliminary prospectus [solicits expressions of interest in the new issue](https://www.investopedia.com/terms/t/teaser.asp). ### Key Takeaways * A preliminary prospectus—also known as a red herring—provides potential investors with vital information regarding a company or product prior to the Initial Public Offering of said company or product. * A preliminary prospectus is released prior to any official offer becoming effective. * The information in a preliminary prospectus can include a company’s plan, the intended use of funds, financial statements, and details regarding management. * The preliminary prospectus precedes the final prospectus, which offers a price range and issue size for the IPO. * A preliminary prospectus is often accompanied by a roadshow, wherein a company tries to build interest in their offering. ## How a Preliminary Prospectus Works The SEC requires that companies print their preliminary [prospectus](https://www.investopedia.com/terms/p/prospectus.asp) with red ink on the left side of the cover. As a result, the document has been nicknamed the "[red herring](https://www.investopedia.com/terms/r/redherring.asp)." A preliminary prospectus has a bold disclaimer on the cover page that states that the registration has not yet become effective. The information that the prospectus contains is, therefore, incomplete and subject to change. Until the registration becomes effective, the securities may not be sold, and the issuer may not accept any offers to buy. The preliminary prospectus contains information on the company and the intended use of proceeds from the offering. The company provides details about the products and services that it offers, the market potential for those offerings, its financial statements, and details about company management and major shareholders. The prospectus also contains a legal opinion and information about the risks of the issue. Once the registration statement becomes effective, the company disseminates a [final prospectus](https://www.investopedia.com/terms/f/finalprospectus.asp) that contains the IPO price range and issue size. Expressions of interest then convert to [orders](https://www.investopedia.com/terms/o/order.asp) for the issue at the buyer's option. The minimum period between a registration statement filing and its [effective date](https://www.investopedia.com/terms/e/effectivedate.asp) is 20 days. ### A roadshow can be a vital accompaniment to a preliminary prospectus, serving as an educational resource for those who may not be familiar with the company.  ## Special Considerations The preliminary prospectus comes in tandem with the issuer’s [IPO roadshow](https://www.investopedia.com/terms/r/roadshow.asp). In a roadshow, the company’s senior management and the underwriters travel around the country to present to analysts and fund managers to generate excitement for the company’s securities. Roadshows are critical to the success of initial offerings. A roadshow may be limited to a single country or may include international stops, depending on the type, size, and hype around the company. In 2012, for [example](https://www.investopedia.com/articles/financial-theory/11/how-an-ipo-is-valued.asp), Facebook started its roadshow in New York City and made stops in Boston, Chicago, Denver, and eight other cities. These are relatively standard stops for roadshows within the United States. Underwriters often run the roadshows, utilizing their financial and deal-making expertise. Facebook began its roadshow presentation with a video, which differed in many respects from other company presentations. In contrast with a traditional powerpoint presentation, Facebook’s video had higher production values and included a soundtrack. It explained Facebook’s business, mission, and thesis about social connectivity and technological change for someone without a background in the industry. After some pushback from investors that the video took up too much time in the presentation, Facebook dropped it from the second half of its roadshow and instead let senior management speak. Combined with a preliminary prospectus, this information helped Facebook’s investors make their final decisions.

What Is a Preliminary Prospectus? A preliminary prospectus is a first draft registration statement that a firm files prior to proceeding with an initial public offering (IPO) of their securities. The document, filed with the Securities and Exchange Commission (SEC), is intended to provide pertinent information to prospective shareholders about the company's business, managers, strategic initiatives, financial statements, and ownership structure. The preliminary prospectus solicits expressions of interest in the new issue. Key Takeaways A preliminary prospectus—also known as a red herring—provides potential investors with vital information regarding a company or product prior to the Initial Public Offering of said company or product. A preliminary prospectus is released prior to any official offer becoming effective. The information in a preliminary prospectus can include a company’s plan, the intended use of funds, financial statements, and details regarding management. The preliminary prospectus precedes the final prospectus, which offers a price range and issue size for the IPO. A preliminary prospectus is often accompanied by a roadshow, wherein a company tries to build interest in their offering. How a Preliminary Prospectus Works The SEC requires that companies print their preliminary prospectus with red ink on the left side of the cover. As a result, the document has been nicknamed the "red herring." A preliminary prospectus has a bold disclaimer on the cover page that states that the registration has not yet become effective. The information that the prospectus contains is, therefore, incomplete and subject to change. Until the registration becomes effective, the securities may not be sold, and the issuer may not accept any offers to buy. The preliminary prospectus contains information on the company and the intended use of proceeds from the offering. The company provides details about the products and services that it offers, the market potential for those offerings, its financial statements, and details about company management and major shareholders. The prospectus also contains a legal opinion and information about the risks of the issue. Once the registration statement becomes effective, the company disseminates a final prospectus that contains the IPO price range and issue size. Expressions of interest then convert to orders for the issue at the buyer's option. The minimum period between a registration statement filing and its effective date is 20 days. A roadshow can be a vital accompaniment to a preliminary prospectus, serving as an educational resource for those who may not be familiar with the company.  Special Considerations  The preliminary prospectus comes in tandem with the issuer’s IPO roadshow. In a roadshow, the company’s senior management and the underwriters travel around the country to present to analysts and fund managers to generate excitement for the company’s securities. Roadshows are critical to the success of initial offerings. A roadshow may be limited to a single country or may include international stops, depending on the type, size, and hype around the company. In 2012, for example, Facebook started its roadshow in New York City and made stops in Boston, Chicago, Denver, and eight other cities. These are relatively standard stops for roadshows within the United States. Underwriters often run the roadshows, utilizing their financial and deal-making expertise. Facebook began its roadshow presentation with a video, which differed in many respects from other company presentations. In contrast with a traditional powerpoint presentation, Facebook’s video had higher production values and included a soundtrack. It explained Facebook’s business, mission, and thesis about social connectivity and technological change for someone without a background in the industry. After some pushback from investors that the video took up too much time in the presentation, Facebook dropped it from the second half of its roadshow and instead let senior management speak. Combined with a preliminary prospectus, this information helped Facebook’s investors make their final decisions.

https://www.investopedia.com/should-you-save-your-money-or-invest-it-depends-4692975

Should You Save Your Money or Invest It?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Whether you have an established financial plan or are just beginning to consider how to put your money to work, you should keep in mind the differences between saving and investing. These terms are often used interchangeably, but they represent different approaches to your personal finances. </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’ll want to consider both <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/savings.asp">saving</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investment.asp">investing</a> at different points in your life, but the key is to understand the pros and cons of each, and how they fit into the bigger picture of your financial journey. </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>Understanding the purpose of saving and investing helps in making informed financial decisions.</li><li>Factors such as time horizon, risk tolerance, and financial goals may influence your choice to save or invest.</li><li>Saving offers low risk and quick access to funds, while investing provides the potential for higher returns and wealth growth.</li><li>Determining the right approach requires evaluation of your personal financial situation, goals, and comfort with saving and investing.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-saving-and-investing"></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 Saving and Investing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Saving refers to setting aside cash in a low-risk, low-return environment. This could include traditional or online <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/savingsaccount.asp">savings accounts</a> at banks, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moneymarketaccount.asp">money market accounts</a>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/certificate-of-deposits-4689733">certificates of deposit (CDs)</a>, or even a situation in which you hold onto cash outside of a financial institution. </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"> Money held in one of these settings is more <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp">liquid</a> than money in most investment types, meaning you can access it more quickly and easily if necessary for emergencies or short-term goals. However, in exchange for carrying a lower level of risk than investments, these methods of saving money also provide less of a reward—in this case, they offer lower <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rateofreturn.asp">rates of return</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Investing your money means buying any of several different investment vehicles that carry a higher <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risk.asp">risk</a> and, potentially, a higher reward. Investments may include stocks, bonds, exchange-traded funds (ETFs), commodities, real estate, and more. </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>Not all investment vehicles carry the same levels of risk and reward. Some, such as bonds, may require months or even years before reaching maturity.<br/></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Similarly, there are many ways to access investments, including through retirement accounts, mutual funds, individual stock trading, and more. However, regardless of the type of investment or its particular <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskrewardratio.asp">risk and reward profile</a>, the goal of all investments is the same: to grow your wealth over the long term. </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-factors-to-consider-when-deciding-to-save-or-invest"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> Factors to Consider When Deciding to Save or Invest </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Both saving and investing involve setting aside money now for a future goal or expense. However, the time horizon, level of risk, and most pertinent financial goals vary depending on whether you are looking at saving or investing your money. </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"> Taking a close look at each of these factors can help you determine what to prioritize: </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"> Time Horizon </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> One of the biggest considerations when deciding whether to save or invest is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/timehorizon.asp">time horizon</a> of your financial goals. Some goals have a limited scope or a definite endpoint. In these cases, it may make the most sense to keep your money easily accessible in a savings account or similar vehicle, as you will not hold the money long enough for it to grow significantly in an investment setting. </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="externalLink" href="https://advisor.morganstanley.com/bradley.baskir" rel="sponsored nofollow">Bradley Baskir,</a> vice president and financial advisor at Morgan Stanley in Boston, says that saving is usually preferred “when the time horizon for liquidity is under 12 months.” He adds that saving for short-term goals by “depositing that pool of money in a savings account may make more sense than investing it because [you] can feel confident that the money will be there” when the goal arrives. </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"> On the other hand, other financial goals may be more significant or more open-ended. If you’re planning for retirement, you are more likely thinking years or even decades ahead. Longer-term goals like these benefit from an investment-centered approach. The longer time horizon of these priorities means your money will have the opportunity to grow more significantly if it is invested, and you will not need it to be liquid until you get close to reaching the goal at some point in the future. </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"> Risk Tolerance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Another key factor when deciding about saving or investing is 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>. Risk tolerance refers to the degree of risk that you are willing to take on given the potential volatility of a financial decision. </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"> Saving your money is less risky than investing it. If you invest your money, you stand to potentially lose your principal, or initial investment. </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"> Consider a situation in which you’re looking ahead to a longer-term financial goal. Given time horizon alone, you might be inclined to assume investing is the best approach. However, if you’re also facing uncertainty regarding your job stability, or there are ongoing periods of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-theory/08/volatility.asp">volatility</a> in the market, or you’re otherwise unsure of what your financial situation will be, it may be safest to put your money in a savings account instead. </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 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>Each person has a different <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-advisors/051915/tips-assessing-clients-risk-tolerance.asp">risk tolerance</a>, which is distinct from that person’s risk capacity, or capability to take on risk. Your risk tolerance may be dependent upon factors such as your age, financial goals, and income, among other factors.</p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_39-0"> <span class="mntl-sc-block-subheading__text"> Financial Goals </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Laying out clear <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/100516/setting-financial-goals/">financial goals</a> will help you to decide when it is appropriate to save or invest—or a combination of both. Financial goals may be large, such as preparing for a down payment on a home, a new vehicle, college tuition, or planning for retirement. They may also be more modest, such as saving for a small purchase or a short weekend trip. </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 nature of your financial goals will influence your decision to save or invest. If your goal requires quick access to cash, you’ll likely opt to hold money in a savings account or similarly liquid space. </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 other hand, if you’re hoping for better returns on your money than can be achieved with savings account interest rates and over a long time, then investing may be the answer. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_46-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_47-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>Many financial advisors recommend setting aside an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/emergency_fund.asp">emergency fund</a> in a liquid account before considering investing.</p></div></div></div> <span class="heading-toc" id="toc-pros-and-cons-of-saving"></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"> Pros and Cons of Saving </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Saving offers security but lower potential for rewards. </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>Saving your money entails a low level of risk.</p></li> <li><p>Some methods of saving are insured by the Federal Deposit Insurance Corp. or the National Credit Union Administration.</p></li> <li><p>Savings and similar accounts typically make it easy to access your funds.</p></li> <li><p>Ease of use; most of these accounts do not require regular upkeep or observation.</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>Lower potential returns compared to investing.</p></li> <li><p>Potential for savings accounts to fail to keep up with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a>, eroding your purchasing power over medium- and long-term time horizons.</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-pros-and-cons-of-investing"></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"> Pros and Cons of Investing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> Likewise, investing offers both benefits and downsides. Baskir notes that “investing is by nature a trade-off between risk and return, so those who are willing to stay the course in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversified portfolio</a>, over long periods of time, in any market environment, should stand to be rewarded with returns that outperform that of cash equivalents earned from saving alone.” </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-comparisonlist mntl-block" id="mntl-sc-block_57-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_58-0"> <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>Investing provides the potential for (significantly) higher returns than saving. As your investments grow, they allow you to take advantage of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compoundinterest.asp">compounding</a> to accelerate gains.</p></li> <li><p>Investing offers many different access points and strategies, from individual stocks and bonds to mutual or exchange-traded funds.</p></li> <li><p>Investing your money allows you to buy into companies, industries, and sectors that interest you or that you support.</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>In some cases, investments are less liquid than savings. It may take more time to access your funds, and it could potentially cost you money, as in the case of withdrawing early from retirement accounts.</p></li> <li><p>Markets for stocks, commodities, real estate, and other assets are often highly volatile, meaning that you may not achieve gains and may even lose some of your principal.</p></li> <li><p>Some approaches to investing are very hands-on and require both time and specialized knowledge.</p></li> <li><p>Investors are subject to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bias.asp">biases</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/10/how-to-avoid-emotional-investing.asp">emotion-based</a> decision making, which can adversely impact their investments.</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <span class="heading-toc" id="toc-determining-the-right-approach"></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"> Determining the Right Approach </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> Baskir says that “saving is to walking what investing is to running.” He adds that it’s vital to “have enough saved up for a rainy day, typically equal to three to six months worth of expenses in the event of a layoff, health issues,” or other unexpected changes to a financial situation before investing. </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"> To determine the best approach for you, consider this checklist: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> <li>Do you have an adequate cash cushion to cover three to six months of fixed expenses? If not, start saving.</li><li>Do you have other short-term goals requiring quick access to cash (like travel plans)? If so, start saving.</li><li>Are you on track to reach your retirement goals by your desired age? If not, start investing.</li><li>Do you understand the risks involved in investing this money for a long-term goal such as retirement? You may not be able to access it until age 59½ without taxes and a penalty, plus you’ll face volatility risk, etc.<span class="ql-inline-citation" data-cite="5"></span></li><li>Are you comfortable waiting to access your money in order to take advantage of compounding? If so, you may want to start investing.</li><li>Do you feel comfortable with your current split of saving and investing every month? Where does it feel like you’re falling short?</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_67-0"> <span class="mntl-sc-block-subheading__text"> Saving vs. Investing: Example </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> Let’s say that you are in your late 30s, single, and making a six-figure income. Currently, you have about two months of expenses in savings and just over a year’s salary in your company-sponsored 401(k). You also recently <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/paying-off-student-loans-vs-investing-8609172">paid off your student loans</a> and have $500 to reallocate to your other financial goals, which include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> <li>Boosting your emergency fund to cover at least three months of expenses</li><li>Increasing your retirement savings to ensure that you will be able to retire at age 67 with an income that covers your needs<span class="ql-inline-citation" data-cite="9"></span></li><li>Putting aside extra money for travel</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> The amount you decide to contribute to each category depends on your priorities. It’s also subject to change; for example, you might decide that in the short term, creating an emergency fund that covers three months of expenses is most important. Once that goal is funded, you can move on to putting more money toward retirement (and fun).  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <span class="heading-toc" id="toc-when-to-save"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_74-0"> <span class="mntl-sc-block-heading__text"> When to Save </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> Saving may be the best option for you if you have yet to establish a rainy-day fund if you have a short-term financial goal, if you expect to need access to your funds on short notice, or if your risk tolerance is low and you want to protect your principal. </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"> Choosing a Savings Account </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_78-0"> A variety of savings accounts are available today, including traditional accounts, online-only accounts, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp">high-yield accounts</a>, money market funds, and more. Look to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/savings-accounts-4689728">Investopedia’s in-depth guide</a> for an overview of many of the most popular savings account options and suggestions on how to pick the right account for you. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <span class="heading-toc" id="toc-when-to-invest"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_80-0"> <span class="mntl-sc-block-heading__text"> When to Invest </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_81-0"> Investing could be the choice for you if you already have an emergency fund and if you are planning for a long-term financial goal, if you’re seeking compounding interest on your funds, if you have the flexibility to hold your funds in a less accessible account, or if you have a higher risk tolerance. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_83-0"> <span class="mntl-sc-block-subheading__text"> Choosing a Brokerage Account </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_84-0"> Selecting a way to invest your money can be a much more complex question than selecting a savings account. Most beginning investors will use a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokerageaccount.asp">brokerage account</a> to facilitate trades. Many of the leading brokerages offer an easy-to-use interface, free trades in certain cases, and access to a variety of assets including stocks, mutual and exchange-traded funds, and more. </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"> It pays to consider the ways you plan to invest—actively or passively, what types of asset classes you will target, and so on—and to use <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/complete-guide-choosing-online-stock-broker/">Investopedia’s guide to select a broker.</a><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_87-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_88-0"><span class="heading-toc" id="toc-what-are-the-advantages-of-saving-money-instead-of-investing-it"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Advantages of Saving Money Instead of Investing It?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Some of the advantages of saving over investing include a lower level of risk, easier access to your funds, and a comparably straightforward process.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_89-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_90-0"><span class="heading-toc" id="toc-what-factors-should-be-considered-when-deciding-between-saving-and-investing"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Factors Should Be Considered When Deciding Between Saving and Investing?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Keep in mind your financial goals—large or small, necessary or discretionary—and what the time horizons of those goals are. Your appetite for risk is also important. You can also allocate some funds to saving and some to investing in order to achieve both short- and long-term priorities.<br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_91-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_92-0"><span class="heading-toc" id="toc-can-saving-and-investing-be-done-simultaneously"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can Saving and Investing Be Done Simultaneously?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Absolutely. Advisors recommend that individuals set aside an emergency fund of several months’ worth of expenses in a savings account or similarly liquid option before considering whether to invest additional funds. Further, you may consider saving for some types of financial goals while you also invest in an effort to achieve other goals.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_93-0"></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_94-0"> <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_95-0"> Saving and investing are sometimes used interchangeably, but they represent different ways of using your money. Saving refers to holding your funds in a low-risk, low-return savings account, CD, or money market account, while investing refers to buying and selling stocks, bonds, ETFs, mutual funds, commodities, and/or real estate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_96-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_97-0"> Saving is generally seen as preferable for investors with short-term financial goals, a low risk tolerance, or those in need of an emergency fund. Investing may be the best option for people who already have a rainy-day fund and are focused on longer-term financial goals or those who have a higher risk tolerance. </p></div>

Whether you have an established financial plan or are just beginning to consider how to put your money to work, you should keep in mind the differences between saving and investing. These terms are often used interchangeably, but they represent different approaches to your personal finances. You’ll want to consider both [saving](https://www.investopedia.com/terms/s/savings.asp) and [investing](https://www.investopedia.com/terms/i/investment.asp) at different points in your life, but the key is to understand the pros and cons of each, and how they fit into the bigger picture of your financial journey. ### Key Takeaways * Understanding the purpose of saving and investing helps in making informed financial decisions. * Factors such as time horizon, risk tolerance, and financial goals may influence your choice to save or invest. * Saving offers low risk and quick access to funds, while investing provides the potential for higher returns and wealth growth. * Determining the right approach requires evaluation of your personal financial situation, goals, and comfort with saving and investing. ## Understanding Saving and Investing Saving refers to setting aside cash in a low-risk, low-return environment. This could include traditional or online [savings accounts](https://www.investopedia.com/terms/s/savingsaccount.asp) at banks, [money market accounts](https://www.investopedia.com/terms/m/moneymarketaccount.asp), [certificates of deposit (CDs)](https://www.investopedia.com/certificate-of-deposits-4689733), or even a situation in which you hold onto cash outside of a financial institution. Money held in one of these settings is more [liquid](https://www.investopedia.com/terms/l/liquidity.asp) than money in most investment types, meaning you can access it more quickly and easily if necessary for emergencies or short-term goals. However, in exchange for carrying a lower level of risk than investments, these methods of saving money also provide less of a reward—in this case, they offer lower [rates of return](https://www.investopedia.com/terms/r/rateofreturn.asp). Investing your money means buying any of several different investment vehicles that carry a higher [risk](https://www.investopedia.com/terms/r/risk.asp) and, potentially, a higher reward. Investments may include stocks, bonds, exchange-traded funds (ETFs), commodities, real estate, and more. ### Not all investment vehicles carry the same levels of risk and reward. Some, such as bonds, may require months or even years before reaching maturity. Similarly, there are many ways to access investments, including through retirement accounts, mutual funds, individual stock trading, and more. However, regardless of the type of investment or its particular [risk and reward profile](https://www.investopedia.com/terms/r/riskrewardratio.asp), the goal of all investments is the same: to grow your wealth over the long term. ## Factors to Consider When Deciding to Save or Invest Both saving and investing involve setting aside money now for a future goal or expense. However, the time horizon, level of risk, and most pertinent financial goals vary depending on whether you are looking at saving or investing your money. Taking a close look at each of these factors can help you determine what to prioritize: ### Time Horizon One of the biggest considerations when deciding whether to save or invest is the [time horizon](https://www.investopedia.com/terms/t/timehorizon.asp) of your financial goals. Some goals have a limited scope or a definite endpoint. In these cases, it may make the most sense to keep your money easily accessible in a savings account or similar vehicle, as you will not hold the money long enough for it to grow significantly in an investment setting. [Bradley Baskir,](https://advisor.morganstanley.com/bradley.baskir) vice president and financial advisor at Morgan Stanley in Boston, says that saving is usually preferred “when the time horizon for liquidity is under 12 months.” He adds that saving for short-term goals by “depositing that pool of money in a savings account may make more sense than investing it because [you] can feel confident that the money will be there” when the goal arrives. On the other hand, other financial goals may be more significant or more open-ended. If you’re planning for retirement, you are more likely thinking years or even decades ahead. Longer-term goals like these benefit from an investment-centered approach. The longer time horizon of these priorities means your money will have the opportunity to grow more significantly if it is invested, and you will not need it to be liquid until you get close to reaching the goal at some point in the future. ### Risk Tolerance Another key factor when deciding about saving or investing is your [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp). Risk tolerance refers to the degree of risk that you are willing to take on given the potential volatility of a financial decision. Saving your money is less risky than investing it. If you invest your money, you stand to potentially lose your principal, or initial investment. Consider a situation in which you’re looking ahead to a longer-term financial goal. Given time horizon alone, you might be inclined to assume investing is the best approach. However, if you’re also facing uncertainty regarding your job stability, or there are ongoing periods of [volatility](https://www.investopedia.com/articles/financial-theory/08/volatility.asp) in the market, or you’re otherwise unsure of what your financial situation will be, it may be safest to put your money in a savings account instead. ### Each person has a different [risk tolerance](https://www.investopedia.com/articles/financial-advisors/051915/tips-assessing-clients-risk-tolerance.asp), which is distinct from that person’s risk capacity, or capability to take on risk. Your risk tolerance may be dependent upon factors such as your age, financial goals, and income, among other factors. ### Financial Goals Laying out clear [financial goals](https://www.investopedia.com/articles/personal-finance/100516/setting-financial-goals/) will help you to decide when it is appropriate to save or invest—or a combination of both. Financial goals may be large, such as preparing for a down payment on a home, a new vehicle, college tuition, or planning for retirement. They may also be more modest, such as saving for a small purchase or a short weekend trip. The nature of your financial goals will influence your decision to save or invest. If your goal requires quick access to cash, you’ll likely opt to hold money in a savings account or similarly liquid space. On the other hand, if you’re hoping for better returns on your money than can be achieved with savings account interest rates and over a long time, then investing may be the answer. ### Many financial advisors recommend setting aside an [emergency fund](https://www.investopedia.com/terms/e/emergency_fund.asp) in a liquid account before considering investing. ## Pros and Cons of Saving Saving offers security but lower potential for rewards. Pros * Saving your money entails a low level of risk. * Some methods of saving are insured by the Federal Deposit Insurance Corp. or the National Credit Union Administration. * Savings and similar accounts typically make it easy to access your funds. * Ease of use; most of these accounts do not require regular upkeep or observation. Cons * Lower potential returns compared to investing. * Potential for savings accounts to fail to keep up with [inflation](https://www.investopedia.com/terms/i/inflation.asp), eroding your purchasing power over medium- and long-term time horizons. ## Pros and Cons of Investing Likewise, investing offers both benefits and downsides. Baskir notes that “investing is by nature a trade-off between risk and return, so those who are willing to stay the course in a [diversified portfolio](https://www.investopedia.com/terms/d/diversification.asp), over long periods of time, in any market environment, should stand to be rewarded with returns that outperform that of cash equivalents earned from saving alone.” Pros * Investing provides the potential for (significantly) higher returns than saving. As your investments grow, they allow you to take advantage of [compounding](https://www.investopedia.com/terms/c/compoundinterest.asp) to accelerate gains. * Investing offers many different access points and strategies, from individual stocks and bonds to mutual or exchange-traded funds. * Investing your money allows you to buy into companies, industries, and sectors that interest you or that you support. Cons * In some cases, investments are less liquid than savings. It may take more time to access your funds, and it could potentially cost you money, as in the case of withdrawing early from retirement accounts. * Markets for stocks, commodities, real estate, and other assets are often highly volatile, meaning that you may not achieve gains and may even lose some of your principal. * Some approaches to investing are very hands-on and require both time and specialized knowledge. * Investors are subject to [biases](https://www.investopedia.com/terms/b/bias.asp) and [emotion-based](https://www.investopedia.com/articles/basics/10/how-to-avoid-emotional-investing.asp) decision making, which can adversely impact their investments. ## Determining the Right Approach Baskir says that “saving is to walking what investing is to running.” He adds that it’s vital to “have enough saved up for a rainy day, typically equal to three to six months worth of expenses in the event of a layoff, health issues,” or other unexpected changes to a financial situation before investing. To determine the best approach for you, consider this checklist: * Do you have an adequate cash cushion to cover three to six months of fixed expenses? If not, start saving. * Do you have other short-term goals requiring quick access to cash (like travel plans)? If so, start saving. * Are you on track to reach your retirement goals by your desired age? If not, start investing. * Do you understand the risks involved in investing this money for a long-term goal such as retirement? You may not be able to access it until age 59½ without taxes and a penalty, plus you’ll face volatility risk, etc. * Are you comfortable waiting to access your money in order to take advantage of compounding? If so, you may want to start investing. * Do you feel comfortable with your current split of saving and investing every month? Where does it feel like you’re falling short? ### Saving vs. Investing: Example Let’s say that you are in your late 30s, single, and making a six-figure income. Currently, you have about two months of expenses in savings and just over a year’s salary in your company-sponsored 401(k). You also recently [paid off your student loans](https://www.investopedia.com/paying-off-student-loans-vs-investing-8609172) and have $500 to reallocate to your other financial goals, which include: * Boosting your emergency fund to cover at least three months of expenses * Increasing your retirement savings to ensure that you will be able to retire at age 67 with an income that covers your needs * Putting aside extra money for travel The amount you decide to contribute to each category depends on your priorities. It’s also subject to change; for example, you might decide that in the short term, creating an emergency fund that covers three months of expenses is most important. Once that goal is funded, you can move on to putting more money toward retirement (and fun).  ## When to Save Saving may be the best option for you if you have yet to establish a rainy-day fund if you have a short-term financial goal, if you expect to need access to your funds on short notice, or if your risk tolerance is low and you want to protect your principal. ### Choosing a Savings Account A variety of savings accounts are available today, including traditional accounts, online-only accounts, [high-yield accounts](https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp), money market funds, and more. Look to [Investopedia’s in-depth guide](https://www.investopedia.com/savings-accounts-4689728) for an overview of many of the most popular savings account options and suggestions on how to pick the right account for you. ## When to Invest Investing could be the choice for you if you already have an emergency fund and if you are planning for a long-term financial goal, if you’re seeking compounding interest on your funds, if you have the flexibility to hold your funds in a less accessible account, or if you have a higher risk tolerance. ### Choosing a Brokerage Account Selecting a way to invest your money can be a much more complex question than selecting a savings account. Most beginning investors will use a [brokerage account](https://www.investopedia.com/terms/b/brokerageaccount.asp) to facilitate trades. Many of the leading brokerages offer an easy-to-use interface, free trades in certain cases, and access to a variety of assets including stocks, mutual and exchange-traded funds, and more. It pays to consider the ways you plan to invest—actively or passively, what types of asset classes you will target, and so on—and to use [Investopedia’s guide to select a broker.](https://www.investopedia.com/investing/complete-guide-choosing-online-stock-broker/) ## What Are the Advantages of Saving Money Instead of Investing It? Some of the advantages of saving over investing include a lower level of risk, easier access to your funds, and a comparably straightforward process. ## What Factors Should Be Considered When Deciding Between Saving and Investing? Keep in mind your financial goals—large or small, necessary or discretionary—and what the time horizons of those goals are. Your appetite for risk is also important. You can also allocate some funds to saving and some to investing in order to achieve both short- and long-term priorities. ## Can Saving and Investing Be Done Simultaneously? Absolutely. Advisors recommend that individuals set aside an emergency fund of several months’ worth of expenses in a savings account or similarly liquid option before considering whether to invest additional funds. Further, you may consider saving for some types of financial goals while you also invest in an effort to achieve other goals. ## The Bottom Line Saving and investing are sometimes used interchangeably, but they represent different ways of using your money. Saving refers to holding your funds in a low-risk, low-return savings account, CD, or money market account, while investing refers to buying and selling stocks, bonds, ETFs, mutual funds, commodities, and/or real estate. Saving is generally seen as preferable for investors with short-term financial goals, a low risk tolerance, or those in need of an emergency fund. Investing may be the best option for people who already have a rainy-day fund and are focused on longer-term financial goals or those who have a higher risk tolerance.

Whether you have an established financial plan or are just beginning to consider how to put your money to work, you should keep in mind the differences between saving and investing. These terms are often used interchangeably, but they represent different approaches to your personal finances. You’ll want to consider both saving and investing at different points in your life, but the key is to understand the pros and cons of each, and how they fit into the bigger picture of your financial journey. Key Takeaways Understanding the purpose of saving and investing helps in making informed financial decisions.Factors such as time horizon, risk tolerance, and financial goals may influence your choice to save or invest.Saving offers low risk and quick access to funds, while investing provides the potential for higher returns and wealth growth.Determining the right approach requires evaluation of your personal financial situation, goals, and comfort with saving and investing. Understanding Saving and Investing Saving refers to setting aside cash in a low-risk, low-return environment. This could include traditional or online savings accounts at banks, money market accounts, certificates of deposit (CDs), or even a situation in which you hold onto cash outside of a financial institution. Money held in one of these settings is more liquid than money in most investment types, meaning you can access it more quickly and easily if necessary for emergencies or short-term goals. However, in exchange for carrying a lower level of risk than investments, these methods of saving money also provide less of a reward—in this case, they offer lower rates of return. Investing your money means buying any of several different investment vehicles that carry a higher risk and, potentially, a higher reward. Investments may include stocks, bonds, exchange-traded funds (ETFs), commodities, real estate, and more. Not all investment vehicles carry the same levels of risk and reward. Some, such as bonds, may require months or even years before reaching maturity. Similarly, there are many ways to access investments, including through retirement accounts, mutual funds, individual stock trading, and more. However, regardless of the type of investment or its particular risk and reward profile, the goal of all investments is the same: to grow your wealth over the long term. Factors to Consider When Deciding to Save or Invest Both saving and investing involve setting aside money now for a future goal or expense. However, the time horizon, level of risk, and most pertinent financial goals vary depending on whether you are looking at saving or investing your money. Taking a close look at each of these factors can help you determine what to prioritize: Time Horizon One of the biggest considerations when deciding whether to save or invest is the time horizon of your financial goals. Some goals have a limited scope or a definite endpoint. In these cases, it may make the most sense to keep your money easily accessible in a savings account or similar vehicle, as you will not hold the money long enough for it to grow significantly in an investment setting. Bradley Baskir, vice president and financial advisor at Morgan Stanley in Boston, says that saving is usually preferred “when the time horizon for liquidity is under 12 months.” He adds that saving for short-term goals by “depositing that pool of money in a savings account may make more sense than investing it because [you] can feel confident that the money will be there” when the goal arrives. On the other hand, other financial goals may be more significant or more open-ended. If you’re planning for retirement, you are more likely thinking years or even decades ahead. Longer-term goals like these benefit from an investment-centered approach. The longer time horizon of these priorities means your money will have the opportunity to grow more significantly if it is invested, and you will not need it to be liquid until you get close to reaching the goal at some point in the future. Risk Tolerance Another key factor when deciding about saving or investing is your risk tolerance. Risk tolerance refers to the degree of risk that you are willing to take on given the potential volatility of a financial decision. Saving your money is less risky than investing it. If you invest your money, you stand to potentially lose your principal, or initial investment. Consider a situation in which you’re looking ahead to a longer-term financial goal. Given time horizon alone, you might be inclined to assume investing is the best approach. However, if you’re also facing uncertainty regarding your job stability, or there are ongoing periods of volatility in the market, or you’re otherwise unsure of what your financial situation will be, it may be safest to put your money in a savings account instead. Each person has a different risk tolerance, which is distinct from that person’s risk capacity, or capability to take on risk. Your risk tolerance may be dependent upon factors such as your age, financial goals, and income, among other factors. Financial Goals Laying out clear financial goals will help you to decide when it is appropriate to save or invest—or a combination of both. Financial goals may be large, such as preparing for a down payment on a home, a new vehicle, college tuition, or planning for retirement. They may also be more modest, such as saving for a small purchase or a short weekend trip. The nature of your financial goals will influence your decision to save or invest. If your goal requires quick access to cash, you’ll likely opt to hold money in a savings account or similarly liquid space. On the other hand, if you’re hoping for better returns on your money than can be achieved with savings account interest rates and over a long time, then investing may be the answer. Many financial advisors recommend setting aside an emergency fund in a liquid account before considering investing. Pros and Cons of Saving Saving offers security but lower potential for rewards. Pros Saving your money entails a low level of risk. Some methods of saving are insured by the Federal Deposit Insurance Corp. or the National Credit Union Administration. Savings and similar accounts typically make it easy to access your funds. Ease of use; most of these accounts do not require regular upkeep or observation. Cons Lower potential returns compared to investing. Potential for savings accounts to fail to keep up with inflation, eroding your purchasing power over medium- and long-term time horizons. Pros and Cons of Investing Likewise, investing offers both benefits and downsides. Baskir notes that “investing is by nature a trade-off between risk and return, so those who are willing to stay the course in a diversified portfolio, over long periods of time, in any market environment, should stand to be rewarded with returns that outperform that of cash equivalents earned from saving alone.” Pros Investing provides the potential for (significantly) higher returns than saving. As your investments grow, they allow you to take advantage of compounding to accelerate gains. Investing offers many different access points and strategies, from individual stocks and bonds to mutual or exchange-traded funds. Investing your money allows you to buy into companies, industries, and sectors that interest you or that you support. Cons In some cases, investments are less liquid than savings. It may take more time to access your funds, and it could potentially cost you money, as in the case of withdrawing early from retirement accounts. Markets for stocks, commodities, real estate, and other assets are often highly volatile, meaning that you may not achieve gains and may even lose some of your principal. Some approaches to investing are very hands-on and require both time and specialized knowledge. Investors are subject to biases and emotion-based decision making, which can adversely impact their investments. Determining the Right Approach Baskir says that “saving is to walking what investing is to running.” He adds that it’s vital to “have enough saved up for a rainy day, typically equal to three to six months worth of expenses in the event of a layoff, health issues,” or other unexpected changes to a financial situation before investing. To determine the best approach for you, consider this checklist: Do you have an adequate cash cushion to cover three to six months of fixed expenses? If not, start saving.Do you have other short-term goals requiring quick access to cash (like travel plans)? If so, start saving.Are you on track to reach your retirement goals by your desired age? If not, start investing.Do you understand the risks involved in investing this money for a long-term goal such as retirement? You may not be able to access it until age 59½ without taxes and a penalty, plus you’ll face volatility risk, etc.Are you comfortable waiting to access your money in order to take advantage of compounding? If so, you may want to start investing.Do you feel comfortable with your current split of saving and investing every month? Where does it feel like you’re falling short? Saving vs. Investing: Example Let’s say that you are in your late 30s, single, and making a six-figure income. Currently, you have about two months of expenses in savings and just over a year’s salary in your company-sponsored 401(k). You also recently paid off your student loans and have $500 to reallocate to your other financial goals, which include: Boosting your emergency fund to cover at least three months of expensesIncreasing your retirement savings to ensure that you will be able to retire at age 67 with an income that covers your needsPutting aside extra money for travel The amount you decide to contribute to each category depends on your priorities. It’s also subject to change; for example, you might decide that in the short term, creating an emergency fund that covers three months of expenses is most important. Once that goal is funded, you can move on to putting more money toward retirement (and fun).  When to Save Saving may be the best option for you if you have yet to establish a rainy-day fund if you have a short-term financial goal, if you expect to need access to your funds on short notice, or if your risk tolerance is low and you want to protect your principal. Choosing a Savings Account A variety of savings accounts are available today, including traditional accounts, online-only accounts, high-yield accounts, money market funds, and more. Look to Investopedia’s in-depth guide for an overview of many of the most popular savings account options and suggestions on how to pick the right account for you. When to Invest Investing could be the choice for you if you already have an emergency fund and if you are planning for a long-term financial goal, if you’re seeking compounding interest on your funds, if you have the flexibility to hold your funds in a less accessible account, or if you have a higher risk tolerance. Choosing a Brokerage Account Selecting a way to invest your money can be a much more complex question than selecting a savings account. Most beginning investors will use a brokerage account to facilitate trades. Many of the leading brokerages offer an easy-to-use interface, free trades in certain cases, and access to a variety of assets including stocks, mutual and exchange-traded funds, and more. It pays to consider the ways you plan to invest—actively or passively, what types of asset classes you will target, and so on—and to use Investopedia’s guide to select a broker. What Are the Advantages of Saving Money Instead of Investing It? Some of the advantages of saving over investing include a lower level of risk, easier access to your funds, and a comparably straightforward process. What Factors Should Be Considered When Deciding Between Saving and Investing? Keep in mind your financial goals—large or small, necessary or discretionary—and what the time horizons of those goals are. Your appetite for risk is also important. You can also allocate some funds to saving and some to investing in order to achieve both short- and long-term priorities. Can Saving and Investing Be Done Simultaneously? Absolutely. Advisors recommend that individuals set aside an emergency fund of several months’ worth of expenses in a savings account or similarly liquid option before considering whether to invest additional funds. Further, you may consider saving for some types of financial goals while you also invest in an effort to achieve other goals. The Bottom Line Saving and investing are sometimes used interchangeably, but they represent different ways of using your money. Saving refers to holding your funds in a low-risk, low-return savings account, CD, or money market account, while investing refers to buying and selling stocks, bonds, ETFs, mutual funds, commodities, and/or real estate. Saving is generally seen as preferable for investors with short-term financial goals, a low risk tolerance, or those in need of an emergency fund. Investing may be the best option for people who already have a rainy-day fund and are focused on longer-term financial goals or those who have a higher risk tolerance.

https://www.investopedia.com/terms/h/hm-revenue-and-customs-hmrc.asp

HM Revenue & Customs: Tax Authority of the United Kingdom

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-his-majestys-revenue-and-customs-hmrc"></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 His Majesty's Revenue and Customs (HMRC)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> HM Revenue &amp; Customs (HMRC) is the tax authority of the U.K. government. The agency is responsible for collecting taxes, paying <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/childtaxcredit.asp">child benefits</a>, regulating tax and customs laws, and enforcing the payment of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/minimum_wage.asp">minimum wage</a> by employers.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> HMRC was formed in 2005 following the merger of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inland-revenue.asp">Inland Revenue</a> and the Board of Customs and Excise, the agencies which formerly handled internal taxes and customs collection.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <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>HMRC is the national taxing authority of the U.K.</li><li>HMRC administers certain benefits and tax credit payments to U.K. residents.</li><li>In 2005, HMRC was formed with the merger of Inland Revenue and the Board of Customs and Excise.</li></ul></div></div></div> <span class="heading-toc" id="toc-role-of-the-hmrc"></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"> Role of the HMRC </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> HMRC collects all direct and indirect <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxes.asp">taxes</a> in the U.K., including income tax, corporation tax, capital gains tax, inheritance tax, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valueaddedtax.asp">value-added tax</a> (VAT), excise duties, stamp duty land tax, air passenger duty, and the climate change levy.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_11-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_12-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The HMRC is the British equivalent of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irs.asp">Internal Revenue Service (IRS)</a> in the United States.</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 HMRC oversees the efficient collection of taxes and the transfer of funds to the Treasury so that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/revenue.asp">revenue</a> for public services is available. Employers will submit Full Payment Submission (FPS) and Employer Payment Summaries (EPS) statements with each payroll showing payrolled benefits and deductions from wages.<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"> The HMRC also educates and informs the public about their tax-paying duties. </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-hmrc-divisions"></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"> HMRC Divisions </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> <li><strong>Government Banking Service</strong>: Provides reports to the HM Treasury to ensure an accurate <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cash-management.asp">cash management</a> system.</li> <li><strong>Benefits and Credits</strong>: Administers the payment of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxcredit.asp">tax credits</a>, child benefits, statutory sick pay, and maternity pay.</li> <li><strong>Enforcement and Compliance</strong>: Takes action for non-payment of taxes, recovers unpaid <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loans-4689727">student loans</a>, implements systems to reduce tax avoidance (such as <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dotas-disclosure-tax-avoidance-schemes.asp">DOTAS</a>), and enforces the minimum wage.</li> <li><strong>Customs</strong>: Focuses on the enforcement of customs payments and regulations for <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/insights/what-is-international-trade/">international trade</a> to collect revenue and suppress smuggling and illicit trade in tobacco, alcohol, petroleum, and other goods.<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_19-0"></div> <span class="heading-toc" id="toc-history-of-hmrc"></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"> History of HMRC </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Established in 2005 under the Commissioners for Revenue and Customs Act, the HMRC is a non-ministerial department. The agency reports directly to Parliament through the Treasury, under the leadership of the Chancellor of the Exchequer. The HMRC represents the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/merger.asp">merger</a> of Customs and Excise and the Inland Revenue, combining direct and indirect revenue departments. </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 merger was previously overturned in 1862. In 1909, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/excisetax.asp">excise duties</a> were removed from the administration of the Inland Revenue and were combined with the Board of Customs to form the Board of Customs and Excise. Once again, a 1999 report by the Treasury Committee suggested a merger, citing the potential savings in public expenditure and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/compliance-cost.asp">compliance costs</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"> The decision, announced in March 2004, to merge the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inland-revenue.asp">Inland Revenue</a> and the Board of Customs and Excise was met with some skepticism as the two departments had such different historical and cultural foundations and legal structures.<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> <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-who-oversees-the-hmrc"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Oversees the HMRC?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>HMRC is a non-ministerial department, and the agency reports directly to Parliament through the Treasury under the leadership of the Chancellor of the Exchequer. The Treasury, in turn, supervises spending by HMRC.<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_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-when-was-the-hmrc-established"></span> <h2 class="mntl-sc-block-questionandanswer__question">When Was the HMRC Established?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The HMRC was established by an act of Parliament in 2005.<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_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-where-is-the-headquarters-of-the-hmrc"></span> <h2 class="mntl-sc-block-questionandanswer__question">Where is the Headquarters of the HMRC?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The HMRC is headquartered in Westminster, London.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_33-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> In 2005, the HMRC was formed with the merger of Inland Revenue and the Board of Customs and Excise. His Majesty's Revenue &amp; Customs (HMRC) is the national taxing authority of the United Kingdom that collects all direct and indirect taxes and administers benefits and tax credit payments to residents. The HMRC collects and records Full Payment Submission (FPS) and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/p45-tax.asp">Form P45</a> from employers to document benefit amounts paid in by employees. </p></div>

## What Is His Majesty's Revenue and Customs (HMRC)? HM Revenue & Customs (HMRC) is the tax authority of the U.K. government. The agency is responsible for collecting taxes, paying [child benefits](https://www.investopedia.com/terms/c/childtaxcredit.asp), regulating tax and customs laws, and enforcing the payment of [minimum wage](https://www.investopedia.com/terms/m/minimum_wage.asp) by employers. HMRC was formed in 2005 following the merger of the [Inland Revenue](https://www.investopedia.com/terms/i/inland-revenue.asp) and the Board of Customs and Excise, the agencies which formerly handled internal taxes and customs collection. ### Key Takeaways * HMRC is the national taxing authority of the U.K. * HMRC administers certain benefits and tax credit payments to U.K. residents. * In 2005, HMRC was formed with the merger of Inland Revenue and the Board of Customs and Excise. ## Role of the HMRC HMRC collects all direct and indirect [taxes](https://www.investopedia.com/terms/t/taxes.asp) in the U.K., including income tax, corporation tax, capital gains tax, inheritance tax, [value-added tax](https://www.investopedia.com/terms/v/valueaddedtax.asp) (VAT), excise duties, stamp duty land tax, air passenger duty, and the climate change levy. ### The HMRC is the British equivalent of the [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp) in the United States. The HMRC oversees the efficient collection of taxes and the transfer of funds to the Treasury so that [revenue](https://www.investopedia.com/terms/r/revenue.asp) for public services is available. Employers will submit Full Payment Submission (FPS) and Employer Payment Summaries (EPS) statements with each payroll showing payrolled benefits and deductions from wages. The HMRC also educates and informs the public about their tax-paying duties. ## HMRC Divisions * **Government Banking Service**: Provides reports to the HM Treasury to ensure an accurate [cash management](https://www.investopedia.com/terms/c/cash-management.asp) system. * **Benefits and Credits**: Administers the payment of [tax credits](https://www.investopedia.com/terms/t/taxcredit.asp), child benefits, statutory sick pay, and maternity pay. * **Enforcement and Compliance**: Takes action for non-payment of taxes, recovers unpaid [student loans](https://www.investopedia.com/student-loans-4689727), implements systems to reduce tax avoidance (such as [DOTAS](https://www.investopedia.com/terms/d/dotas-disclosure-tax-avoidance-schemes.asp)), and enforces the minimum wage. * **Customs**: Focuses on the enforcement of customs payments and regulations for [international trade](https://www.investopedia.com/insights/what-is-international-trade/) to collect revenue and suppress smuggling and illicit trade in tobacco, alcohol, petroleum, and other goods. ## History of HMRC Established in 2005 under the Commissioners for Revenue and Customs Act, the HMRC is a non-ministerial department. The agency reports directly to Parliament through the Treasury, under the leadership of the Chancellor of the Exchequer. The HMRC represents the [merger](https://www.investopedia.com/terms/m/merger.asp) of Customs and Excise and the Inland Revenue, combining direct and indirect revenue departments. The merger was previously overturned in 1862. In 1909, the [excise duties](https://www.investopedia.com/terms/e/excisetax.asp) were removed from the administration of the Inland Revenue and were combined with the Board of Customs to form the Board of Customs and Excise. Once again, a 1999 report by the Treasury Committee suggested a merger, citing the potential savings in public expenditure and [compliance costs](https://www.investopedia.com/terms/c/compliance-cost.asp). The decision, announced in March 2004, to merge the [Inland Revenue](https://www.investopedia.com/terms/i/inland-revenue.asp) and the Board of Customs and Excise was met with some skepticism as the two departments had such different historical and cultural foundations and legal structures. ## Who Oversees the HMRC? HMRC is a non-ministerial department, and the agency reports directly to Parliament through the Treasury under the leadership of the Chancellor of the Exchequer. The Treasury, in turn, supervises spending by HMRC. ## When Was the HMRC Established? The HMRC was established by an act of Parliament in 2005. ## Where is the Headquarters of the HMRC? The HMRC is headquartered in Westminster, London. ## The Bottom Line In 2005, the HMRC was formed with the merger of Inland Revenue and the Board of Customs and Excise. His Majesty's Revenue & Customs (HMRC) is the national taxing authority of the United Kingdom that collects all direct and indirect taxes and administers benefits and tax credit payments to residents. The HMRC collects and records Full Payment Submission (FPS) and [Form P45](https://www.investopedia.com/terms/p/p45-tax.asp) from employers to document benefit amounts paid in by employees.

What Is His Majesty's Revenue and Customs (HMRC)? HM Revenue & Customs (HMRC) is the tax authority of the U.K. government. The agency is responsible for collecting taxes, paying child benefits, regulating tax and customs laws, and enforcing the payment of minimum wage by employers. HMRC was formed in 2005 following the merger of the Inland Revenue and the Board of Customs and Excise, the agencies which formerly handled internal taxes and customs collection. Key Takeaways HMRC is the national taxing authority of the U.K.HMRC administers certain benefits and tax credit payments to U.K. residents.In 2005, HMRC was formed with the merger of Inland Revenue and the Board of Customs and Excise. Role of the HMRC HMRC collects all direct and indirect taxes in the U.K., including income tax, corporation tax, capital gains tax, inheritance tax, value-added tax (VAT), excise duties, stamp duty land tax, air passenger duty, and the climate change levy. The HMRC is the British equivalent of the Internal Revenue Service (IRS) in the United States. The HMRC oversees the efficient collection of taxes and the transfer of funds to the Treasury so that revenue for public services is available. Employers will submit Full Payment Submission (FPS) and Employer Payment Summaries (EPS) statements with each payroll showing payrolled benefits and deductions from wages. The HMRC also educates and informs the public about their tax-paying duties. HMRC Divisions Government Banking Service: Provides reports to the HM Treasury to ensure an accurate cash management system. Benefits and Credits: Administers the payment of tax credits, child benefits, statutory sick pay, and maternity pay. Enforcement and Compliance: Takes action for non-payment of taxes, recovers unpaid student loans, implements systems to reduce tax avoidance (such as DOTAS), and enforces the minimum wage. Customs: Focuses on the enforcement of customs payments and regulations for international trade to collect revenue and suppress smuggling and illicit trade in tobacco, alcohol, petroleum, and other goods. History of HMRC Established in 2005 under the Commissioners for Revenue and Customs Act, the HMRC is a non-ministerial department. The agency reports directly to Parliament through the Treasury, under the leadership of the Chancellor of the Exchequer. The HMRC represents the merger of Customs and Excise and the Inland Revenue, combining direct and indirect revenue departments. The merger was previously overturned in 1862. In 1909, the excise duties were removed from the administration of the Inland Revenue and were combined with the Board of Customs to form the Board of Customs and Excise. Once again, a 1999 report by the Treasury Committee suggested a merger, citing the potential savings in public expenditure and compliance costs. The decision, announced in March 2004, to merge the Inland Revenue and the Board of Customs and Excise was met with some skepticism as the two departments had such different historical and cultural foundations and legal structures. Who Oversees the HMRC? HMRC is a non-ministerial department, and the agency reports directly to Parliament through the Treasury under the leadership of the Chancellor of the Exchequer. The Treasury, in turn, supervises spending by HMRC. When Was the HMRC Established? The HMRC was established by an act of Parliament in 2005. Where is the Headquarters of the HMRC? The HMRC is headquartered in Westminster, London. The Bottom Line In 2005, the HMRC was formed with the merger of Inland Revenue and the Board of Customs and Excise. His Majesty's Revenue & Customs (HMRC) is the national taxing authority of the United Kingdom that collects all direct and indirect taxes and administers benefits and tax credit payments to residents. The HMRC collects and records Full Payment Submission (FPS) and Form P45 from employers to document benefit amounts paid in by employees.

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

Field Of Use: 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-field-of-use"></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 Field of Use? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Field of use is a restriction (the opposite of an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/endorsement.asp" rel="noopener noreferrer">endorsement</a>) placed on a license granted for the use of an existing patent, invention, or other intellectual property. It limits the scope of the licensee's right to use it for a particular purpose (or field of use). This stops the patent or trademark from being overused or recklessly used by a single <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/licensee.asp" rel="noopener noreferrer">licensee</a>. It also leaves the licensor free to work with other companies on other uses. </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>Field of use is a restriction placed on a license granted for the use of an existing patent, invention, or other intellectual property.</li><li>Field of use stops the patent or trademark from being overused and leaves the licensor free to work with other companies on other uses.</li><li>In addition to specifying the field of use, a license may specify fields of use from which the licensee is excluded.</li><li>Field of use licensing is particularly useful for technology and scientific research that has, or may come to have, multiple, distinct uses.</li><li>These restrictions are placed on patents or properties to protect the identity of the patent, or to prevent a single licensee from overusing the patent. </li></ul></div></div></div> <span class="heading-toc" id="toc-how-field-of-use-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 Field of Use Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Field of use provisions in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/licensing-agreement.asp">licensing agreements</a> provides licensors with greater control over the use of their intellectual property while maximizing its use and value. They give owners of patents, inventions, or intellectual property greater control over how they are used in the marketplace. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> For example, an illustrator might enter into a licensing agreement with a book publisher that limits the use of an image to the cover of a new book, preventing the image from being used in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/1111/8-of-the-most-successful-ad-campaigns-of-all-time.aspx">advertising campaigns</a>. Or an antibiotic might be licensed for veterinary purposes, but not for humans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_11-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_12-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Licensing agreements delineate the terms under which one party may use property owned by another party.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> In addition to specifying the field of use, the license may specify fields of use from which the licensee is excluded. In exclusive field of use licenses, only one licensee is authorized to use intellectual property. Innovators often license a technology or intellectual property exclusively, but sometimes multiple licensees are needed to fully develop a technology's potential or reach different markets. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Field of use restrictions are commonly used at universities, where teams of researchers may collectively hold a patent, but they may have different views about how the patent should be licensed. For example, if a biochemistry lab at a university isolates a new gene and sequences that have many different commercial uses, field of use restrictions could relate to applications in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/10-stocks-for-the-gene-therapy-revolution-4588910">gene therapy</a>, screening pharmaceutical drug candidates, or for developing a therapeutic based on antisense approaches. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Field of use licensing is often used when granting free licenses or open licenses. This enables the license holder to profit from new uses that might be found for their intellectual property in the future. Field-of-use limitations can also raise <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/antitrust.asp">antitrust</a> issues when such arrangements are used to allocate markets or create cartels. </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"> With any new invention or technology, the licensor must ascertain the possible fields of use. To do this, the licensor needs to brainstorm as many useful applications as possible. For instance, if a lab develops a new organic chemical, the scientist could ask the following questions: Could the chemical be used in a fertilizer? Could the chemical be used to produce a food additive? Could the chemical be used in cleaning products? Could the chemical be used in manufacturing colognes? </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"> Once the licensor has determined all the possible uses, they can then market the technology to companies serving one or more of the markets those use applications represent, maximizing the technology's value.<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-patent-licensing-agreement"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Patent Licensing Agreement?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A patent licensing agreement is a license to use or commercialize products that are covered by one or more patents. These are intricate documents with clear fields of use and usually require significant negotiation. Therefore, they are best drafted with a lawyer if possible.</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-can-a-patented-idea-be-used-for-personal-use"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can a Patented Idea Be Used for Personal Use?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A patented idea, in the U.S., cannot be realized even when the use is strictly personal. Due to the nature of patent infringement laws being so expensive to undertake, it is rare that the owner or licensor will actually pursue a private individual who uses a patent in a strictly personal way. If any money changes hands, it becomes much more likely for a suit to arise.<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_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-are-patent-applications-public"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Patent Applications Public?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>U.S. Patent applications are published and made public, but only after 18 months. At this time they are able to be searched on the U.S. Patent Office website. Note that for provisional patent applications, if they are not examined, they become abandoned and will thus never be published.<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_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-why-do-inventors-license-patents"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Do Inventors License Patents?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Inventors license patents as a way to generate income. Inventors can also license patents if they patented something that requires too much capital for them to produce themselves.</p><p>In this case, they would license the patent to someone who had the capital or machinery required to produce the patented design. Patent licensing is not the same as a patent transfer. With a patent transfer, the inventor gives up the right as the owner of the patent.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Field of use is used to restrict what can actually be done with a patent or intellectual property. This can be used to help protect the patent's reputation and allows the owner or licensor of the patent to exact specific controls over how exactly the patent or property can be used. In many cases, the licensor or owner considers field of use when the product or patent has the potential to be used in alternate ways than what the owner or licensor intended. </p></div>

## What Is Field of Use? Field of use is a restriction (the opposite of an [endorsement](https://www.investopedia.com/terms/e/endorsement.asp)) placed on a license granted for the use of an existing patent, invention, or other intellectual property. It limits the scope of the licensee's right to use it for a particular purpose (or field of use). This stops the patent or trademark from being overused or recklessly used by a single [licensee](https://www.investopedia.com/terms/l/licensee.asp). It also leaves the licensor free to work with other companies on other uses. ### Key Takeaways * Field of use is a restriction placed on a license granted for the use of an existing patent, invention, or other intellectual property. * Field of use stops the patent or trademark from being overused and leaves the licensor free to work with other companies on other uses. * In addition to specifying the field of use, a license may specify fields of use from which the licensee is excluded. * Field of use licensing is particularly useful for technology and scientific research that has, or may come to have, multiple, distinct uses. * These restrictions are placed on patents or properties to protect the identity of the patent, or to prevent a single licensee from overusing the patent. ## How Field of Use Works Field of use provisions in [licensing agreements](https://www.investopedia.com/terms/l/licensing-agreement.asp) provides licensors with greater control over the use of their intellectual property while maximizing its use and value. They give owners of patents, inventions, or intellectual property greater control over how they are used in the marketplace. For example, an illustrator might enter into a licensing agreement with a book publisher that limits the use of an image to the cover of a new book, preventing the image from being used in [advertising campaigns](https://www.investopedia.com/financial-edge/1111/8-of-the-most-successful-ad-campaigns-of-all-time.aspx). Or an antibiotic might be licensed for veterinary purposes, but not for humans. ### Licensing agreements delineate the terms under which one party may use property owned by another party. In addition to specifying the field of use, the license may specify fields of use from which the licensee is excluded. In exclusive field of use licenses, only one licensee is authorized to use intellectual property. Innovators often license a technology or intellectual property exclusively, but sometimes multiple licensees are needed to fully develop a technology's potential or reach different markets. Field of use restrictions are commonly used at universities, where teams of researchers may collectively hold a patent, but they may have different views about how the patent should be licensed. For example, if a biochemistry lab at a university isolates a new gene and sequences that have many different commercial uses, field of use restrictions could relate to applications in [gene therapy](https://www.investopedia.com/10-stocks-for-the-gene-therapy-revolution-4588910), screening pharmaceutical drug candidates, or for developing a therapeutic based on antisense approaches. ## Special Considerations Field of use licensing is often used when granting free licenses or open licenses. This enables the license holder to profit from new uses that might be found for their intellectual property in the future. Field-of-use limitations can also raise [antitrust](https://www.investopedia.com/terms/a/antitrust.asp) issues when such arrangements are used to allocate markets or create cartels. With any new invention or technology, the licensor must ascertain the possible fields of use. To do this, the licensor needs to brainstorm as many useful applications as possible. For instance, if a lab develops a new organic chemical, the scientist could ask the following questions: Could the chemical be used in a fertilizer? Could the chemical be used to produce a food additive? Could the chemical be used in cleaning products? Could the chemical be used in manufacturing colognes? Once the licensor has determined all the possible uses, they can then market the technology to companies serving one or more of the markets those use applications represent, maximizing the technology's value. ## What Is a Patent Licensing Agreement? A patent licensing agreement is a license to use or commercialize products that are covered by one or more patents. These are intricate documents with clear fields of use and usually require significant negotiation. Therefore, they are best drafted with a lawyer if possible. ## Can a Patented Idea Be Used for Personal Use? A patented idea, in the U.S., cannot be realized even when the use is strictly personal. Due to the nature of patent infringement laws being so expensive to undertake, it is rare that the owner or licensor will actually pursue a private individual who uses a patent in a strictly personal way. If any money changes hands, it becomes much more likely for a suit to arise. ## Are Patent Applications Public? U.S. Patent applications are published and made public, but only after 18 months. At this time they are able to be searched on the U.S. Patent Office website. Note that for provisional patent applications, if they are not examined, they become abandoned and will thus never be published. ## Why Do Inventors License Patents? Inventors license patents as a way to generate income. Inventors can also license patents if they patented something that requires too much capital for them to produce themselves. In this case, they would license the patent to someone who had the capital or machinery required to produce the patented design. Patent licensing is not the same as a patent transfer. With a patent transfer, the inventor gives up the right as the owner of the patent. ## The Bottom Line Field of use is used to restrict what can actually be done with a patent or intellectual property. This can be used to help protect the patent's reputation and allows the owner or licensor of the patent to exact specific controls over how exactly the patent or property can be used. In many cases, the licensor or owner considers field of use when the product or patent has the potential to be used in alternate ways than what the owner or licensor intended.

What Is Field of Use? Field of use is a restriction (the opposite of an endorsement) placed on a license granted for the use of an existing patent, invention, or other intellectual property. It limits the scope of the licensee's right to use it for a particular purpose (or field of use). This stops the patent or trademark from being overused or recklessly used by a single licensee. It also leaves the licensor free to work with other companies on other uses. Key Takeaways Field of use is a restriction placed on a license granted for the use of an existing patent, invention, or other intellectual property.Field of use stops the patent or trademark from being overused and leaves the licensor free to work with other companies on other uses.In addition to specifying the field of use, a license may specify fields of use from which the licensee is excluded.Field of use licensing is particularly useful for technology and scientific research that has, or may come to have, multiple, distinct uses.These restrictions are placed on patents or properties to protect the identity of the patent, or to prevent a single licensee from overusing the patent. How Field of Use Works Field of use provisions in licensing agreements provides licensors with greater control over the use of their intellectual property while maximizing its use and value. They give owners of patents, inventions, or intellectual property greater control over how they are used in the marketplace. For example, an illustrator might enter into a licensing agreement with a book publisher that limits the use of an image to the cover of a new book, preventing the image from being used in advertising campaigns. Or an antibiotic might be licensed for veterinary purposes, but not for humans. Licensing agreements delineate the terms under which one party may use property owned by another party. In addition to specifying the field of use, the license may specify fields of use from which the licensee is excluded. In exclusive field of use licenses, only one licensee is authorized to use intellectual property. Innovators often license a technology or intellectual property exclusively, but sometimes multiple licensees are needed to fully develop a technology's potential or reach different markets. Field of use restrictions are commonly used at universities, where teams of researchers may collectively hold a patent, but they may have different views about how the patent should be licensed. For example, if a biochemistry lab at a university isolates a new gene and sequences that have many different commercial uses, field of use restrictions could relate to applications in gene therapy, screening pharmaceutical drug candidates, or for developing a therapeutic based on antisense approaches. Special Considerations Field of use licensing is often used when granting free licenses or open licenses. This enables the license holder to profit from new uses that might be found for their intellectual property in the future. Field-of-use limitations can also raise antitrust issues when such arrangements are used to allocate markets or create cartels. With any new invention or technology, the licensor must ascertain the possible fields of use. To do this, the licensor needs to brainstorm as many useful applications as possible. For instance, if a lab develops a new organic chemical, the scientist could ask the following questions: Could the chemical be used in a fertilizer? Could the chemical be used to produce a food additive? Could the chemical be used in cleaning products? Could the chemical be used in manufacturing colognes? Once the licensor has determined all the possible uses, they can then market the technology to companies serving one or more of the markets those use applications represent, maximizing the technology's value. What Is a Patent Licensing Agreement? A patent licensing agreement is a license to use or commercialize products that are covered by one or more patents. These are intricate documents with clear fields of use and usually require significant negotiation. Therefore, they are best drafted with a lawyer if possible. Can a Patented Idea Be Used for Personal Use? A patented idea, in the U.S., cannot be realized even when the use is strictly personal. Due to the nature of patent infringement laws being so expensive to undertake, it is rare that the owner or licensor will actually pursue a private individual who uses a patent in a strictly personal way. If any money changes hands, it becomes much more likely for a suit to arise. Are Patent Applications Public? U.S. Patent applications are published and made public, but only after 18 months. At this time they are able to be searched on the U.S. Patent Office website. Note that for provisional patent applications, if they are not examined, they become abandoned and will thus never be published. Why Do Inventors License Patents? Inventors license patents as a way to generate income. Inventors can also license patents if they patented something that requires too much capital for them to produce themselves.In this case, they would license the patent to someone who had the capital or machinery required to produce the patented design. Patent licensing is not the same as a patent transfer. With a patent transfer, the inventor gives up the right as the owner of the patent. The Bottom Line Field of use is used to restrict what can actually be done with a patent or intellectual property. This can be used to help protect the patent's reputation and allows the owner or licensor of the patent to exact specific controls over how exactly the patent or property can be used. In many cases, the licensor or owner considers field of use when the product or patent has the potential to be used in alternate ways than what the owner or licensor intended.

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

Preferred Redeemable Increased Dividend Equity Security (PRIDES)

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-preferred-redeemable-increased-dividend-equity-securities-prides"></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 Preferred Redeemable Increased Dividend Equity Securities (PRIDES)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Preferred Redeemable Increased Dividend Equity Securities, or PRIDES, are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/synthetic.asp">synthetic</a> securities consisting of a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forwardcontract.asp">forward contract</a> to purchase the issuer's underlying security and an interest-bearing deposit for a specific price. Interest payments are made at regular intervals, and conversion into the underlying security is mandatory at maturity. PRIDES were first introduced by Merrill Lynch &amp; Co. </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>Preferred Redeemable Increased Dividend Equity Securities (PRIDES) are synthetic securities consisting of a forward contract to purchase the issuer's underlying security and an interest-bearing deposit for a specific price. </li><li>PRIDES were first introduced by Merrill Lynch &amp; Co.</li><li>They are similar to mandatory convertible securities in that the preferred share must be converted into common stock by a certain date.</li><li>PRIDES allow investors to earn stable cash flows while still participating in the capital gains of an underlying stock. </li><li>PRIDES are considered a preferred stock because they have priority over common stock and carry rights beyond those of common stock.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-preferred-redeemable-increased-dividend-equity-security-prides"></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 Preferred Redeemable Increased Dividend Equity Security (PRIDES) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> PRIDES are similar to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mandatoryconvertible.asp">mandatory convertible</a> securities but have a different structure. They are similar in that the preferred share must be converted into <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commonstock.asp">common stock</a> by a certain date. A publicly traded company issues convertible securities when it needs to raise capital by issuing stock, but doing so would potentially put a strain on the price of current shares. </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"> PRIDES allow investors to earn stable cash flows while still participating in the capital gains of an underlying stock. This is possible because these products are valued along the same lines as the underlying security.  </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"> Though there are differences in mandatory convertibles and their underlying structures, there are common features of which PRIDES also share: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> <li>The mandatory conversion to equity once the convertible matures.</li><li>An appreciation cap or limit, as opposed to common stock.</li><li>The dividend yield is typically higher than that of common stock. Additionally, many mandatory convertible securities have tax advantages.</li> </ol> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> PRIDES are considered a preferred stock because they have priority over common stock and carry rights beyond those of common stock. For example, owners of preferred shares may have an advantage should a company file bankruptcy or liquidate. </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"> Preferred stocks can be issued by a company of any size, and they have characteristics of both <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/equity.asp">equity</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debt.asp">debt</a>. Holders of PRIDES do not have voting rights, whereas holders of common stock generally vote on many issues. However, holders of PRIDES often receive a considerably higher dividend than common shareholders, which is a significant advantage. </p></div>

## What Are Preferred Redeemable Increased Dividend Equity Securities (PRIDES)? Preferred Redeemable Increased Dividend Equity Securities, or PRIDES, are [synthetic](https://www.investopedia.com/terms/s/synthetic.asp) securities consisting of a [forward contract](https://www.investopedia.com/terms/f/forwardcontract.asp) to purchase the issuer's underlying security and an interest-bearing deposit for a specific price. Interest payments are made at regular intervals, and conversion into the underlying security is mandatory at maturity. PRIDES were first introduced by Merrill Lynch & Co. ### Key Takeaways * Preferred Redeemable Increased Dividend Equity Securities (PRIDES) are synthetic securities consisting of a forward contract to purchase the issuer's underlying security and an interest-bearing deposit for a specific price. * PRIDES were first introduced by Merrill Lynch & Co. * They are similar to mandatory convertible securities in that the preferred share must be converted into common stock by a certain date. * PRIDES allow investors to earn stable cash flows while still participating in the capital gains of an underlying stock. * PRIDES are considered a preferred stock because they have priority over common stock and carry rights beyond those of common stock. ## Understanding Preferred Redeemable Increased Dividend Equity Security (PRIDES) PRIDES are similar to [mandatory convertible](https://www.investopedia.com/terms/m/mandatoryconvertible.asp) securities but have a different structure. They are similar in that the preferred share must be converted into [common stock](https://www.investopedia.com/terms/c/commonstock.asp) by a certain date. A publicly traded company issues convertible securities when it needs to raise capital by issuing stock, but doing so would potentially put a strain on the price of current shares. PRIDES allow investors to earn stable cash flows while still participating in the capital gains of an underlying stock. This is possible because these products are valued along the same lines as the underlying security.  Though there are differences in mandatory convertibles and their underlying structures, there are common features of which PRIDES also share: 1. The mandatory conversion to equity once the convertible matures. 2. An appreciation cap or limit, as opposed to common stock. 3. The dividend yield is typically higher than that of common stock. Additionally, many mandatory convertible securities have tax advantages. PRIDES are considered a preferred stock because they have priority over common stock and carry rights beyond those of common stock. For example, owners of preferred shares may have an advantage should a company file bankruptcy or liquidate. Preferred stocks can be issued by a company of any size, and they have characteristics of both [equity](https://www.investopedia.com/terms/e/equity.asp) and [debt](https://www.investopedia.com/terms/d/debt.asp). Holders of PRIDES do not have voting rights, whereas holders of common stock generally vote on many issues. However, holders of PRIDES often receive a considerably higher dividend than common shareholders, which is a significant advantage.

What Are Preferred Redeemable Increased Dividend Equity Securities (PRIDES)? Preferred Redeemable Increased Dividend Equity Securities, or PRIDES, are synthetic securities consisting of a forward contract to purchase the issuer's underlying security and an interest-bearing deposit for a specific price. Interest payments are made at regular intervals, and conversion into the underlying security is mandatory at maturity. PRIDES were first introduced by Merrill Lynch & Co. Key Takeaways Preferred Redeemable Increased Dividend Equity Securities (PRIDES) are synthetic securities consisting of a forward contract to purchase the issuer's underlying security and an interest-bearing deposit for a specific price. PRIDES were first introduced by Merrill Lynch & Co.They are similar to mandatory convertible securities in that the preferred share must be converted into common stock by a certain date.PRIDES allow investors to earn stable cash flows while still participating in the capital gains of an underlying stock. PRIDES are considered a preferred stock because they have priority over common stock and carry rights beyond those of common stock. Understanding Preferred Redeemable Increased Dividend Equity Security (PRIDES) PRIDES are similar to mandatory convertible securities but have a different structure. They are similar in that the preferred share must be converted into common stock by a certain date. A publicly traded company issues convertible securities when it needs to raise capital by issuing stock, but doing so would potentially put a strain on the price of current shares. PRIDES allow investors to earn stable cash flows while still participating in the capital gains of an underlying stock. This is possible because these products are valued along the same lines as the underlying security.  Though there are differences in mandatory convertibles and their underlying structures, there are common features of which PRIDES also share: The mandatory conversion to equity once the convertible matures.An appreciation cap or limit, as opposed to common stock.The dividend yield is typically higher than that of common stock. Additionally, many mandatory convertible securities have tax advantages. PRIDES are considered a preferred stock because they have priority over common stock and carry rights beyond those of common stock. For example, owners of preferred shares may have an advantage should a company file bankruptcy or liquidate. Preferred stocks can be issued by a company of any size, and they have characteristics of both equity and debt. Holders of PRIDES do not have voting rights, whereas holders of common stock generally vote on many issues. However, holders of PRIDES often receive a considerably higher dividend than common shareholders, which is a significant advantage.

https://www.investopedia.com/ask/answers/07/cmo-cbo.asp

Collateralized Mortgage Obligation vs. Collateralized Bond Obligation

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Both <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cmo.asp">collateralized mortgage obligations</a> (CMOs) and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cbo.asp">collateralized bond obligations</a> (CBOs) are similar in that investors receive payments from a pool of underlying assets. The difference between these securities lies in the type of assets that provide cash flow to investors. </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-what-is-a-collateralized-mortgage-obligation"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_3-0"> <span class="mntl-sc-block-heading__text"> What Is a Collateralized Mortgage Obligation? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> A CMO is a type of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mbs.asp">mortgage-backed security</a> (MBS) with separate pools of pass-through security mortgages that contain varying classes of holders and maturities (tranches). When the mortgages underlying a CMO are of poor credit quality, such as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/subprimeloan.asp">subprime loans</a>, over-collateralization will occur. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> In over-collateralization, the issuer will post more <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collateral.asp">collateral</a> than is necessary in an attempt to obtain a better <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rating.asp">debt rating</a> from a credit rating agency. A better rating is often assigned because investors are cushioned (to some extent) from a certain level of default on mortgages within the pool. The principal repayments from the mortgages are paid to investors at various rates, depending on which <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tranches.asp">tranche</a> the investor buys into. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> (For more on this, see <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/06/mortgagebackedsecurities.asp"><em>Profit From Mortgage Debt With MBS</em></a>.) </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-what-is-a-collateralized-bond-obligation"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> What Is a Collateralized Bond Obligation? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> On the other hand, a CBO is an investment-grade bond backed by a pool of low-grade debt securities, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/j/junkbond.asp">junk bonds</a>, rather than mortgages. CBOs are separated into tranches based on various levels of credit risk, rather than different maturities. </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"> Like CMOs, CBOs are also able to increase their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditrating.asp">credit ratings</a>. However, their credit rating is increased to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentgrade.asp">investment grade</a> through the diversification of various bond qualities, rather than through over-collateralization. </p></div>

Both [collateralized mortgage obligations](https://www.investopedia.com/terms/c/cmo.asp) (CMOs) and [collateralized bond obligations](https://www.investopedia.com/terms/c/cbo.asp) (CBOs) are similar in that investors receive payments from a pool of underlying assets. The difference between these securities lies in the type of assets that provide cash flow to investors. ## What Is a Collateralized Mortgage Obligation? A CMO is a type of [mortgage-backed security](https://www.investopedia.com/terms/m/mbs.asp) (MBS) with separate pools of pass-through security mortgages that contain varying classes of holders and maturities (tranches). When the mortgages underlying a CMO are of poor credit quality, such as [subprime loans](https://www.investopedia.com/terms/s/subprimeloan.asp), over-collateralization will occur. In over-collateralization, the issuer will post more [collateral](https://www.investopedia.com/terms/c/collateral.asp) than is necessary in an attempt to obtain a better [debt rating](https://www.investopedia.com/terms/r/rating.asp) from a credit rating agency. A better rating is often assigned because investors are cushioned (to some extent) from a certain level of default on mortgages within the pool. The principal repayments from the mortgages are paid to investors at various rates, depending on which [tranche](https://www.investopedia.com/terms/t/tranches.asp) the investor buys into. (For more on this, see [*Profit From Mortgage Debt With MBS*](https://www.investopedia.com/articles/06/mortgagebackedsecurities.asp).) ## What Is a Collateralized Bond Obligation? On the other hand, a CBO is an investment-grade bond backed by a pool of low-grade debt securities, such as [junk bonds](https://www.investopedia.com/terms/j/junkbond.asp), rather than mortgages. CBOs are separated into tranches based on various levels of credit risk, rather than different maturities. Like CMOs, CBOs are also able to increase their [credit ratings](https://www.investopedia.com/terms/c/creditrating.asp). However, their credit rating is increased to [investment grade](https://www.investopedia.com/terms/i/investmentgrade.asp) through the diversification of various bond qualities, rather than through over-collateralization.

Both collateralized mortgage obligations (CMOs) and collateralized bond obligations (CBOs) are similar in that investors receive payments from a pool of underlying assets. The difference between these securities lies in the type of assets that provide cash flow to investors. What Is a Collateralized Mortgage Obligation? A CMO is a type of mortgage-backed security (MBS) with separate pools of pass-through security mortgages that contain varying classes of holders and maturities (tranches). When the mortgages underlying a CMO are of poor credit quality, such as subprime loans, over-collateralization will occur. In over-collateralization, the issuer will post more collateral than is necessary in an attempt to obtain a better debt rating from a credit rating agency. A better rating is often assigned because investors are cushioned (to some extent) from a certain level of default on mortgages within the pool. The principal repayments from the mortgages are paid to investors at various rates, depending on which tranche the investor buys into. (For more on this, see Profit From Mortgage Debt With MBS.) What Is a Collateralized Bond Obligation? On the other hand, a CBO is an investment-grade bond backed by a pool of low-grade debt securities, such as junk bonds, rather than mortgages. CBOs are separated into tranches based on various levels of credit risk, rather than different maturities. Like CMOs, CBOs are also able to increase their credit ratings. However, their credit rating is increased to investment grade through the diversification of various bond qualities, rather than through over-collateralization.

https://www.investopedia.com/articles/trading/05/021605.asp

Commodities: The Portfolio Hedge

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 people picture a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trading_floor.asp#axzz1nawaf0yr">trading floor</a> at a futures exchange as a scene of utter chaos, with fierce shouting matches, frantic hand signals, and high-strung traders jockeying to get their orders executed, which is not too far from the truth. These markets are where buyers and sellers come together to trade an ever-expanding list of commodities. That list today includes agricultural goods, metals and petroleum, and products such as financial instruments, foreign currencies, and stock indexes that trade on a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commodity.asp">commodity</a> exchange. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> At the center of this supposed disorder are products that offer a haven of sorts—a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedge.asp#axzz1nawaf0yr">hedge</a> against <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inflation.asp">inflation</a>. Because commodities prices typically rise when inflation is accelerating, they offer protection from the effects of inflation. Few assets benefit from rising inflation, particularly unexpected inflation, but commodities usually do. As the demand for goods and services increases, the price of goods and services rises as does the price of the commodities used to produce those goods and services. Futures markets are thus used as continuous auction markets and as clearinghouses for the latest information on supply and demand. </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>Commodities are produced or extracted products, often natural resources or agricultural goods, that are often used as inputs into other processes.</li><li>Allocating some of your portfolio to commodities is recommended by many experts as it is seen as a diversifier asset class.</li><li>Moreover, some commodities tend to be a good hedge against inflation, such as precious metals and energy products.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-are-commodities"></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 Commodities? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Commodities are goods that are more or less uniform in quality and utility regardless of their source. For instance, when shoppers buy an ear of corn or a bag of wheat flour at a supermarket, most don't pay much attention to where they were grown or milled. Commodity goods are interchangeable, and by that broad definition, a whole host of products where people don't particularly care about the brand could potentially qualify as commodities. Investors tend to take a more specific view, most often referring to a select group of basic goods that are in demand across the globe. Many commodities that investors focus on are raw materials for manufactured finished goods. </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"> Investors break down commodities into two categories: hard and soft. Hard commodities require mining or drilling, such as metals like gold, copper, and aluminum, and energy products like crude oil, natural gas, and unleaded gasoline. Soft commodities refer to things that are grown or ranched, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/corn-soy-wheat-for-investors-8546787">corn, wheat, soybeans</a>, and cattle. </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-benchmarks-for-broad-commodity-investing"></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"> Benchmarks for Broad Commodity Investing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Benchmarking your portfolio performance is crucial because it allows you to gauge your risk tolerance and expectations for return. More importantly, benchmarking provides a basis for a comparison of your portfolio performance with the rest of the market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> For commodities, the S&amp;P GSCI Total Return Index is considered a broad commodity index and a good benchmark. It holds all futures contracts for commodities such as oil, wheat, corn, aluminum, live cattle, and gold.<span class="ql-inline-citation" data-cite="8"></span> The S&amp;P GSCI is a production-weighted index based on the significance of each commodity in the global economy, or the commodities that are produced in greater quantities, so it is a better gauge of their value in the market place similar to the market-cap-weighted indexes for equities.<span class="ql-inline-citation" data-cite="7"></span> The index is considered more representative of the commodity market compared to similar indexes. </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-why-commodities-add-value"></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"> Why Commodities Add Value </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Commodities tend to bear a low to negative <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/correlation.asp">correlation</a> to traditional asset classes like stocks and bonds. A correlation coefficient is a number between -1 and 1 that measures the degree to which two variables are linearly related. If there is a perfect linear relationship, the correlation coefficient will be 1. A positive correlation means that when one variable has a high (low) value, so does the other. If there is a perfect negative relationship between the two variables, the correlation coefficient will be -1. A <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/negative-correlation.asp">negative correlation</a> means that when one variable has a low (high) value, the other will have a high (low) value. A correlation coefficient of 0 means that there is no linear relationship between the variables. </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"> Typically, U.S. equities, whether in the form of stocks or mutual funds, are closely related to each other and tend to have a positive correlation with one another. Commodities, on the other hand, are a bet on unexpected inflation, and they have a low to negative correlation to other asset classes.<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_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Commodities can and have offered superior returns, but they still are one of the more volatile asset classes available. They carry a higher <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/standarddeviation.asp">standard deviation</a> (or risk) than most other equity investments. However, by adding commodities to a portfolio of assets that are less volatile, the overall portfolio risk decreases due to the negative correlation. </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>For the decade 2011 through 2020, the annual performance of the S&amp;P GSCI has been negative in seven out of ten years. Therefore, some investors have questioned the value of commodities in their portfolios and if commodities could continue to decline in the future.<span class="ql-inline-citation" data-cite="11"></span></p></div></div></div> <span class="heading-toc" id="toc-how-volatile-are-different-commodities"></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"> How Volatile Are Different Commodities </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Supply-and-demand dynamics are the main reason commodity prices change. When there's a big harvest of a certain crop, its price usually goes down, while drought conditions can make prices rise from fears that future supplies will be smaller than expected. Similarly, when the weather is cold, demand for natural gas for heating purposes often makes prices rise, while a warm spell during the winter months can depress prices. </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"> Because the supply and demand characteristics change frequently, volatility in commodities tends to be higher than for stocks, bonds, and other types of assets. Some commodities show more stability than others, such as gold, which also serves as a reserve asset for central banks to buffer against volatility. Yet even gold becomes volatile sometimes, and other commodities tend to switch between stable and volatile conditions depending on market dynamics. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <span class="heading-toc" id="toc-the-history-of-commodity-trading"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> The History of Commodity Trading </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> People have traded various commodity goods for millennia. The earliest formal commodities exchanges are among those in Amsterdam in the 16th century and Osaka, Japan, in the 17th century.<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="9"></span> Only in the mid-19th century did commodity futures trading begin at the Chicago Board of Trade and the predecessor to what eventually became known as the New York Mercantile Exchange.<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"> Many early commodities trading markets were the result of producers coming together with a common interest. By pooling resources, producers could ensure orderly markets and avoid cutthroat competition. Early on, many commodity trading venues focused on single goods, but over time, these markets aggregated to become broader-based commodities trading markets with a variety of goods in the same place. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <span class="heading-toc" id="toc-how-to-invest-in-commodities"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> How to Invest in Commodities </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> There are four ways to invest in commodities: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> <li>Investing directly in the commodity.</li><li>Using commodity futures contracts to invest.</li><li>Buying shares of exchange-traded funds (ETFs) that specialize in commodities.</li><li>Buying shares of stock in companies that produce commodities.</li> </ol> <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"> Direct Investment </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Investing directly in a commodity requires acquiring it and storing it. Selling a commodity means finding a buyer and handling delivery logistics. This might be doable in the case of metal commodities and bars or coins, but bushels of corn or barrels of crude oil are more complicated. </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"> Futures </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Commodity futures contracts offer direct exposure to changes in commodity prices. Certain ETFs also offer commodity exposure. If you would rather invest in the stock market, you can trade stock in companies that produce a given commodity. </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"> Commodity futures contracts require the investor to buy or sell a certain amount of a given commodity at a specific time in the future at a given price. To trade futures, investors require a brokerage account or a stockbroker who offers futures trading. </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"> When prices of a commodity rise, the value of a buyer's contract goes up while the seller suffers a loss. Conversely, when the price of a commodity goes down, the seller of the futures contract profits at the expense of the buyer. </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"> Futures contracts are designed for the major companies in the respective commodity industry. One gold contract could require buying 100 troy ounces of gold, which could be a $150,000 commitment, which is more exposure than the average investor wants in their portfolios.<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_52-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_53-0"> <span class="mntl-sc-block-subheading__text"> ETFs </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> Most individual investors choose ETFs with commodity exposure. Some commodity ETFs buy the physical commodities and then offer shares to investors that represent a certain amount of a particular good. </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"> Some commodity ETFs use futures contracts. However, futures prices take into account the storage costs of a given commodity. Therefore, a commodity that costs a lot to store might not show gains even if the spot price of the commodity itself rises. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_58-0"> <span class="mntl-sc-block-subheading__text"> Commodities-Related Stocks </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Investors can also buy shares of the companies that produce commodities. For example, companies that extract crude oil and natural gas or companies that grow crops and sell them to food producers. Investors in commodity stocks know that a company's value will not necessarily reflect the price of the commodity it produces. </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"> What is most important is how much of the commodity the company produces over time. The price of a stock can plummet if a company does not produce what the investors have anticipated. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_63-0"><span class="heading-toc" id="toc-why-are-commodities-considered-an-inflation-hedge"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Are Commodities Considered an Inflation Hedge?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Inflation is a general rise in prices. Commodities tend to be inputs into manufacturing processes or consumed by households and businesses. As a result, when prices rise in general, so should commodities. Traditionally, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/092514/better-inflation-hedge-gold-or-treasuries.asp">gold</a> has been the exemplar inflation-hedge commodity.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_65-0"><span class="heading-toc" id="toc-how-do-commodities-diversify-a-portfolio"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do Commodities Diversify a Portfolio?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Portfolio diversification occurs when uncorrelated risky assets are added to it. Because commodities, on average, have low or negative correlations with stocks and other asset classes, they can provide some diversification.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_67-0"><span class="heading-toc" id="toc-what-are-hard-vs-soft-commodities"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Hard vs. Soft Commodities?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Hard commodities are usually classified as those that are mined or extracted from the earth. These can include metals, ore, and petroleum products. Soft commodities instead refer to those that are grown, such as agricultural products.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_69-0"><span class="heading-toc" id="toc-what-percentage-of-my-portfolio-should-be-in-commodities"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Percentage of My Portfolio Should Be in Commodities?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Experts recommend around 5-10% of a portfolio be allocated to a mix of commodities. Those with a lower risk tolerance may consider a smaller allocation.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_71-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> During inflationary times, many investors look to asset classes like real-return bonds and commodities (and possibly <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/foreignbonds.asp">foreign bonds</a> and real estate) to protect the purchasing power of their capital. By adding these diverse asset classes to their portfolios, investors seek to provide multiple degrees of downside protection and upside potential. What is important is that the investor draw the line on the maximum correlation of returns they will accept between their asset classes and that they choose their asset classes wisely. </p></div>

Most people picture a [trading floor](https://www.investopedia.com/terms/t/trading_floor.asp#axzz1nawaf0yr) at a futures exchange as a scene of utter chaos, with fierce shouting matches, frantic hand signals, and high-strung traders jockeying to get their orders executed, which is not too far from the truth. These markets are where buyers and sellers come together to trade an ever-expanding list of commodities. That list today includes agricultural goods, metals and petroleum, and products such as financial instruments, foreign currencies, and stock indexes that trade on a [commodity](https://www.investopedia.com/terms/c/commodity.asp) exchange. At the center of this supposed disorder are products that offer a haven of sorts—a [hedge](https://www.investopedia.com/terms/h/hedge.asp#axzz1nawaf0yr) against [inflation](https://www.investopedia.com/terms/i/inflation.asp). Because commodities prices typically rise when inflation is accelerating, they offer protection from the effects of inflation. Few assets benefit from rising inflation, particularly unexpected inflation, but commodities usually do. As the demand for goods and services increases, the price of goods and services rises as does the price of the commodities used to produce those goods and services. Futures markets are thus used as continuous auction markets and as clearinghouses for the latest information on supply and demand. ### Key Takeaways * Commodities are produced or extracted products, often natural resources or agricultural goods, that are often used as inputs into other processes. * Allocating some of your portfolio to commodities is recommended by many experts as it is seen as a diversifier asset class. * Moreover, some commodities tend to be a good hedge against inflation, such as precious metals and energy products. ## What Are Commodities? Commodities are goods that are more or less uniform in quality and utility regardless of their source. For instance, when shoppers buy an ear of corn or a bag of wheat flour at a supermarket, most don't pay much attention to where they were grown or milled. Commodity goods are interchangeable, and by that broad definition, a whole host of products where people don't particularly care about the brand could potentially qualify as commodities. Investors tend to take a more specific view, most often referring to a select group of basic goods that are in demand across the globe. Many commodities that investors focus on are raw materials for manufactured finished goods. Investors break down commodities into two categories: hard and soft. Hard commodities require mining or drilling, such as metals like gold, copper, and aluminum, and energy products like crude oil, natural gas, and unleaded gasoline. Soft commodities refer to things that are grown or ranched, such as [corn, wheat, soybeans](https://www.investopedia.com/corn-soy-wheat-for-investors-8546787), and cattle. ## Benchmarks for Broad Commodity Investing Benchmarking your portfolio performance is crucial because it allows you to gauge your risk tolerance and expectations for return. More importantly, benchmarking provides a basis for a comparison of your portfolio performance with the rest of the market. For commodities, the S&P GSCI Total Return Index is considered a broad commodity index and a good benchmark. It holds all futures contracts for commodities such as oil, wheat, corn, aluminum, live cattle, and gold. The S&P GSCI is a production-weighted index based on the significance of each commodity in the global economy, or the commodities that are produced in greater quantities, so it is a better gauge of their value in the market place similar to the market-cap-weighted indexes for equities. The index is considered more representative of the commodity market compared to similar indexes. ## Why Commodities Add Value Commodities tend to bear a low to negative [correlation](https://www.investopedia.com/terms/c/correlation.asp) to traditional asset classes like stocks and bonds. A correlation coefficient is a number between -1 and 1 that measures the degree to which two variables are linearly related. If there is a perfect linear relationship, the correlation coefficient will be 1. A positive correlation means that when one variable has a high (low) value, so does the other. If there is a perfect negative relationship between the two variables, the correlation coefficient will be -1. A [negative correlation](https://www.investopedia.com/terms/n/negative-correlation.asp) means that when one variable has a low (high) value, the other will have a high (low) value. A correlation coefficient of 0 means that there is no linear relationship between the variables. Typically, U.S. equities, whether in the form of stocks or mutual funds, are closely related to each other and tend to have a positive correlation with one another. Commodities, on the other hand, are a bet on unexpected inflation, and they have a low to negative correlation to other asset classes. Commodities can and have offered superior returns, but they still are one of the more volatile asset classes available. They carry a higher [standard deviation](https://www.investopedia.com/terms/s/standarddeviation.asp) (or risk) than most other equity investments. However, by adding commodities to a portfolio of assets that are less volatile, the overall portfolio risk decreases due to the negative correlation. ### For the decade 2011 through 2020, the annual performance of the S&P GSCI has been negative in seven out of ten years. Therefore, some investors have questioned the value of commodities in their portfolios and if commodities could continue to decline in the future. ## How Volatile Are Different Commodities Supply-and-demand dynamics are the main reason commodity prices change. When there's a big harvest of a certain crop, its price usually goes down, while drought conditions can make prices rise from fears that future supplies will be smaller than expected. Similarly, when the weather is cold, demand for natural gas for heating purposes often makes prices rise, while a warm spell during the winter months can depress prices. Because the supply and demand characteristics change frequently, volatility in commodities tends to be higher than for stocks, bonds, and other types of assets. Some commodities show more stability than others, such as gold, which also serves as a reserve asset for central banks to buffer against volatility. Yet even gold becomes volatile sometimes, and other commodities tend to switch between stable and volatile conditions depending on market dynamics. ## The History of Commodity Trading People have traded various commodity goods for millennia. The earliest formal commodities exchanges are among those in Amsterdam in the 16th century and Osaka, Japan, in the 17th century. Only in the mid-19th century did commodity futures trading begin at the Chicago Board of Trade and the predecessor to what eventually became known as the New York Mercantile Exchange. Many early commodities trading markets were the result of producers coming together with a common interest. By pooling resources, producers could ensure orderly markets and avoid cutthroat competition. Early on, many commodity trading venues focused on single goods, but over time, these markets aggregated to become broader-based commodities trading markets with a variety of goods in the same place. ## How to Invest in Commodities There are four ways to invest in commodities: 1. Investing directly in the commodity. 2. Using commodity futures contracts to invest. 3. Buying shares of exchange-traded funds (ETFs) that specialize in commodities. 4. Buying shares of stock in companies that produce commodities. ### Direct Investment Investing directly in a commodity requires acquiring it and storing it. Selling a commodity means finding a buyer and handling delivery logistics. This might be doable in the case of metal commodities and bars or coins, but bushels of corn or barrels of crude oil are more complicated. ### Futures Commodity futures contracts offer direct exposure to changes in commodity prices. Certain ETFs also offer commodity exposure. If you would rather invest in the stock market, you can trade stock in companies that produce a given commodity. Commodity futures contracts require the investor to buy or sell a certain amount of a given commodity at a specific time in the future at a given price. To trade futures, investors require a brokerage account or a stockbroker who offers futures trading. When prices of a commodity rise, the value of a buyer's contract goes up while the seller suffers a loss. Conversely, when the price of a commodity goes down, the seller of the futures contract profits at the expense of the buyer. Futures contracts are designed for the major companies in the respective commodity industry. One gold contract could require buying 100 troy ounces of gold, which could be a $150,000 commitment, which is more exposure than the average investor wants in their portfolios. ### ETFs Most individual investors choose ETFs with commodity exposure. Some commodity ETFs buy the physical commodities and then offer shares to investors that represent a certain amount of a particular good. Some commodity ETFs use futures contracts. However, futures prices take into account the storage costs of a given commodity. Therefore, a commodity that costs a lot to store might not show gains even if the spot price of the commodity itself rises. ### Commodities-Related Stocks Investors can also buy shares of the companies that produce commodities. For example, companies that extract crude oil and natural gas or companies that grow crops and sell them to food producers. Investors in commodity stocks know that a company's value will not necessarily reflect the price of the commodity it produces. What is most important is how much of the commodity the company produces over time. The price of a stock can plummet if a company does not produce what the investors have anticipated. ## Why Are Commodities Considered an Inflation Hedge? Inflation is a general rise in prices. Commodities tend to be inputs into manufacturing processes or consumed by households and businesses. As a result, when prices rise in general, so should commodities. Traditionally, [gold](https://www.investopedia.com/articles/investing/092514/better-inflation-hedge-gold-or-treasuries.asp) has been the exemplar inflation-hedge commodity. ## How Do Commodities Diversify a Portfolio? Portfolio diversification occurs when uncorrelated risky assets are added to it. Because commodities, on average, have low or negative correlations with stocks and other asset classes, they can provide some diversification. ## What Are Hard vs. Soft Commodities? Hard commodities are usually classified as those that are mined or extracted from the earth. These can include metals, ore, and petroleum products. Soft commodities instead refer to those that are grown, such as agricultural products. ## What Percentage of My Portfolio Should Be in Commodities? Experts recommend around 5-10% of a portfolio be allocated to a mix of commodities. Those with a lower risk tolerance may consider a smaller allocation. ## The Bottom Line During inflationary times, many investors look to asset classes like real-return bonds and commodities (and possibly [foreign bonds](https://www.investopedia.com/terms/f/foreignbonds.asp) and real estate) to protect the purchasing power of their capital. By adding these diverse asset classes to their portfolios, investors seek to provide multiple degrees of downside protection and upside potential. What is important is that the investor draw the line on the maximum correlation of returns they will accept between their asset classes and that they choose their asset classes wisely.

Most people picture a trading floor at a futures exchange as a scene of utter chaos, with fierce shouting matches, frantic hand signals, and high-strung traders jockeying to get their orders executed, which is not too far from the truth. These markets are where buyers and sellers come together to trade an ever-expanding list of commodities. That list today includes agricultural goods, metals and petroleum, and products such as financial instruments, foreign currencies, and stock indexes that trade on a commodity exchange. At the center of this supposed disorder are products that offer a haven of sorts—a hedge against inflation. Because commodities prices typically rise when inflation is accelerating, they offer protection from the effects of inflation. Few assets benefit from rising inflation, particularly unexpected inflation, but commodities usually do. As the demand for goods and services increases, the price of goods and services rises as does the price of the commodities used to produce those goods and services. Futures markets are thus used as continuous auction markets and as clearinghouses for the latest information on supply and demand. Key Takeaways Commodities are produced or extracted products, often natural resources or agricultural goods, that are often used as inputs into other processes.Allocating some of your portfolio to commodities is recommended by many experts as it is seen as a diversifier asset class.Moreover, some commodities tend to be a good hedge against inflation, such as precious metals and energy products. What Are Commodities? Commodities are goods that are more or less uniform in quality and utility regardless of their source. For instance, when shoppers buy an ear of corn or a bag of wheat flour at a supermarket, most don't pay much attention to where they were grown or milled. Commodity goods are interchangeable, and by that broad definition, a whole host of products where people don't particularly care about the brand could potentially qualify as commodities. Investors tend to take a more specific view, most often referring to a select group of basic goods that are in demand across the globe. Many commodities that investors focus on are raw materials for manufactured finished goods. Investors break down commodities into two categories: hard and soft. Hard commodities require mining or drilling, such as metals like gold, copper, and aluminum, and energy products like crude oil, natural gas, and unleaded gasoline. Soft commodities refer to things that are grown or ranched, such as corn, wheat, soybeans, and cattle. Benchmarks for Broad Commodity Investing Benchmarking your portfolio performance is crucial because it allows you to gauge your risk tolerance and expectations for return. More importantly, benchmarking provides a basis for a comparison of your portfolio performance with the rest of the market. For commodities, the S&P GSCI Total Return Index is considered a broad commodity index and a good benchmark. It holds all futures contracts for commodities such as oil, wheat, corn, aluminum, live cattle, and gold. The S&P GSCI is a production-weighted index based on the significance of each commodity in the global economy, or the commodities that are produced in greater quantities, so it is a better gauge of their value in the market place similar to the market-cap-weighted indexes for equities. The index is considered more representative of the commodity market compared to similar indexes. Why Commodities Add Value Commodities tend to bear a low to negative correlation to traditional asset classes like stocks and bonds. A correlation coefficient is a number between -1 and 1 that measures the degree to which two variables are linearly related. If there is a perfect linear relationship, the correlation coefficient will be 1. A positive correlation means that when one variable has a high (low) value, so does the other. If there is a perfect negative relationship between the two variables, the correlation coefficient will be -1. A negative correlation means that when one variable has a low (high) value, the other will have a high (low) value. A correlation coefficient of 0 means that there is no linear relationship between the variables. Typically, U.S. equities, whether in the form of stocks or mutual funds, are closely related to each other and tend to have a positive correlation with one another. Commodities, on the other hand, are a bet on unexpected inflation, and they have a low to negative correlation to other asset classes. Commodities can and have offered superior returns, but they still are one of the more volatile asset classes available. They carry a higher standard deviation (or risk) than most other equity investments. However, by adding commodities to a portfolio of assets that are less volatile, the overall portfolio risk decreases due to the negative correlation. For the decade 2011 through 2020, the annual performance of the S&P GSCI has been negative in seven out of ten years. Therefore, some investors have questioned the value of commodities in their portfolios and if commodities could continue to decline in the future. How Volatile Are Different Commodities Supply-and-demand dynamics are the main reason commodity prices change. When there's a big harvest of a certain crop, its price usually goes down, while drought conditions can make prices rise from fears that future supplies will be smaller than expected. Similarly, when the weather is cold, demand for natural gas for heating purposes often makes prices rise, while a warm spell during the winter months can depress prices. Because the supply and demand characteristics change frequently, volatility in commodities tends to be higher than for stocks, bonds, and other types of assets. Some commodities show more stability than others, such as gold, which also serves as a reserve asset for central banks to buffer against volatility. Yet even gold becomes volatile sometimes, and other commodities tend to switch between stable and volatile conditions depending on market dynamics. The History of Commodity Trading People have traded various commodity goods for millennia. The earliest formal commodities exchanges are among those in Amsterdam in the 16th century and Osaka, Japan, in the 17th century. Only in the mid-19th century did commodity futures trading begin at the Chicago Board of Trade and the predecessor to what eventually became known as the New York Mercantile Exchange. Many early commodities trading markets were the result of producers coming together with a common interest. By pooling resources, producers could ensure orderly markets and avoid cutthroat competition. Early on, many commodity trading venues focused on single goods, but over time, these markets aggregated to become broader-based commodities trading markets with a variety of goods in the same place. How to Invest in Commodities There are four ways to invest in commodities: Investing directly in the commodity.Using commodity futures contracts to invest.Buying shares of exchange-traded funds (ETFs) that specialize in commodities.Buying shares of stock in companies that produce commodities. Direct Investment Investing directly in a commodity requires acquiring it and storing it. Selling a commodity means finding a buyer and handling delivery logistics. This might be doable in the case of metal commodities and bars or coins, but bushels of corn or barrels of crude oil are more complicated. Futures Commodity futures contracts offer direct exposure to changes in commodity prices. Certain ETFs also offer commodity exposure. If you would rather invest in the stock market, you can trade stock in companies that produce a given commodity. Commodity futures contracts require the investor to buy or sell a certain amount of a given commodity at a specific time in the future at a given price. To trade futures, investors require a brokerage account or a stockbroker who offers futures trading. When prices of a commodity rise, the value of a buyer's contract goes up while the seller suffers a loss. Conversely, when the price of a commodity goes down, the seller of the futures contract profits at the expense of the buyer. Futures contracts are designed for the major companies in the respective commodity industry. One gold contract could require buying 100 troy ounces of gold, which could be a $150,000 commitment, which is more exposure than the average investor wants in their portfolios. ETFs Most individual investors choose ETFs with commodity exposure. Some commodity ETFs buy the physical commodities and then offer shares to investors that represent a certain amount of a particular good. Some commodity ETFs use futures contracts. However, futures prices take into account the storage costs of a given commodity. Therefore, a commodity that costs a lot to store might not show gains even if the spot price of the commodity itself rises. Commodities-Related Stocks Investors can also buy shares of the companies that produce commodities. For example, companies that extract crude oil and natural gas or companies that grow crops and sell them to food producers. Investors in commodity stocks know that a company's value will not necessarily reflect the price of the commodity it produces. What is most important is how much of the commodity the company produces over time. The price of a stock can plummet if a company does not produce what the investors have anticipated. Why Are Commodities Considered an Inflation Hedge? Inflation is a general rise in prices. Commodities tend to be inputs into manufacturing processes or consumed by households and businesses. As a result, when prices rise in general, so should commodities. Traditionally, gold has been the exemplar inflation-hedge commodity. How Do Commodities Diversify a Portfolio? Portfolio diversification occurs when uncorrelated risky assets are added to it. Because commodities, on average, have low or negative correlations with stocks and other asset classes, they can provide some diversification. What Are Hard vs. Soft Commodities? Hard commodities are usually classified as those that are mined or extracted from the earth. These can include metals, ore, and petroleum products. Soft commodities instead refer to those that are grown, such as agricultural products. What Percentage of My Portfolio Should Be in Commodities? Experts recommend around 5-10% of a portfolio be allocated to a mix of commodities. Those with a lower risk tolerance may consider a smaller allocation. The Bottom Line During inflationary times, many investors look to asset classes like real-return bonds and commodities (and possibly foreign bonds and real estate) to protect the purchasing power of their capital. By adding these diverse asset classes to their portfolios, investors seek to provide multiple degrees of downside protection and upside potential. What is important is that the investor draw the line on the maximum correlation of returns they will accept between their asset classes and that they choose their asset classes wisely.

https://www.investopedia.com/articles/personal-finance/041415/my-credit-score-useful-outside-us.asp

Is My Credit Score Useful Outside the U.S.?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Your credit score in the U.S. will likely not matter much overseas. If you are traveling internationally, you will find that the American version of the credit score<em> </em>is not the same in other countries. </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"> Some countries may use a different type of credit score, or they may not use a credit score at all. Learn about how your U.S. score does not translate to determine your overseas creditworthiness, and what factors are considered abroad. </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 U.S. credit score has no bearing overseas, neither harming nor helping you with lenders in another country.</li><li>There are no international credit scores and laws prohibit the sharing of credit information overseas.</li><li>Lenders assess your credit worthiness in different ways specific to a country or region, like factoring in your debt and income.</li><li>Many countries have a credit scoring system, but you will typically need to start building credit history with loan products in that country.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-other-countries-use-credit-scores"></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 Other Countries Use Credit Scores </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Many countries, including Canada and the U.K., have credit scoring systems that are similar to the American system. Yet, there is no communication between the systems. So your credit score in the U.S. will not affect your credit score in the U.K. </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"> Countries may consider other factors for determining your creditworthiness that lenders in the U.S generally do not. For example, in the U.K., lenders see your registration to vote, which is required by law, as a positive sign.<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"> Other countries may not have credit scoring systems at all. For example, lenders in Japan make individual assessments based on factors like your relationship with the bank, your income and debt.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <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-advisorinsight" 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>National and international law prohibit sharing credit histories with overseas lenders in part to protect consumers from identity theft.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> So foreign lenders will not have access to your American credit score, but you can still expect a review of your basic financial information if you want to apply for a loan like a mortgage or car loan. </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"> Overseas banks and lending institutions may inquire about outstanding debts in your home country. Expect to have to verify your income from your current employer as well. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <span class="heading-toc" id="toc-how-poor-credit-translates-abroad"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-heading__text"> How Poor Credit Translates Abroad </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> If you've consistently missed credit card payments or defaulted on a car loan, you may look forward to starting fresh in another country. In fact, much of your negative credit history may not translate abroad. </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, if you've filed for bankruptcy in the U.S., another country may not recognize that negative event in your credit history. So, you may be able to qualify for a car or home loan in another country based on your current debt level and income even if you wouldn't qualify for one in the U.S. if your credit was damaged by bankruptcy. </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-advisorinsight" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_26-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Your credit history, including negative events like bankruptcies won't disappear from your credit history in the U.S. if you move to another country.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> However, if your poor credit is due to factors like you carrying a heavy debt load, a lender overseas will likely take that into account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <span class="heading-toc" id="toc-how-strong-credit-translates-abroad"></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 Strong Credit Translates Abroad </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> If you have good credit in the U.S., it can still be useful in another country, even if the country does not recognize U.S. credit scores. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> For example, you could provide your U.S. <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> to lenders in another country to help support the fact that you may be a lower risk borrower. </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"> Many of the factors that contribute to you having a good credit in the U.S. will be recognized by lenders abroad. Namely, if you carry lower debt loads and do not use the majority of your available credit, you are likely to be viewed positively by lenders abroad. </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-building-credit-abroad"></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"> Building Credit Abroad </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> If you move abroad and plan to move back, don't give up your U.S. credit cards. If possible, keep active savings, checking, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/071715/what-role-does-correspondent-bank-play-international-transaction.asp">credit card</a> accounts based in the U.S. Be sure to follow any minimum usage requirements on the account so it is not simply closed for inactivity, and use a card with no <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/foreign-transaction-fee.asp">foreign transaction fees</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> If you can't get a standard credit card in your new country, you may need to start building credit such as by opening a store credit card. Make regular purchases and pay the bills promptly to start building a credit history there. </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-note" 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 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>Be prepared that if you return to the U.S., your U.S. credit score will apply to any lending decisions. So, it's important you continue to pay your U.S. debts on time, even if you live abroad.</p></div></div></div> <span class="heading-toc" id="toc-returning-to-the-us"></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"> Returning to the U.S. </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> If you plan to remain overseas for at least seven years, you'll find that any delinquencies or negative marks on your credit report may have been removed during that time.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> You can also try to improve a poor credit score by making all your minimum payments on time, having a healthy credit mix, and keeping your credit utilization rate low. A significant negative event on your credit report like a bankruptcy can take up to 10 years to drop from your credit history. </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"> Remember, you don't need to close all of your U.S. accounts before you move to another country. If possible, keep savings or checking and credit card accounts active. </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"> Finally, check whether any of your existing credit card accounts have established a global card relationship in the area you're looking to relocate. For example, if you already have an American Express account opened in the U.S., your cardholder status may help you establish credit in your new country while maintaining your good credit history in the U.S.<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> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_52-0"><span class="heading-toc" id="toc-what-countries-use-fico-scores"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Countries Use FICO Scores?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>FICO scores are used in many markets around the world, including Mexico and Canada. It's used in a total of 30 countries. However, the information in your credit history does not translate from country to country. Your FICO score will be different in each country.<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_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-which-countries-dont-use-credit-scores"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Countries Don't Use Credit Scores?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Not all countries use credit scores. For example, Japan has no central scoring system. Instead, individual banks determine your creditworthiness based on your relationship with them, as well as your income and debt. Spain also has no credit scoring system, although your credit history is tracked by a credit register.<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_55-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_56-0"><span class="heading-toc" id="toc-is-there-an-international-credit-score"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is There an International Credit Score?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There is no international or global credit score that is used by more than one country. Instead, lenders in each country have different criteria for assessing borrowers. Your credit score does not translate from one country to another.<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_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"> Your credit score will not follow you to another country, but your financial situation, including your debt levels and income, will still play a pivotal role. Creditors cannot share your financial information abroad and different countries have different standards for assessing creditworthiness. </p></div>

Your credit score in the U.S. will likely not matter much overseas. If you are traveling internationally, you will find that the American version of the credit scoreis not the same in other countries. Some countries may use a different type of credit score, or they may not use a credit score at all. Learn about how your U.S. score does not translate to determine your overseas creditworthiness, and what factors are considered abroad. ### Key Takeaways * A U.S. credit score has no bearing overseas, neither harming nor helping you with lenders in another country. * There are no international credit scores and laws prohibit the sharing of credit information overseas. * Lenders assess your credit worthiness in different ways specific to a country or region, like factoring in your debt and income. * Many countries have a credit scoring system, but you will typically need to start building credit history with loan products in that country. ## How Other Countries Use Credit Scores Many countries, including Canada and the U.K., have credit scoring systems that are similar to the American system. Yet, there is no communication between the systems. So your credit score in the U.S. will not affect your credit score in the U.K. Countries may consider other factors for determining your creditworthiness that lenders in the U.S generally do not. For example, in the U.K., lenders see your registration to vote, which is required by law, as a positive sign. Other countries may not have credit scoring systems at all. For example, lenders in Japan make individual assessments based on factors like your relationship with the bank, your income and debt. ### National and international law prohibit sharing credit histories with overseas lenders in part to protect consumers from identity theft. So foreign lenders will not have access to your American credit score, but you can still expect a review of your basic financial information if you want to apply for a loan like a mortgage or car loan. Overseas banks and lending institutions may inquire about outstanding debts in your home country. Expect to have to verify your income from your current employer as well. ## How Poor Credit Translates Abroad If you've consistently missed credit card payments or defaulted on a car loan, you may look forward to starting fresh in another country. In fact, much of your negative credit history may not translate abroad. For example, if you've filed for bankruptcy in the U.S., another country may not recognize that negative event in your credit history. So, you may be able to qualify for a car or home loan in another country based on your current debt level and income even if you wouldn't qualify for one in the U.S. if your credit was damaged by bankruptcy. ### Your credit history, including negative events like bankruptcies won't disappear from your credit history in the U.S. if you move to another country. However, if your poor credit is due to factors like you carrying a heavy debt load, a lender overseas will likely take that into account. ## How Strong Credit Translates Abroad If you have good credit in the U.S., it can still be useful in another country, even if the country does not recognize U.S. credit scores. For example, you could provide your U.S. [credit report](https://www.investopedia.com/terms/c/creditreport.asp) to lenders in another country to help support the fact that you may be a lower risk borrower. Many of the factors that contribute to you having a good credit in the U.S. will be recognized by lenders abroad. Namely, if you carry lower debt loads and do not use the majority of your available credit, you are likely to be viewed positively by lenders abroad. ## Building Credit Abroad If you move abroad and plan to move back, don't give up your U.S. credit cards. If possible, keep active savings, checking, and [credit card](https://www.investopedia.com/ask/answers/071715/what-role-does-correspondent-bank-play-international-transaction.asp) accounts based in the U.S. Be sure to follow any minimum usage requirements on the account so it is not simply closed for inactivity, and use a card with no [foreign transaction fees](https://www.investopedia.com/terms/f/foreign-transaction-fee.asp). If you can't get a standard credit card in your new country, you may need to start building credit such as by opening a store credit card. Make regular purchases and pay the bills promptly to start building a credit history there. ### Be prepared that if you return to the U.S., your U.S. credit score will apply to any lending decisions. So, it's important you continue to pay your U.S. debts on time, even if you live abroad. ## Returning to the U.S. If you plan to remain overseas for at least seven years, you'll find that any delinquencies or negative marks on your credit report may have been removed during that time. You can also try to improve a poor credit score by making all your minimum payments on time, having a healthy credit mix, and keeping your credit utilization rate low. A significant negative event on your credit report like a bankruptcy can take up to 10 years to drop from your credit history. Remember, you don't need to close all of your U.S. accounts before you move to another country. If possible, keep savings or checking and credit card accounts active. Finally, check whether any of your existing credit card accounts have established a global card relationship in the area you're looking to relocate. For example, if you already have an American Express account opened in the U.S., your cardholder status may help you establish credit in your new country while maintaining your good credit history in the U.S. ## What Countries Use FICO Scores? FICO scores are used in many markets around the world, including Mexico and Canada. It's used in a total of 30 countries. However, the information in your credit history does not translate from country to country. Your FICO score will be different in each country. ## Which Countries Don't Use Credit Scores? Not all countries use credit scores. For example, Japan has no central scoring system. Instead, individual banks determine your creditworthiness based on your relationship with them, as well as your income and debt. Spain also has no credit scoring system, although your credit history is tracked by a credit register. ## Is There an International Credit Score? There is no international or global credit score that is used by more than one country. Instead, lenders in each country have different criteria for assessing borrowers. Your credit score does not translate from one country to another. ## The Bottom Line Your credit score will not follow you to another country, but your financial situation, including your debt levels and income, will still play a pivotal role. Creditors cannot share your financial information abroad and different countries have different standards for assessing creditworthiness.

Your credit score in the U.S. will likely not matter much overseas. If you are traveling internationally, you will find that the American version of the credit score is not the same in other countries. Some countries may use a different type of credit score, or they may not use a credit score at all. Learn about how your U.S. score does not translate to determine your overseas creditworthiness, and what factors are considered abroad. Key Takeaways A U.S. credit score has no bearing overseas, neither harming nor helping you with lenders in another country.There are no international credit scores and laws prohibit the sharing of credit information overseas.Lenders assess your credit worthiness in different ways specific to a country or region, like factoring in your debt and income.Many countries have a credit scoring system, but you will typically need to start building credit history with loan products in that country. How Other Countries Use Credit Scores Many countries, including Canada and the U.K., have credit scoring systems that are similar to the American system. Yet, there is no communication between the systems. So your credit score in the U.S. will not affect your credit score in the U.K. Countries may consider other factors for determining your creditworthiness that lenders in the U.S generally do not. For example, in the U.K., lenders see your registration to vote, which is required by law, as a positive sign. Other countries may not have credit scoring systems at all. For example, lenders in Japan make individual assessments based on factors like your relationship with the bank, your income and debt. National and international law prohibit sharing credit histories with overseas lenders in part to protect consumers from identity theft. So foreign lenders will not have access to your American credit score, but you can still expect a review of your basic financial information if you want to apply for a loan like a mortgage or car loan. Overseas banks and lending institutions may inquire about outstanding debts in your home country. Expect to have to verify your income from your current employer as well. How Poor Credit Translates Abroad If you've consistently missed credit card payments or defaulted on a car loan, you may look forward to starting fresh in another country. In fact, much of your negative credit history may not translate abroad. For example, if you've filed for bankruptcy in the U.S., another country may not recognize that negative event in your credit history. So, you may be able to qualify for a car or home loan in another country based on your current debt level and income even if you wouldn't qualify for one in the U.S. if your credit was damaged by bankruptcy. Your credit history, including negative events like bankruptcies won't disappear from your credit history in the U.S. if you move to another country. However, if your poor credit is due to factors like you carrying a heavy debt load, a lender overseas will likely take that into account. How Strong Credit Translates Abroad If you have good credit in the U.S., it can still be useful in another country, even if the country does not recognize U.S. credit scores. For example, you could provide your U.S. credit report to lenders in another country to help support the fact that you may be a lower risk borrower. Many of the factors that contribute to you having a good credit in the U.S. will be recognized by lenders abroad. Namely, if you carry lower debt loads and do not use the majority of your available credit, you are likely to be viewed positively by lenders abroad. Building Credit Abroad If you move abroad and plan to move back, don't give up your U.S. credit cards. If possible, keep active savings, checking, and credit card accounts based in the U.S. Be sure to follow any minimum usage requirements on the account so it is not simply closed for inactivity, and use a card with no foreign transaction fees. If you can't get a standard credit card in your new country, you may need to start building credit such as by opening a store credit card. Make regular purchases and pay the bills promptly to start building a credit history there. Be prepared that if you return to the U.S., your U.S. credit score will apply to any lending decisions. So, it's important you continue to pay your U.S. debts on time, even if you live abroad. Returning to the U.S. If you plan to remain overseas for at least seven years, you'll find that any delinquencies or negative marks on your credit report may have been removed during that time. You can also try to improve a poor credit score by making all your minimum payments on time, having a healthy credit mix, and keeping your credit utilization rate low. A significant negative event on your credit report like a bankruptcy can take up to 10 years to drop from your credit history. Remember, you don't need to close all of your U.S. accounts before you move to another country. If possible, keep savings or checking and credit card accounts active. Finally, check whether any of your existing credit card accounts have established a global card relationship in the area you're looking to relocate. For example, if you already have an American Express account opened in the U.S., your cardholder status may help you establish credit in your new country while maintaining your good credit history in the U.S. What Countries Use FICO Scores? FICO scores are used in many markets around the world, including Mexico and Canada. It's used in a total of 30 countries. However, the information in your credit history does not translate from country to country. Your FICO score will be different in each country. Which Countries Don't Use Credit Scores? Not all countries use credit scores. For example, Japan has no central scoring system. Instead, individual banks determine your creditworthiness based on your relationship with them, as well as your income and debt. Spain also has no credit scoring system, although your credit history is tracked by a credit register. Is There an International Credit Score? There is no international or global credit score that is used by more than one country. Instead, lenders in each country have different criteria for assessing borrowers. Your credit score does not translate from one country to another. The Bottom Line Your credit score will not follow you to another country, but your financial situation, including your debt levels and income, will still play a pivotal role. Creditors cannot share your financial information abroad and different countries have different standards for assessing creditworthiness.

https://www.investopedia.com/sec-proposes-short-sale-disclosure-rule-5220340

SEC Proposes Short Sale Disclosure Rule

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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/sec.asp">U.S. Securities and Exchange Commission</a> (SEC) announced on Feb. 25, 2022, that it has voted to propose changes that would increase the public availability of data on <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shortsale.asp">short sales</a>. The proposed new rule would require certain institutional investment managers to submit monthly reports on short sales. The SEC then would make aggregate data about large short positions, including daily short sale activity data, available to the public for each individual security.<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"> In a press release, SEC Chair Gary Gensler stated: "Proposed Rule 13f-2 would make aggregate data about large short positions available to the public for individual equity securities. This would provide the public and market participants with more visibility into the behavior of large short sellers. The raw data reported to the Commission on a new Form SHO would help us to better oversee the markets and understand the role short selling may play in market events. It's important for the public and the Commission to know more about this important market, especially in times of stress or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a>." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>On Feb. 25, 2022, the SEC voted in favor of a proposed new rule requiring enhanced public disclosures of short sales by institutional investors.</li> <li>The data would be aggregated by stock, the names of the investment managers would be kept confidential.</li> <li>Short positions of at least $10 million, or which equal 2.5% or more of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/outstandingshares.asp">shares outstanding</a>, are the focus of the proposed rule.</li> </ul></div></div></div> <span class="heading-toc" id="toc-proposed-new-rule-13f-2"></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"> Proposed New Rule 13f-2 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/seact1934.asp">Securities Exchange Act</a> Proposed Rule 13f-2 would require <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-theory/11/introduction-institutional-investing.asp">institutional investment managers</a> to report, on the Proposed Form SHO, information on end-of-the-month short positions and certain daily activity affecting these positions. The SEC would aggregate this data by security, maintaining the confidentiality of the reporting managers, and publicly release the data to all investors. This new data would supplement the short sale data that is currently publicly available from <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/finra.asp">Financial Industry Regulatory Authority</a> (FINRA) and the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/04/092404.asp">stock exchanges</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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The SEC also voted to propose a new provision of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/regsho.asp">Regulation SHO</a>, Rule 205, which would establish a new "<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buytocover.asp">buy to cover</a>" order marking requirement for <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/broker-dealer.asp">broker-dealers</a>. Regulation SHO is the SEC's primary short selling regulation. It requires broker-dealers to identify each sale order that it effects as either "<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/long.asp">long</a>," "short," or "<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shortexempt.asp">short exempt</a>," but it does not currently have a corresponding requirement for purchase orders.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Proposed Rule 205 would require a broker-dealer to mark a purchase order as "buy to cover" if the purchaser has any short position in the same security at the time that the purchase order is entered. The SEC believes that this information would be very helpful in "reconstructing significant market events and identifying potentially abusive trading practices including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shortsqueeze.asp">short squeezes</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> <span class="heading-toc" id="toc-statement-by-sec-chair-gary-gensler"></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"> Statement By SEC Chair Gary Gensler </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> SEC Chair Gary Gensler also issued a statement in conjunction with the press release about the proposed new rule on short sales. Highlights are quoted below.<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"> "I am pleased to support this proposal because, if adopted, it would strengthen transparency of an important area of our markets that would benefit from greater visibility and oversight." </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"> "After the 2008 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-crisis.asp">financial crisis</a> ... Congress directed the SEC to bring more transparency to short selling. Today's proposal would fulfill that mandate under Section 929X of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp">Dodd-Frank Act</a>." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> "The proposal would apply to certain institutional investment managers who hold, in an equity security of a reporting issuer, a short position of at least $10 million or the equivalent of 2.5% or more of the total shares outstanding, or who hold, in an equity security of a non-reporting issuer, a short position of at least $500,000." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> "Finally, we are reopening the comment file on our proposed rule on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/securitieslending.asp">securities lending</a> market, Proposed Rule 10c-1. The Commission voted to propose this rule in November, and we are reopening the comment period in light of the newly Proposed Rule 13f-2." </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"> "Given past market events, it's important for the public and the Commission to know more about this important market, especially in times of stress or volatility. The proposed rule would help the Commission address future market events, striking a balance between the need for transparency and the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pricediscovery.asp">price discovery</a> process."<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>

The [U.S. Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) (SEC) announced on Feb. 25, 2022, that it has voted to propose changes that would increase the public availability of data on [short sales](https://www.investopedia.com/terms/s/shortsale.asp). The proposed new rule would require certain institutional investment managers to submit monthly reports on short sales. The SEC then would make aggregate data about large short positions, including daily short sale activity data, available to the public for each individual security. In a press release, SEC Chair Gary Gensler stated: "Proposed Rule 13f-2 would make aggregate data about large short positions available to the public for individual equity securities. This would provide the public and market participants with more visibility into the behavior of large short sellers. The raw data reported to the Commission on a new Form SHO would help us to better oversee the markets and understand the role short selling may play in market events. It's important for the public and the Commission to know more about this important market, especially in times of stress or [volatility](https://www.investopedia.com/terms/v/volatility.asp)." ### Key Takeaways * On Feb. 25, 2022, the SEC voted in favor of a proposed new rule requiring enhanced public disclosures of short sales by institutional investors. * The data would be aggregated by stock, the names of the investment managers would be kept confidential. * Short positions of at least $10 million, or which equal 2.5% or more of the [shares outstanding](https://www.investopedia.com/terms/o/outstandingshares.asp), are the focus of the proposed rule. ## Proposed New Rule 13f-2 [Securities Exchange Act](https://www.investopedia.com/terms/s/seact1934.asp) Proposed Rule 13f-2 would require [institutional investment managers](https://www.investopedia.com/articles/financial-theory/11/introduction-institutional-investing.asp) to report, on the Proposed Form SHO, information on end-of-the-month short positions and certain daily activity affecting these positions. The SEC would aggregate this data by security, maintaining the confidentiality of the reporting managers, and publicly release the data to all investors. This new data would supplement the short sale data that is currently publicly available from [Financial Industry Regulatory Authority](https://www.investopedia.com/terms/f/finra.asp) (FINRA) and the [stock exchanges](https://www.investopedia.com/articles/basics/04/092404.asp). The SEC also voted to propose a new provision of [Regulation SHO](https://www.investopedia.com/terms/r/regsho.asp), Rule 205, which would establish a new "[buy to cover](https://www.investopedia.com/terms/b/buytocover.asp)" order marking requirement for [broker-dealers](https://www.investopedia.com/terms/b/broker-dealer.asp). Regulation SHO is the SEC's primary short selling regulation. It requires broker-dealers to identify each sale order that it effects as either "[long](https://www.investopedia.com/terms/l/long.asp)," "short," or "[short exempt](https://www.investopedia.com/terms/s/shortexempt.asp)," but it does not currently have a corresponding requirement for purchase orders. Proposed Rule 205 would require a broker-dealer to mark a purchase order as "buy to cover" if the purchaser has any short position in the same security at the time that the purchase order is entered. The SEC believes that this information would be very helpful in "reconstructing significant market events and identifying potentially abusive trading practices including [short squeezes](https://www.investopedia.com/terms/s/shortsqueeze.asp)." ## Statement By SEC Chair Gary Gensler SEC Chair Gary Gensler also issued a statement in conjunction with the press release about the proposed new rule on short sales. Highlights are quoted below. "I am pleased to support this proposal because, if adopted, it would strengthen transparency of an important area of our markets that would benefit from greater visibility and oversight." "After the 2008 [financial crisis](https://www.investopedia.com/terms/f/financial-crisis.asp) ... Congress directed the SEC to bring more transparency to short selling. Today's proposal would fulfill that mandate under Section 929X of the [Dodd-Frank Act](https://www.investopedia.com/terms/d/dodd-frank-financial-regulatory-reform-bill.asp)." "The proposal would apply to certain institutional investment managers who hold, in an equity security of a reporting issuer, a short position of at least $10 million or the equivalent of 2.5% or more of the total shares outstanding, or who hold, in an equity security of a non-reporting issuer, a short position of at least $500,000." "Finally, we are reopening the comment file on our proposed rule on the [securities lending](https://www.investopedia.com/terms/s/securitieslending.asp) market, Proposed Rule 10c-1. The Commission voted to propose this rule in November, and we are reopening the comment period in light of the newly Proposed Rule 13f-2." "Given past market events, it's important for the public and the Commission to know more about this important market, especially in times of stress or volatility. The proposed rule would help the Commission address future market events, striking a balance between the need for transparency and the [price discovery](https://www.investopedia.com/terms/p/pricediscovery.asp) process." Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

The U.S. Securities and Exchange Commission (SEC) announced on Feb. 25, 2022, that it has voted to propose changes that would increase the public availability of data on short sales. The proposed new rule would require certain institutional investment managers to submit monthly reports on short sales. The SEC then would make aggregate data about large short positions, including daily short sale activity data, available to the public for each individual security. In a press release, SEC Chair Gary Gensler stated: "Proposed Rule 13f-2 would make aggregate data about large short positions available to the public for individual equity securities. This would provide the public and market participants with more visibility into the behavior of large short sellers. The raw data reported to the Commission on a new Form SHO would help us to better oversee the markets and understand the role short selling may play in market events. It's important for the public and the Commission to know more about this important market, especially in times of stress or volatility." Key Takeaways On Feb. 25, 2022, the SEC voted in favor of a proposed new rule requiring enhanced public disclosures of short sales by institutional investors. The data would be aggregated by stock, the names of the investment managers would be kept confidential. Short positions of at least $10 million, or which equal 2.5% or more of the shares outstanding, are the focus of the proposed rule. Proposed New Rule 13f-2 Securities Exchange Act Proposed Rule 13f-2 would require institutional investment managers to report, on the Proposed Form SHO, information on end-of-the-month short positions and certain daily activity affecting these positions. The SEC would aggregate this data by security, maintaining the confidentiality of the reporting managers, and publicly release the data to all investors. This new data would supplement the short sale data that is currently publicly available from Financial Industry Regulatory Authority (FINRA) and the stock exchanges. The SEC also voted to propose a new provision of Regulation SHO, Rule 205, which would establish a new "buy to cover" order marking requirement for broker-dealers. Regulation SHO is the SEC's primary short selling regulation. It requires broker-dealers to identify each sale order that it effects as either "long," "short," or "short exempt," but it does not currently have a corresponding requirement for purchase orders. Proposed Rule 205 would require a broker-dealer to mark a purchase order as "buy to cover" if the purchaser has any short position in the same security at the time that the purchase order is entered. The SEC believes that this information would be very helpful in "reconstructing significant market events and identifying potentially abusive trading practices including short squeezes." Statement By SEC Chair Gary Gensler SEC Chair Gary Gensler also issued a statement in conjunction with the press release about the proposed new rule on short sales. Highlights are quoted below. "I am pleased to support this proposal because, if adopted, it would strengthen transparency of an important area of our markets that would benefit from greater visibility and oversight." "After the 2008 financial crisis ... Congress directed the SEC to bring more transparency to short selling. Today's proposal would fulfill that mandate under Section 929X of the Dodd-Frank Act." "The proposal would apply to certain institutional investment managers who hold, in an equity security of a reporting issuer, a short position of at least $10 million or the equivalent of 2.5% or more of the total shares outstanding, or who hold, in an equity security of a non-reporting issuer, a short position of at least $500,000." "Finally, we are reopening the comment file on our proposed rule on the securities lending market, Proposed Rule 10c-1. The Commission voted to propose this rule in November, and we are reopening the comment period in light of the newly Proposed Rule 13f-2." "Given past market events, it's important for the public and the Commission to know more about this important market, especially in times of stress or volatility. The proposed rule would help the Commission address future market events, striking a balance between the need for transparency and the price discovery process." Do you have a news tip for Investopedia reporters? Please email us at [email protected]

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

Business Development Company (BDC): Definition 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-business-development-company-bdc"></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 Business Development Company (BDC)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A business development company (BDC) is an organization that invests in small- and medium-sized companies as well as distressed companies. A BDC helps these firms grow in the initial stages of their development. With distressed businesses, the BDC helps the companies regain sound financial footing. </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"> Similar to closed-end investment funds, many BDCs are public companies whose shares trade on major stock exchanges, such as the American Stock Exchange (AMEX), Nasdaq, and others. As investments, they are high-risk but offer higher rewards. </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 business development company (BDC) is a type of closed-end fund that makes investments in developing and financially distressed firms. </li><li>Many BDCs are publicly traded and are open to retail investors.</li><li>BDCs offer investors high dividend yields and some capital appreciation potential.</li><li>BDCs' heavy use of leverage and small or distressed company targeting makes them relatively high-risk investments.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-business-development-companies-bdcs"></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 Business Development Companies (BDCs) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The U.S. Congress created business development companies in 1980 to fuel job growth and assist emerging U.S. businesses in raising funds. BDCs are closely involved in mentoring and developing the companies in their portfolios because it is in a BDC's best interest to help them become successful. </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"> BDCs invest in private companies and small public firms that have low trading volumes or are in financial distress. They raise capital through initial public offerings or by issuing corporate bonds and equities or forms of hybrid investment instruments to investors. </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 raised capital is then used to provide funding for the struggling companies. BDCs can use different financial instruments to provide capital, but in general, most issue loans or purchase stocks or convertible securities from the companies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Some business development companies are publicly traded entities. Others are not publicly traded and are known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/retirement/051616/what-are-nontraded-bdcs-and-should-you-stay-away-them.asp">non-traded BDCs</a>. </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"> Qualifying as a BDC </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> To qualify as a BDC, a company must be registered in compliance with Section 54 of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentcompanyact.asp">Investment Company Act of 1940</a>. In addition, it must be a domestic company whose class of securities is registered with the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp">Securities and Exchange Commission</a> (SEC). </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 BDC must invest at least 70% of its assets in private or public U.S. firms with market values of less than US$250 million. These companies are often young businesses seeking financing or firms suffering or emerging from financial difficulties. Also, the BDC must provide managerial assistance to the companies in its portfolio. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_22-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_23-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Business development companies avoid corporate income taxes by distributing at least 90% of their income to shareholders.</p></div></div></div> <span class="heading-toc" id="toc-bdcs-vs-venture-capital"></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"> BDCs vs. Venture Capital </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> If BDCs sound similar to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/vcfund.asp">venture capital funds</a>, they are. However, there are some key differences. One relates to the nature of the investors each seeks. Venture capital funds are primarily available to large institutions and wealthy individuals through private placements. In contrast, BDCs allow smaller, nonaccredited investors to invest in them, and by extension, in small growth companies. </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"> Venture capital funds keep a limited number of investors and must meet specific asset-related tests to avoid being classified as regulated investment companies. On the other hand, BDC shares are typically traded on stock exchanges and are constantly available as investments for the public. </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"> BDCs that decline to list on an exchange must follow the same regulations as listed BDCs. However, less stringent provisions for the amount of borrowing, related-party transactions, and equity-based compensation make the BDC an appealing form of incorporation to venture capitalists who were previously unwilling to assume the burdensome regulation of an investment company. </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-advantages-and-disavantages-of-bdc-investment"></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"> Advantages and Disavantages of BDC Investment </span> </h2> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_32-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_33-0"> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>High dividend yields</p></li> <li><p>Open to retail investors</p></li> <li><p>Liquid</p></li> <li><p>Diversity</p></li> </ul> </div> <div class="mntl-sc-block__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="mntl-sc-block__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="mntl-sc-block__list mntl-sc-block-comparisonlist__list"> <li><p>High-risk</p></li> <li><p>Sensitive to interest-rate spikes</p></li> <li><p>Illiquid/opaque holdings</p></li> <li><p>Can magnify losses</p></li> <li><p>Dividends taxed as income</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <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"> Advantages Explained </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> <li><strong>High dividend yields</strong>: Because BDCs are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/ric.asp">regulated investment companies</a> (RICs), they must distribute over 90% of their profits to shareholders. That RIC status means they don't pay corporate income tax on profits before distributing them to shareholders. The result is above-average dividend yields.</li> <li><strong>Open to retail investors</strong>: BDCs expose investors to debt and equity investments in predominantly private companies—typically closed to retail investors.</li> <li><strong>Liquid</strong>: BDCs trade on public exchanges, giving them a fair amount of liquidity and transparency.</li> <li><strong>Diversity</strong>: BDC investments may diversify an investor's portfolio with securities that can display substantially different returns from stocks and bonds.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-subheading__text"> Disadvantages Explained </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> <li><strong>High risk</strong>: Although a BDC itself is liquid, many of its holdings are not. The portfolio holdings are primarily private firms or small, thinly-traded public companies. BDCs invest aggressively in companies that offer both income now and capital appreciation later; as such, they register somewhat high on the risk scale.</li> <li><strong>Sensitive to interest rate spikes</strong>: A rise in interest rates—making it more expensive to borrow funds—can impede a BDC's profit margins.</li> <li><strong>Illiquid or opaque holdings</strong>: Because most BDC holdings are typically invested in illiquid securities, a BDC's portfolio has subjective fair-value estimates and may experience sudden and quick losses. In addition, the BDC-invested target companies typically have no track records or troubling ones.</li> <li><strong>Magnify losses</strong>: Losses can be magnified because BDCs often employ leverage—that is, they borrow the money they invest or loan to their target companies. Leverage can improve the rate of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/returnoninvestment.asp">return on investment</a> (ROI), but it can also cause cash-flow problems if the leveraged asset declines in value.<br/></li> <li><strong>Dividends taxed as income</strong>: Dividends from BDCs are taxed as income because they don't meet the criteria for qualified dividends.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <span class="heading-toc" id="toc-how-to-invest-in-a-bdc"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_41-0"> <span class="mntl-sc-block-heading__text"> How to Invest in a BDC </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> A business development company is a publicly traded firm with stocks trading on public exchanges, so you can purchase stocks through your broker. </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"> Some BDC stocks are included in exchange-traded funds and mutual funds. For example, the VanEck BDC Income ETF is offered through many brokers and is available to retail investors.<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_45-0"></div> <span class="heading-toc" id="toc-how-does-a-bdc-make-money"></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"> How Does a BDC Make Money? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Business development companies can make money in several different ways. One of the most common is to purchase equity from the companies they provide funding for and sell it when it appreciates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> If a BDC buys convertible bonds from a company it has invested in, it can receive yields from the bonds and later convert them to equity. Once converted, the equity can be held for appreciation or sold for capital gains. </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"> Lending is another way BDCs make money. Similar to a consumer borrowing from a bank, a BDC charges interest on the loans it makes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_53-0"><span class="heading-toc" id="toc-what-are-the-benefits-of-a-bdc"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Benefits of a BDC?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Business development companies provide investors with higher yields and returns.</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-does-a-bdc-make-money"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does a BDC Make Money?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>BDCs make money by lending capital to and purchasing equity or bonds from the companies in their portfolio.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_57-0"><span class="heading-toc" id="toc-what-is-bdc-lending"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is BDC Lending?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Business development company lending is when a BDC lends capital to a company it has invested in.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_59-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Business development companies are firms that exist to assist smaller or financially struggling businesses. BDCs use fundraising techniques to raise capital for themselves from investors and then use that money to invest in these smaller businesses. </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"> They were created by Congress in 1980 to help small businesses grow while attempting to shield them from predatory tactics sometimes used to take over struggling businesses. </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"> BDCs generally have higher returns than mutual funds and exchange-traded funds, but with these returns comes an equal increase in risk and volatility. If you're considering investing in BDCs, it helps to talk to a professional financial advisor to determine if they meet your investing goals and risk tolerance.<br> </br></p></div>

## What Is a Business Development Company (BDC)? A business development company (BDC) is an organization that invests in small- and medium-sized companies as well as distressed companies. A BDC helps these firms grow in the initial stages of their development. With distressed businesses, the BDC helps the companies regain sound financial footing. Similar to closed-end investment funds, many BDCs are public companies whose shares trade on major stock exchanges, such as the American Stock Exchange (AMEX), Nasdaq, and others. As investments, they are high-risk but offer higher rewards. ### Key Takeaways * A business development company (BDC) is a type of closed-end fund that makes investments in developing and financially distressed firms. * Many BDCs are publicly traded and are open to retail investors. * BDCs offer investors high dividend yields and some capital appreciation potential. * BDCs' heavy use of leverage and small or distressed company targeting makes them relatively high-risk investments. ## Understanding Business Development Companies (BDCs) The U.S. Congress created business development companies in 1980 to fuel job growth and assist emerging U.S. businesses in raising funds. BDCs are closely involved in mentoring and developing the companies in their portfolios because it is in a BDC's best interest to help them become successful. BDCs invest in private companies and small public firms that have low trading volumes or are in financial distress. They raise capital through initial public offerings or by issuing corporate bonds and equities or forms of hybrid investment instruments to investors. The raised capital is then used to provide funding for the struggling companies. BDCs can use different financial instruments to provide capital, but in general, most issue loans or purchase stocks or convertible securities from the companies. Some business development companies are publicly traded entities. Others are not publicly traded and are known as [non-traded BDCs](https://www.investopedia.com/articles/retirement/051616/what-are-nontraded-bdcs-and-should-you-stay-away-them.asp). ### Qualifying as a BDC To qualify as a BDC, a company must be registered in compliance with Section 54 of the [Investment Company Act of 1940](https://www.investopedia.com/terms/i/investmentcompanyact.asp). In addition, it must be a domestic company whose class of securities is registered with the [Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) (SEC). The BDC must invest at least 70% of its assets in private or public U.S. firms with market values of less than US$250 million. These companies are often young businesses seeking financing or firms suffering or emerging from financial difficulties. Also, the BDC must provide managerial assistance to the companies in its portfolio. ### Business development companies avoid corporate income taxes by distributing at least 90% of their income to shareholders. ## BDCs vs. Venture Capital If BDCs sound similar to [venture capital funds](https://www.investopedia.com/terms/v/vcfund.asp), they are. However, there are some key differences. One relates to the nature of the investors each seeks. Venture capital funds are primarily available to large institutions and wealthy individuals through private placements. In contrast, BDCs allow smaller, nonaccredited investors to invest in them, and by extension, in small growth companies. Venture capital funds keep a limited number of investors and must meet specific asset-related tests to avoid being classified as regulated investment companies. On the other hand, BDC shares are typically traded on stock exchanges and are constantly available as investments for the public. BDCs that decline to list on an exchange must follow the same regulations as listed BDCs. However, less stringent provisions for the amount of borrowing, related-party transactions, and equity-based compensation make the BDC an appealing form of incorporation to venture capitalists who were previously unwilling to assume the burdensome regulation of an investment company. ## Advantages and Disavantages of BDC Investment Pros * High dividend yields * Open to retail investors * Liquid * Diversity Cons * High-risk * Sensitive to interest-rate spikes * Illiquid/opaque holdings * Can magnify losses * Dividends taxed as income ### Advantages Explained * **High dividend yields**: Because BDCs are [regulated investment companies](https://www.investopedia.com/terms/r/ric.asp) (RICs), they must distribute over 90% of their profits to shareholders. That RIC status means they don't pay corporate income tax on profits before distributing them to shareholders. The result is above-average dividend yields. * **Open to retail investors**: BDCs expose investors to debt and equity investments in predominantly private companies—typically closed to retail investors. * **Liquid**: BDCs trade on public exchanges, giving them a fair amount of liquidity and transparency. * **Diversity**: BDC investments may diversify an investor's portfolio with securities that can display substantially different returns from stocks and bonds. ### Disadvantages Explained * **High risk**: Although a BDC itself is liquid, many of its holdings are not. The portfolio holdings are primarily private firms or small, thinly-traded public companies. BDCs invest aggressively in companies that offer both income now and capital appreciation later; as such, they register somewhat high on the risk scale. * **Sensitive to interest rate spikes**: A rise in interest rates—making it more expensive to borrow funds—can impede a BDC's profit margins. * **Illiquid or opaque holdings**: Because most BDC holdings are typically invested in illiquid securities, a BDC's portfolio has subjective fair-value estimates and may experience sudden and quick losses. In addition, the BDC-invested target companies typically have no track records or troubling ones. * **Magnify losses**: Losses can be magnified because BDCs often employ leverage—that is, they borrow the money they invest or loan to their target companies. Leverage can improve the rate of [return on investment](https://www.investopedia.com/terms/r/returnoninvestment.asp) (ROI), but it can also cause cash-flow problems if the leveraged asset declines in value. * **Dividends taxed as income**: Dividends from BDCs are taxed as income because they don't meet the criteria for qualified dividends. ## How to Invest in a BDC A business development company is a publicly traded firm with stocks trading on public exchanges, so you can purchase stocks through your broker. Some BDC stocks are included in exchange-traded funds and mutual funds. For example, the VanEck BDC Income ETF is offered through many brokers and is available to retail investors. ## How Does a BDC Make Money? Business development companies can make money in several different ways. One of the most common is to purchase equity from the companies they provide funding for and sell it when it appreciates. If a BDC buys convertible bonds from a company it has invested in, it can receive yields from the bonds and later convert them to equity. Once converted, the equity can be held for appreciation or sold for capital gains. Lending is another way BDCs make money. Similar to a consumer borrowing from a bank, a BDC charges interest on the loans it makes. ## What Are the Benefits of a BDC? Business development companies provide investors with higher yields and returns. ## How Does a BDC Make Money? BDCs make money by lending capital to and purchasing equity or bonds from the companies in their portfolio. ## What Is BDC Lending? Business development company lending is when a BDC lends capital to a company it has invested in. ## The Bottom Line Business development companies are firms that exist to assist smaller or financially struggling businesses. BDCs use fundraising techniques to raise capital for themselves from investors and then use that money to invest in these smaller businesses. They were created by Congress in 1980 to help small businesses grow while attempting to shield them from predatory tactics sometimes used to take over struggling businesses. BDCs generally have higher returns than mutual funds and exchange-traded funds, but with these returns comes an equal increase in risk and volatility. If you're considering investing in BDCs, it helps to talk to a professional financial advisor to determine if they meet your investing goals and risk tolerance.

What Is a Business Development Company (BDC)? A business development company (BDC) is an organization that invests in small- and medium-sized companies as well as distressed companies. A BDC helps these firms grow in the initial stages of their development. With distressed businesses, the BDC helps the companies regain sound financial footing. Similar to closed-end investment funds, many BDCs are public companies whose shares trade on major stock exchanges, such as the American Stock Exchange (AMEX), Nasdaq, and others. As investments, they are high-risk but offer higher rewards. Key Takeaways A business development company (BDC) is a type of closed-end fund that makes investments in developing and financially distressed firms. Many BDCs are publicly traded and are open to retail investors.BDCs offer investors high dividend yields and some capital appreciation potential.BDCs' heavy use of leverage and small or distressed company targeting makes them relatively high-risk investments. Understanding Business Development Companies (BDCs) The U.S. Congress created business development companies in 1980 to fuel job growth and assist emerging U.S. businesses in raising funds. BDCs are closely involved in mentoring and developing the companies in their portfolios because it is in a BDC's best interest to help them become successful. BDCs invest in private companies and small public firms that have low trading volumes or are in financial distress. They raise capital through initial public offerings or by issuing corporate bonds and equities or forms of hybrid investment instruments to investors. The raised capital is then used to provide funding for the struggling companies. BDCs can use different financial instruments to provide capital, but in general, most issue loans or purchase stocks or convertible securities from the companies. Some business development companies are publicly traded entities. Others are not publicly traded and are known as non-traded BDCs. Qualifying as a BDC To qualify as a BDC, a company must be registered in compliance with Section 54 of the Investment Company Act of 1940. In addition, it must be a domestic company whose class of securities is registered with the Securities and Exchange Commission (SEC). The BDC must invest at least 70% of its assets in private or public U.S. firms with market values of less than US$250 million. These companies are often young businesses seeking financing or firms suffering or emerging from financial difficulties. Also, the BDC must provide managerial assistance to the companies in its portfolio. Business development companies avoid corporate income taxes by distributing at least 90% of their income to shareholders. BDCs vs. Venture Capital If BDCs sound similar to venture capital funds, they are. However, there are some key differences. One relates to the nature of the investors each seeks. Venture capital funds are primarily available to large institutions and wealthy individuals through private placements. In contrast, BDCs allow smaller, nonaccredited investors to invest in them, and by extension, in small growth companies. Venture capital funds keep a limited number of investors and must meet specific asset-related tests to avoid being classified as regulated investment companies. On the other hand, BDC shares are typically traded on stock exchanges and are constantly available as investments for the public. BDCs that decline to list on an exchange must follow the same regulations as listed BDCs. However, less stringent provisions for the amount of borrowing, related-party transactions, and equity-based compensation make the BDC an appealing form of incorporation to venture capitalists who were previously unwilling to assume the burdensome regulation of an investment company. Advantages and Disavantages of BDC Investment Pros High dividend yields Open to retail investors Liquid Diversity Cons High-risk Sensitive to interest-rate spikes Illiquid/opaque holdings Can magnify losses Dividends taxed as income Advantages Explained High dividend yields: Because BDCs are regulated investment companies (RICs), they must distribute over 90% of their profits to shareholders. That RIC status means they don't pay corporate income tax on profits before distributing them to shareholders. The result is above-average dividend yields. Open to retail investors: BDCs expose investors to debt and equity investments in predominantly private companies—typically closed to retail investors. Liquid: BDCs trade on public exchanges, giving them a fair amount of liquidity and transparency. Diversity: BDC investments may diversify an investor's portfolio with securities that can display substantially different returns from stocks and bonds. Disadvantages Explained High risk: Although a BDC itself is liquid, many of its holdings are not. The portfolio holdings are primarily private firms or small, thinly-traded public companies. BDCs invest aggressively in companies that offer both income now and capital appreciation later; as such, they register somewhat high on the risk scale. Sensitive to interest rate spikes: A rise in interest rates—making it more expensive to borrow funds—can impede a BDC's profit margins. Illiquid or opaque holdings: Because most BDC holdings are typically invested in illiquid securities, a BDC's portfolio has subjective fair-value estimates and may experience sudden and quick losses. In addition, the BDC-invested target companies typically have no track records or troubling ones. Magnify losses: Losses can be magnified because BDCs often employ leverage—that is, they borrow the money they invest or loan to their target companies. Leverage can improve the rate of return on investment (ROI), but it can also cause cash-flow problems if the leveraged asset declines in value. Dividends taxed as income: Dividends from BDCs are taxed as income because they don't meet the criteria for qualified dividends. How to Invest in a BDC A business development company is a publicly traded firm with stocks trading on public exchanges, so you can purchase stocks through your broker. Some BDC stocks are included in exchange-traded funds and mutual funds. For example, the VanEck BDC Income ETF is offered through many brokers and is available to retail investors. How Does a BDC Make Money? Business development companies can make money in several different ways. One of the most common is to purchase equity from the companies they provide funding for and sell it when it appreciates. If a BDC buys convertible bonds from a company it has invested in, it can receive yields from the bonds and later convert them to equity. Once converted, the equity can be held for appreciation or sold for capital gains. Lending is another way BDCs make money. Similar to a consumer borrowing from a bank, a BDC charges interest on the loans it makes. What Are the Benefits of a BDC? Business development companies provide investors with higher yields and returns. How Does a BDC Make Money? BDCs make money by lending capital to and purchasing equity or bonds from the companies in their portfolio. What Is BDC Lending? Business development company lending is when a BDC lends capital to a company it has invested in. The Bottom Line Business development companies are firms that exist to assist smaller or financially struggling businesses. BDCs use fundraising techniques to raise capital for themselves from investors and then use that money to invest in these smaller businesses. They were created by Congress in 1980 to help small businesses grow while attempting to shield them from predatory tactics sometimes used to take over struggling businesses. BDCs generally have higher returns than mutual funds and exchange-traded funds, but with these returns comes an equal increase in risk and volatility. If you're considering investing in BDCs, it helps to talk to a professional financial advisor to determine if they meet your investing goals and risk tolerance.

https://www.investopedia.com/terms/m/mcginley-dynamic.asp

McGinley Dynamic Indicator: What it is, How it Works

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-the-mcginley-dynamic-indicator"></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 McGinley Dynamic Indicator? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The McGinley Dynamic indicator is a type of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/movingaverage.asp#:~:text=In%20statistics%2C%20a%20moving%20average,commonly%20used%20in%20technical%20analysis.">moving average</a> that was designed to track the market better than existing moving average indicators. It is a technical indicator that improves upon moving average lines by adjusting for shifts in market speed. John R. McGinley, a market technician, is the inventor of the eponymous indicator. </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 McGinley Dynamic indicator is a type of moving average that was designed to track the market better than existing moving average indicators.</li><li>This indicator solves the issue of varying market speeds by incorporating an automatic adjustment factor into its formula, which speeds (or slows) the indicator in trending, or ranging, markets.</li><li>The McGinley Dynamic indicator improves upon conventional moving averages by minimizing price separations and volatile whipsaws so that price action is more accurately reflected.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-mcginley-dynamic-indicator"></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 McGinley Dynamic Indicator </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The McGinley Dynamic indicator attempts to solve a problem inherent in moving averages that use fixed time lengths. The basic problem is that the market, being the great discounting mechanism that it is, reacts to events at a speed that a moving average will not be able to cope with.</p> <p>This issue is called the lag, and there is no type of moving average, whether it be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sma.asp">simple (SMA)</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ema.asp">exponential (EMA)</a>, or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/linearlyweightedmovingaverage.asp">weighted (LWMA)</a>, that is not affected by this. Understandably, this will call into question the reliability of that moving average. The McGinley Dynamic indicator takes into account speed changes in a market (hence, "dynamic") to show a smoother, more responsive, moving average line.</p> <p>The speed of the market is not consistent; it frequently speeds up and slows down. Traditional moving averages, such as a simple moving average or an exponential moving average, fail to account for this market characteristic. The McGinley Dynamic indicator solves this problem by incorporating an automatic smoothing factor into its formula to adjust to market moves. <span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span>This speeds, or slows, the indicator in <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trending-market.asp">trending</a>, or <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rangeboundtrading.asp">ranging</a>, markets.</p> <p>This is not to say that the aforementioned issue of lag has been eradicated, only that the reaction to market movement is faster. The key point to note is that, due to its smoothing constant, it will be more market reactive than other moving averages. The user can customize this indicator through the selection of the number of periods (N).</p> <blockquote> <span data-value="\begin{aligned} &amp;\textbf{McGinley Dynamic Indicator }\mathbf{(MD)}\\ &amp;\qquad\mathbf{=MD}_{\mathbf{[1]}}\mathbf{+} \frac{ \textbf{Price}\ -\ \textbf{MD}_{\mathbf{[1]}}} {\mathbf{N^*}\left( \frac{\textbf{Price}}{\mathbf{MD}_{\mathbf{[1]}}}\right)^4}\\ &amp;\textbf{where:}\\ &amp;MD_{[1]}=MD\text{ value of the preceding period}\\ &amp;\text{Price}=\text{Security's current price}\\ &amp;N=\text{number of periods} \end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mtable> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mrow> <mtext> McGinley </mtext> <mtext>   </mtext> <mtext> Dynamic </mtext> <mtext>   </mtext> <mtext> Indicator </mtext> <mtext>   </mtext> </mrow> <mrow> <mo> ( </mo> <mi> M </mi> <mi> D </mi> <mo> ) </mo> </mrow> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mspace width="2em"></mspace> <msub> <mrow> <mo> = </mo> <mi> M </mi> <mi> D </mi> </mrow> <mrow> <mo> [ </mo> <mn> 1 </mn> <mo> ] </mo> </mrow> </msub> <mo> + </mo> <mfrac> <mrow> <mtext> Price </mtext> <mtext>   </mtext> <mo> − </mo> <mtext>   </mtext> <msub> <mtext> MD </mtext> <mrow> <mo> [ </mo> <mn> 1 </mn> <mo> ] </mo> </mrow> </msub> </mrow> <mrow> <msup> <mi> N </mi> <mo> ∗ </mo> </msup> <msup> <mrow> <mo> ( </mo> <mfrac> <mtext> Price </mtext> <msub> <mrow> <mi> M </mi> <mi> D </mi> </mrow> <mrow> <mo> [ </mo> <mn> 1 </mn> <mo> ] </mo> </mrow> </msub> </mfrac> <mo> ) </mo> </mrow> <mn> 4 </mn> </msup> </mrow> </mfrac> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> where: </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> M </mi> <msub> <mi> D </mi> <mrow> <mo> [ </mo> <mn> 1 </mn> <mo> ] </mo> </mrow> </msub> <mo> = </mo> <mi> M </mi> <mi> D </mi> <mtext>  value of the preceding period </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> Price </mtext> <mo> = </mo> <mtext> Security’s current price </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> N </mi> <mo> = </mo> <mtext> number of periods </mtext> </mrow> </mstyle> </mtd> </mtr> </mtable> <annotation encoding="application/x-tex"> \begin{aligned} &amp;\textbf{McGinley Dynamic Indicator }\mathbf{(MD)}\\ &amp;\qquad\mathbf{=MD}_{\mathbf{[1]}}\mathbf{+} \frac{ \textbf{Price}\ -\ \textbf{MD}_{\mathbf{[1]}}} {\mathbf{N^*}\left( \frac{\textbf{Price}}{\mathbf{MD}_{\mathbf{[1]}}}\right)^4}\\ &amp;\textbf{where:}\\ &amp;MD_{[1]}=MD\text{ value of the preceding period}\\ &amp;\text{Price}=\text{Security's current price}\\ &amp;N=\text{number of periods} \end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="base"><span class="strut"></span><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span 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 textbf">McGinley Dynamic Indicator </span></span><span class="mord"><span class="mopen">(</span><span class="mord mathbf">MD</span><span class="mclose">)</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mspace"></span><span class="mord"><span class="mord"><span class="mrel">=</span><span class="mspace"></span><span class="mord mathbf">MD</span></span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord mtight"><span class="mopen mtight">[</span><span class="mord mathbf mtight">1</span><span class="mclose mtight">]</span></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span><span class="mspace"></span><span class="mbin">+</span><span class="mspace"></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"><span class="mord mathbf">N</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="mbin mtight">∗</span></span></span></span></span></span></span></span><span class="mspace"></span><span class="minner"><span class="minner"><span class="mopen delimcenter"><span class="delimsizing size2">(</span></span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord mtight"><span class="mord mtight"><span class="mord mathbf mtight">MD</span></span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size3 size1 mtight"><span class="mord mtight"><span class="mord mtight"><span class="mopen mtight">[</span><span class="mord mathbf mtight">1</span><span class="mclose mtight">]</span></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span><span 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 textbf mtight">Price</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 class="mclose delimcenter"><span class="delimsizing size2">)</span></span></span><span class="msupsub"><span class="vlist-t"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight">4</span></span></span></span></span></span></span></span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord text"><span class="mord textbf">Price</span></span><span class="mspace"> </span><span class="mspace"></span><span class="mbin">−</span><span class="mspace"> </span><span class="mspace"></span><span class="mord"><span class="mord text"><span class="mord textbf">MD</span></span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord mtight"><span class="mopen mtight">[</span><span class="mord mathbf mtight">1</span><span class="mclose mtight">]</span></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span><span class="mclose nulldelimiter"></span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord textbf">where:</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathnormal">M</span><span class="mord"><span class="mord mathnormal">D</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mopen mtight">[</span><span class="mord mtight">1</span><span class="mclose mtight">]</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 class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord mathnormal">M</span><span class="mord mathnormal">D</span><span class="mord text"><span class="mord"> value of the preceding period</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord">Price</span></span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">Security’s current price</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathnormal">N</span><span class="mspace"></span><span class="mrel">=</span><span class="mspace"></span><span class="mord text"><span class="mord">number of periods</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"><span class=""></span></span></span></span></span></span></span></span></span></span></span> </blockquote><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <p>The indicator improves upon conventional moving averages by minimizing price separations and volatile <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/whipsaw.asp">whipsaws</a> so that price action is more accurately reflected. The formula allows for an acceleration, or deceleration, in the McGinley Dynamic indicator based solely on the security's price movement.</p> <p>Even though traders may use the line to make buy or sell decisions, <a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/forex/09/mcginley-dynamic-indicator.asp">McGinley's original intent</a> for his indicator was to reduce the lag between the indicator and the market—the logic being that a faster tracking moving average would be more credible in generating trading signals.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_9-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_10-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.</p></div></div></div></div>

## What Is the McGinley Dynamic Indicator? The McGinley Dynamic indicator is a type of [moving average](https://www.investopedia.com/terms/m/movingaverage.asp#:~:text=In%20statistics%2C%20a%20moving%20average,commonly%20used%20in%20technical%20analysis.) that was designed to track the market better than existing moving average indicators. It is a technical indicator that improves upon moving average lines by adjusting for shifts in market speed. John R. McGinley, a market technician, is the inventor of the eponymous indicator. ### Key Takeaways * The McGinley Dynamic indicator is a type of moving average that was designed to track the market better than existing moving average indicators. * This indicator solves the issue of varying market speeds by incorporating an automatic adjustment factor into its formula, which speeds (or slows) the indicator in trending, or ranging, markets. * The McGinley Dynamic indicator improves upon conventional moving averages by minimizing price separations and volatile whipsaws so that price action is more accurately reflected. ## Understanding McGinley Dynamic Indicator The McGinley Dynamic indicator attempts to solve a problem inherent in moving averages that use fixed time lengths. The basic problem is that the market, being the great discounting mechanism that it is, reacts to events at a speed that a moving average will not be able to cope with. This issue is called the lag, and there is no type of moving average, whether it be [simple (SMA)](https://www.investopedia.com/terms/s/sma.asp), [exponential (EMA)](https://www.investopedia.com/terms/e/ema.asp), or [weighted (LWMA)](https://www.investopedia.com/terms/l/linearlyweightedmovingaverage.asp), that is not affected by this. Understandably, this will call into question the reliability of that moving average. The McGinley Dynamic indicator takes into account speed changes in a market (hence, "dynamic") to show a smoother, more responsive, moving average line. The speed of the market is not consistent; it frequently speeds up and slows down. Traditional moving averages, such as a simple moving average or an exponential moving average, fail to account for this market characteristic. The McGinley Dynamic indicator solves this problem by incorporating an automatic smoothing factor into its formula to adjust to market moves. This speeds, or slows, the indicator in [trending](https://www.investopedia.com/terms/t/trending-market.asp), or [ranging](https://www.investopedia.com/terms/r/rangeboundtrading.asp), markets. This is not to say that the aforementioned issue of lag has been eradicated, only that the reaction to market movement is faster. The key point to note is that, due to its smoothing constant, it will be more market reactive than other moving averages. The user can customize this indicator through the selection of the number of periods (N). > McGinley > > >   > > > Dynamic > > >   > > > Indicator > > >   > > > > > ( > > > M > > > D > > > ) > > > > > > > > > > > > > > > > > > > > > = > > > M > > > D > > > > > [ > > > 1 > > > ] > > > > > + > > > > > Price > > >   > > > − > > >   > > > > MD > > > > [ > > > 1 > > > ] > > > > > > > > N > > > ∗ > > > > > > ( > > > > Price > > > > > M > > > D > > > > > [ > > > 1 > > > ] > > > > > > ) > > > > 4 > > > > > > > > > > > > > > > > > > > > where: > > > > > > > > > > > > > > > > > M > > > > D > > > > [ > > > 1 > > > ] > > > > > = > > > M > > > D > > >  value of the preceding period > > > > > > > > > > > > > > > > > Price > > > = > > > Security’s current price > > > > > > > > > > > > > > > > > N > > > = > > > number of periods > > > > > > > > \begin{aligned} &\textbf{McGinley Dynamic Indicator }\mathbf{(MD)}\\ &\qquad\mathbf{=MD}\_{\mathbf{[1]}}\mathbf{+} \frac{ \textbf{Price}\ -\ \textbf{MD}\_{\mathbf{[1]}}} {\mathbf{N^\*}\left( \frac{\textbf{Price}}{\mathbf{MD}\_{\mathbf{[1]}}}\right)^4}\\ &\textbf{where:}\\ &MD\_{[1]}=MD\text{ value of the preceding period}\\ &\text{Price}=\text{Security's current price}\\ &N=\text{number of periods} \end{aligned} > > > ​McGinley Dynamic Indicator (MD)=MD[1]​+N∗(MD[1]​Price​)4Price − MD[1]​​where:MD[1]​=MD value of the preceding periodPrice=Security’s current priceN=number of periods​ The indicator improves upon conventional moving averages by minimizing price separations and volatile [whipsaws](https://www.investopedia.com/terms/w/whipsaw.asp) so that price action is more accurately reflected. The formula allows for an acceleration, or deceleration, in the McGinley Dynamic indicator based solely on the security's price movement. Even though traders may use the line to make buy or sell decisions, [McGinley's original intent](https://www.investopedia.com/articles/forex/09/mcginley-dynamic-indicator.asp) for his indicator was to reduce the lag between the indicator and the market—the logic being that a faster tracking moving average would be more credible in generating trading signals. ### Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.

What Is the McGinley Dynamic Indicator? The McGinley Dynamic indicator is a type of moving average that was designed to track the market better than existing moving average indicators. It is a technical indicator that improves upon moving average lines by adjusting for shifts in market speed. John R. McGinley, a market technician, is the inventor of the eponymous indicator. Key Takeaways The McGinley Dynamic indicator is a type of moving average that was designed to track the market better than existing moving average indicators.This indicator solves the issue of varying market speeds by incorporating an automatic adjustment factor into its formula, which speeds (or slows) the indicator in trending, or ranging, markets.The McGinley Dynamic indicator improves upon conventional moving averages by minimizing price separations and volatile whipsaws so that price action is more accurately reflected. Understanding McGinley Dynamic Indicator The McGinley Dynamic indicator attempts to solve a problem inherent in moving averages that use fixed time lengths. The basic problem is that the market, being the great discounting mechanism that it is, reacts to events at a speed that a moving average will not be able to cope with. This issue is called the lag, and there is no type of moving average, whether it be simple (SMA), exponential (EMA), or weighted (LWMA), that is not affected by this. Understandably, this will call into question the reliability of that moving average. The McGinley Dynamic indicator takes into account speed changes in a market (hence, "dynamic") to show a smoother, more responsive, moving average line. The speed of the market is not consistent; it frequently speeds up and slows down. Traditional moving averages, such as a simple moving average or an exponential moving average, fail to account for this market characteristic. The McGinley Dynamic indicator solves this problem by incorporating an automatic smoothing factor into its formula to adjust to market moves. This speeds, or slows, the indicator in trending, or ranging, markets. This is not to say that the aforementioned issue of lag has been eradicated, only that the reaction to market movement is faster. The key point to note is that, due to its smoothing constant, it will be more market reactive than other moving averages. The user can customize this indicator through the selection of the number of periods (N). McGinley   Dynamic   Indicator   ( M D ) = M D [ 1 ] + Price   −   MD [ 1 ] N ∗ ( Price M D [ 1 ] ) 4 where: M D [ 1 ] = M D  value of the preceding period Price = Security’s current price N = number of periods \begin{aligned} &\textbf{McGinley Dynamic Indicator }\mathbf{(MD)}\\ &\qquad\mathbf{=MD}_{\mathbf{[1]}}\mathbf{+} \frac{ \textbf{Price}\ -\ \textbf{MD}_{\mathbf{[1]}}} {\mathbf{N^*}\left( \frac{\textbf{Price}}{\mathbf{MD}_{\mathbf{[1]}}}\right)^4}\\ &\textbf{where:}\\ &MD_{[1]}=MD\text{ value of the preceding period}\\ &\text{Price}=\text{Security's current price}\\ &N=\text{number of periods} \end{aligned} ​McGinley Dynamic Indicator (MD)=MD[1]​+N∗(MD[1]​Price​)4Price − MD[1]​​where:MD[1]​=MD value of the preceding periodPrice=Security’s current priceN=number of periods​ The indicator improves upon conventional moving averages by minimizing price separations and volatile whipsaws so that price action is more accurately reflected. The formula allows for an acceleration, or deceleration, in the McGinley Dynamic indicator based solely on the security's price movement. Even though traders may use the line to make buy or sell decisions, McGinley's original intent for his indicator was to reduce the lag between the indicator and the market—the logic being that a faster tracking moving average would be more credible in generating trading signals. 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/personal-finance/complete-guide-checking-accounts/

The Complete Guide to Checking Accounts

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> A checking account is a type of bank account that offers easy access to deposited funds. Unlike other types of bank accounts—including savings—checking accounts typically allow unlimited withdrawals and deposits, making them a good choice to cover your everyday spending. </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 exchange for this flexibility, checking accounts tend to pay low interest rates (if they pay interest at all) compared to savings accounts, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">certificates of deposit</a> (CDs), and other accounts that allow you to grow your money.<span class="ql-inline-citation" data-cite="1"></span> As such, it’s a good idea to use your checking account only for the money you’ll want to access for ordinary purchases and your monthly bills. Everything else should go into accounts that offer higher earnings potential. </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>Checking accounts are a standard offering at most banks and credit unions for both personal and business use.</li><li>Checking accounts allow you to spend directly from the account via paper checks, debit cards, or electronic transfers.</li><li>Various types of checking accounts are offered, with different features, benefits, and costs.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-to-use-checking-accounts"></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 Checking Accounts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> There are several convenient ways to access the money in a checking account. For example, you can: </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>Write checks</li><li>Deposit paper checks using a mobile app</li><li>Make purchases with a debit card connected to your account</li><li>Make withdrawals and deposits with your ATM card</li><li>Visit your local branch to make withdrawals and deposits</li><li>Use the bank’s online bill pay service to pay one-time bills or set up recurring payments</li><li>Set up automatic payments through a company where you have an account, such as utilities and credit cards</li><li>Transfer funds to and from other bank accounts</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"> Before <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/040715/what-should-you-bring-bank-open-checking-account.asp">opening a checking account</a>, it’s helpful to understand the different types of accounts that are available, as well as the practical aspects of maintaining a checking account–such as how to write a check and balance your account. To get you started, here’s a quick guide to help you choose and manage a checking account. </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-free-checking-accounts-and-how-to-qualify-for-one"></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"> Free Checking Accounts (and How to Qualify for One) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> According to the Consumer Financial Protection Bureau, any account described or advertised as "free" or "no cost" cannot have the following:<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_16-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> <li>Minimum balance requirements</li><li>Monthly maintenance or service fees</li><li>Excess-transaction fees</li><li>Fees to deposit, withdraw, or transfer money</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"> Free doesn’t mean it's without any fees at all. You’ll still be on the hook for any overdraft charges and other fees, such as:<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_20-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> <li>Dormant account fees</li><li>ATM fees</li><li>Bounced check fees</li><li>Balance inquiry fees</li><li>Check-printing fees</li><li>Stop payment fees</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The bank or credit union can change your account type and start charging more fees if it notifies you 30 days in advance.<span class="ql-inline-citation" data-cite="20"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> For other checking accounts, some banks don't charge monthly maintenance or service fees if you maintain a minimum deposit amount, sign up for electronic statements, or set up direct deposit. But remember that minimum direct deposit amount–say, $100 or $250 per month–because if you fall below that or the direct deposits stop, you’ll lose the free checking status. </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-interest-bearing-checking-accounts"></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"> Interest-Bearing Checking Accounts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> With an interest-bearing checking account or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/high-yield-checking-account-8610476">high-yield checking account</a>, you earn interest on the money in the account—just as you would in a savings account. Unlike a savings account, however, you’ll be able to write checks and use your debit card to make purchases and pay bills. </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"> Not all banks offer interest-bearing checking accounts, and those that do may have minimum balance requirements (which could be quite high).<span class="ql-inline-citation" data-cite="11"></span> You may also see monthly maintenance fees and other requirements, such as a minimum number of debit card transactions each month. Interest rates vary greatly by bank, so it pays to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-checking-accounts-5070332">shop around</a> if interest is important to you. In general, you’ll find <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-unions-5104980">better rates at credit unions</a>. </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-premium-accounts-and-qualifications"></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"> Premium Accounts and Qualifications </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Premium checking accounts offer benefits beyond what you get with a standard account. Perks vary by bank and can include interest payments, waived fees (e.g., free notary services and free money orders), free financial advice, and discounts on the bank’s other financial products. At some banks, you can earn reward points when you make purchases, which can be redeemed for eligible products and services. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> In general, premium accounts require a higher balance than standard accounts in order to have the monthly fee waived. For instance, with Chase Premier Plus Checking, you'll need an average beginning day balance of $15,000 in deposits with Chase, or you'll pay a $25 monthly fee.<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_36-0"></div> <span class="heading-toc" id="toc-lifeline-and-second-chance-checking-accounts"></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"> Lifeline and Second Chance Checking Accounts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lifeline_account.asp">Lifeline accounts</a> (sometimes called basic accounts) are streamlined checking accounts designed for low-income customers. These accounts typically have low balance requirements and no monthly fees. </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"> Basic features like check writing are included, but you may be limited to a certain number of transactions each month. Large banks offer these accounts to provide banking services to the broad public–and some states require banks to offer them.<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_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Another type of account is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/6-different-types-checking-accounts/">second chance checking account</a>, also called a "lower risk account." This account type may be a good option if you’ve been turned down for a checking account due to a past banking mistake or bad credit. A second chance account is usually designed to help you avoid overdrawing your account. After a period of meeting the bank's expectations, you may even be able to transition to a traditional account with better terms.<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_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> These accounts typically have monthly fees that can’t be waived. You may be required to set up a direct deposit and/or complete a money management class. Despite these limitations, second chance accounts are often better in terms of fees and convenience than using prepaid debit cards and check cashing services.<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_45-0"></div> <span class="heading-toc" id="toc-joint-checking"></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"> Joint Checking </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> A joint account is a bank account shared by two or more people, often relatives or business partners. A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-joint-checking-accounts-5088312">joint checking account</a> functions like a standard checking account, but each named account holder can contribute to and use the money in the account. These accounts are useful for couples, parents and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-checking-accounts-for-teens-5197119">teenagers</a>, and adult children helping aging parents manage their finances. </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"> Since everyone on the account has access to the funds, it’s important to set clear expectations from the start to avoid potential problems and overdrawing the account. Depending on the institution and state law, anyone on the account may be able to empty the joint account or even close the account altogether.<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_50-0"></div> <span class="heading-toc" id="toc-trust-checking"></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"> Trust Checking </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> If you are not a trustee or a trust beneficiary, this type of checking account won’t be on your radar. In any type of trust account, a trustee controls the account assets for the benefit of another person or group. The trustee is often a family member, attorney, or accountant who has accepted responsibility for managing the account.<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_53-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> A trust typically needs its own checking account, which allows the trustee(s) to pay bills, make payments to beneficiaries (per the trust agreement), and manage the trust’s funds. A trust must be established before a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/what-trust-checking-account/">trust checking account</a> can be opened. </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"> Only the designated trustee(s) can open a bank account on behalf of the trust. In some cases, a trust agreement may contain rules regarding trust checking accounts—for example, that the trust must use a certain bank. Be sure to read the trust agreement and follow any rules before opening an account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <span class="heading-toc" id="toc-student-accounts"></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 Accounts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-a-student-bank-account-7643916">Student checking accounts</a> function just like standard checking accounts. Some banks and credit unions could offer a monthly maintenance fee waiver–or at least a discount on the monthly fee–for student checking accounts. </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"> Recent CFPB research seems to indicate that students may want to be cautious about student accounts and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-student-bank-accounts-4799707">shop around for options</a>. Some student accounts could charge higher fees and penalties, with challenging requirements around qualifying balances and deposits.<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_62-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> As with other checking accounts, you may be able to avoid fees if you <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-set-up-direct-deposit-8608909">set up direct deposit</a>, maintain a minimum daily balance, or make a certain number of debit card purchases each month. Student checking accounts are typically available to students ages 17-24. You may be required to provide proof of active enrollment in a qualifying high school, college, university, or vocational program.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <span class="heading-toc" id="toc-atmdebit-cards"></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"> ATM/Debit Cards </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debitcard.asp">Debit cards</a> let you easily access the money in your checking account to pay for everyday expenses. Debit cards function like credit cards, except that money comes out of your checking account when you make a purchase. Essentially, using a debit card is just like writing a check, but with the convenience of using plastic. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> You can also use your debit card to withdraw cash from your checking account through an <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/atm.asp">ATM</a> in combination with the personal identification number (PIN) you created when opening your account. Note that you may be charged a fee for using your card outside of your bank’s ATM network, by both your bank and the ATM operator.<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_69-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> If your card doesn’t have the Visa or MasterCard logo, it can only be used to make ATM cash withdrawals. Unlike debit cards, these ATM cards can’t be used to make purchases.<br/> </p> <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-how-to-write-a-check"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_72-0"> <span class="mntl-sc-block-heading__text"> How to Write a Check </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> Writing a check can be confusing when you haven’t done it before, but it’s simple once you know what goes where. Here’s a quick look at how to write a check: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_74-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> <li>Fill out today’s date on the short line on the top right side of the check.</li><li>On the line next to PAY TO THE ORDER OF, enter the name of the person or company you intend to give money to.</li><li>In the box to the right of this line and the dollar sign, enter the amount the check is for, using numerals (e.g., 97.98).</li><li>On the next line, write out in words the dollar amount of the check (e.g., Ninety-seven and 98/100). This amount must match the numbers you entered in the box. To ensure the check won't be tampered with, fill the entire line.</li><li>At the bottom left, you can make a note to help you remember what the check is for; or, if you’re paying a bill and the company asks you to include an account number, put it here.</li><li>Your signature goes on the line at the bottom right. Your check won’t be accepted without a signature, so be sure to include it.</li> </ul> <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"> It’s a good idea to fill out checks using the same process every time to make sure you include everything. You can work your way through from top to bottom. Here’s how the check looks before it’s filled out: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></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_79-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:60.6%;"> <img alt="Image" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/l3YL485-jus7CEb3a2Zjtgonzws=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Routing_Number_vs_Account_Number_Whats_the_Difference_Aug_2020-8939d2501c14490e8d85b94088a0bec9-cbf2392d68a44e7484e66859449cc47c.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/l3YL485-jus7CEb3a2Zjtgonzws=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Routing_Number_vs_Account_Number_Whats_the_Difference_Aug_2020-8939d2501c14490e8d85b94088a0bec9-cbf2392d68a44e7484e66859449cc47c.jpg" data-srcset="https://www.investopedia.com/thmb/tsJ0y8VwUHNw3PXK-0i8Y-pc4hU=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Routing_Number_vs_Account_Number_Whats_the_Difference_Aug_2020-8939d2501c14490e8d85b94088a0bec9-cbf2392d68a44e7484e66859449cc47c.jpg 750w" data-tracking-container="true" height="3792" id="mntl-sc-block-image_1-0" width="6250"/> <noscript> <img alt="Image" class="img--noscript universal-image__image" height="3792" sizes="750px" src="https://www.investopedia.com/thmb/l3YL485-jus7CEb3a2Zjtgonzws=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Routing_Number_vs_Account_Number_Whats_the_Difference_Aug_2020-8939d2501c14490e8d85b94088a0bec9-cbf2392d68a44e7484e66859449cc47c.jpg" srcset="https://www.investopedia.com/thmb/tsJ0y8VwUHNw3PXK-0i8Y-pc4hU=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/dotdash_Final_Routing_Number_vs_Account_Number_Whats_the_Difference_Aug_2020-8939d2501c14490e8d85b94088a0bec9-cbf2392d68a44e7484e66859449cc47c.jpg 750w" width="6250"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Image by Sabrina Jiang © Investopedia 2020</p></span> </figcaption></figure> <span class="heading-toc" id="toc-how-to-balance-a-checking-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_80-0"> <span class="mntl-sc-block-heading__text"> How to Balance a Checking Account </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_81-0"> A basic way to manage your checking account is to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-balance-checkbook-5208188">balance your checkbook</a>. This involves recording the dates and amounts of all your withdrawals and debit card purchases, plus any deposits and electronic transfers. Then, doing the math to make sure your balance matches your statement each month. </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"> To do this, check all the transactions on your statement against your entries to ensure everything matches, that you haven’t left anything out, and that there aren’t any math errors. When everything matches, your account is balanced. If it doesn’t balance, start by looking for transactions that may not have gotten recorded, and then check your math. Remember to include any interest earned. </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"> Balancing your checkbook regularly helps ensure you know how much money is in your account, which can keep you from overdrawing your account. You can track your transactions in your checkbook ledger, with a spreadsheet, or using an app (such as Mint). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_86-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_87-0"> If you’re unwilling to balance your checkbook, you should at least check your balance online or with the bank’s app. You may also be able to sign up for text alerts that let you know if your account falls below a threshold that you specify.<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_88-0"></div> <span class="heading-toc" id="toc-how-banks-protect-your-money"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_89-0"> <span class="mntl-sc-block-heading__text"> How Banks Protect Your Money </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_90-0"> If your bank is a member of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp">Federal Deposit Insurance Corporation (FDIC)</a>, your deposits are guaranteed up to $250,000 per depositor for each account ownership category (e.g., single owner vs. joint owner). That means if you have different types of accounts at your bank–say, a checking account, a savings account, and a CD–all together, they are insured for up to $250,000 if the bank fails. Coverage is automatic when you open an account at an FDIC-insured bank, and it’s backed by the full faith and credit of the United States government.<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_91-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_92-0"> Credit unions offer comparable insurance. If your credit union is a member of the National Credit Union Share<strong> </strong>Insurance Fund (NCUSIF), your “shares” (what credit unions call your deposits) are insured in a way that's similar to how your deposits are protected at an FDIC-insured bank. </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"> All federal credit unions are insured by the NCUSIF, administered by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/ncua-insured-institution.asp">National Credit Union Administration (NCUA)</a>; state credit unions can be insured by NCUSIF or through their own state or private insurance.<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_95-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_96-0"> Since financial institutions can and do fail (just think back to 2008), it’s recommended that you open an account only at an FDIC-insured bank or a similarly insured credit union. Look for the FDIC sign on the bank’s website and at your local branch, or use the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://banks.data.fdic.gov/bankfind-suite/bankfind">FDIC’s BankFind tool</a>. You can look for the NCUA sign on a credit union's website or use <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://mapping.ncua.gov">NCUA's Credit Union Locator tool</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_97-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_98-0"><span class="heading-toc" id="toc-what-do-all-the-numbers-on-a-check-mean"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Do All the Numbers on a Check Mean?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A long series of numbers can be found at the bottom of every check. The first series, on the left, is a nine-digit number that identifies your bank and is commonly called the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/aba-transit-number.asp">ABA or routing number</a>. The next series, in the middle, is your checking account number. With the routing number and your account number, the bank that accepts your check will know how to process the check (which bank and, specifically, which account, to draw from). The last series of numbers is the check number, which corresponds to the number in the top right corner of the check.<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_99-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_100-0"><span class="heading-toc" id="toc-what-is-overdraft-protection"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Overdraft Protection?</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/o/overdraft.asp">overdraft</a> happens when you try to spend more than you have in your checking account. The transaction may be declined, or it could go through and trigger an overdraft fee from your bank, for which you could incur a charge.<br/></p><p>Most banks offer something called <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/071114/what-are-pros-and-cons-overdraft-protection.asp">overdraft protection</a>, which allows you to continue using your debit card for purchases and ATM card for withdrawals in exchange for a fee. If you prefer not to pay this fee, you can opt out of overdraft protection if you’re already enrolled, or don’t opt in when you open an account. If you’re not opted in, any transaction that would put you in the red will automatically be declined (and you won’t owe a fee).<span class="ql-inline-citation" data-cite="12"></span></p><p>One alternative is to link your savings account to your checking account. Some banks will waive overdraft fees if they can move funds from your savings account to your checking account when needed to avoid an overdraft. You might still have to pay an “overdraft transfer fee,” but it’s usually much cheaper than the other fees.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_101-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_102-0"><span class="heading-toc" id="toc-what-is-a-cashiers-check"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Cashier's Check?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashierscheck.asp">cashier’s check</a> is drawn from your bank’s funds instead of your own. These checks are used when you need to guarantee that funds are available for payment. They’re ideal for large purchases, such as a car or a house down payment when a credit or debit card payment wouldn’t be practical.<br/></p><p>Because you must first deposit the check amount into your bank’s account, the bank–and not you–guarantees its payment. A bank representative signs the check and includes the name of a payee (the entity to which the check is payable) and the name of the remitter (the entity paying for the check). If you buy a cashier’s check, you’ll pay the full face value of the check plus a small service fee unless your account has special perks.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_103-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_104-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_105-0"> You have lots of options if you’re shopping for a checking account. One of the first things to consider is whether you want to open an account with an online bank or at your local brick-and-mortar bank. In general, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/11/benefits-and-drawbacks-of-internet-banks.asp">online banks</a> offer perks like lower fees, better interest rates, convenience, and free ATM access to a typically large network of ATMs. However, online banks don’t offer in-person assistance, which means you’ll have to sort through a touchtone phone menu to reach a real person. </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"> Still, many people enjoy online accounts, as most banks today provide robust apps making it easy to deposit, withdraw, and transfer money. If you’re worried about Internet security, reputable online banks with up-to-date security measures are just as safe as brick-and-mortar banks. To find out how a specific bank protects your information, search for that bank’s name + security (e.g., Ally + security). The result should link you to the bank’s security center. </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"> Once you decide if you’d rather open an account at an online or a brick-and-mortar bank, you can start comparing your options, such as account types (e.g., student checking or joint checking), minimum balance requirements, monthly maintenance fees, and the like. If you have any questions, don’t hesitate to reach out to a bank representative, either in person (at a local branch) or by using the bank’s online chat feature (if available) or customer service phone line. </p></div>

A checking account is a type of bank account that offers easy access to deposited funds. Unlike other types of bank accounts—including savings—checking accounts typically allow unlimited withdrawals and deposits, making them a good choice to cover your everyday spending. In exchange for this flexibility, checking accounts tend to pay low interest rates (if they pay interest at all) compared to savings accounts, [certificates of deposit](https://www.investopedia.com/terms/c/certificateofdeposit.asp) (CDs), and other accounts that allow you to grow your money. As such, it’s a good idea to use your checking account only for the money you’ll want to access for ordinary purchases and your monthly bills. Everything else should go into accounts that offer higher earnings potential. ### Key Takeaways * Checking accounts are a standard offering at most banks and credit unions for both personal and business use. * Checking accounts allow you to spend directly from the account via paper checks, debit cards, or electronic transfers. * Various types of checking accounts are offered, with different features, benefits, and costs. ## How to Use Checking Accounts There are several convenient ways to access the money in a checking account. For example, you can: * Write checks * Deposit paper checks using a mobile app * Make purchases with a debit card connected to your account * Make withdrawals and deposits with your ATM card * Visit your local branch to make withdrawals and deposits * Use the bank’s online bill pay service to pay one-time bills or set up recurring payments * Set up automatic payments through a company where you have an account, such as utilities and credit cards * Transfer funds to and from other bank accounts Before [opening a checking account](https://www.investopedia.com/ask/answers/040715/what-should-you-bring-bank-open-checking-account.asp), it’s helpful to understand the different types of accounts that are available, as well as the practical aspects of maintaining a checking account–such as how to write a check and balance your account. To get you started, here’s a quick guide to help you choose and manage a checking account. ## Free Checking Accounts (and How to Qualify for One) According to the Consumer Financial Protection Bureau, any account described or advertised as "free" or "no cost" cannot have the following: * Minimum balance requirements * Monthly maintenance or service fees * Excess-transaction fees * Fees to deposit, withdraw, or transfer money Free doesn’t mean it's without any fees at all. You’ll still be on the hook for any overdraft charges and other fees, such as: * Dormant account fees * ATM fees * Bounced check fees * Balance inquiry fees * Check-printing fees * Stop payment fees The bank or credit union can change your account type and start charging more fees if it notifies you 30 days in advance. For other checking accounts, some banks don't charge monthly maintenance or service fees if you maintain a minimum deposit amount, sign up for electronic statements, or set up direct deposit. But remember that minimum direct deposit amount–say, $100 or $250 per month–because if you fall below that or the direct deposits stop, you’ll lose the free checking status. ## Interest-Bearing Checking Accounts With an interest-bearing checking account or [high-yield checking account](https://www.investopedia.com/high-yield-checking-account-8610476), you earn interest on the money in the account—just as you would in a savings account. Unlike a savings account, however, you’ll be able to write checks and use your debit card to make purchases and pay bills. Not all banks offer interest-bearing checking accounts, and those that do may have minimum balance requirements (which could be quite high). You may also see monthly maintenance fees and other requirements, such as a minimum number of debit card transactions each month. Interest rates vary greatly by bank, so it pays to [shop around](https://www.investopedia.com/best-high-yield-checking-accounts-5070332) if interest is important to you. In general, you’ll find [better rates at credit unions](https://www.investopedia.com/best-credit-unions-5104980). ## Premium Accounts and Qualifications Premium checking accounts offer benefits beyond what you get with a standard account. Perks vary by bank and can include interest payments, waived fees (e.g., free notary services and free money orders), free financial advice, and discounts on the bank’s other financial products. At some banks, you can earn reward points when you make purchases, which can be redeemed for eligible products and services. In general, premium accounts require a higher balance than standard accounts in order to have the monthly fee waived. For instance, with Chase Premier Plus Checking, you'll need an average beginning day balance of $15,000 in deposits with Chase, or you'll pay a $25 monthly fee. ## Lifeline and Second Chance Checking Accounts [Lifeline accounts](https://www.investopedia.com/terms/l/lifeline_account.asp) (sometimes called basic accounts) are streamlined checking accounts designed for low-income customers. These accounts typically have low balance requirements and no monthly fees. Basic features like check writing are included, but you may be limited to a certain number of transactions each month. Large banks offer these accounts to provide banking services to the broad public–and some states require banks to offer them. Another type of account is a [second chance checking account](https://www.investopedia.com/personal-finance/6-different-types-checking-accounts/), also called a "lower risk account." This account type may be a good option if you’ve been turned down for a checking account due to a past banking mistake or bad credit. A second chance account is usually designed to help you avoid overdrawing your account. After a period of meeting the bank's expectations, you may even be able to transition to a traditional account with better terms. These accounts typically have monthly fees that can’t be waived. You may be required to set up a direct deposit and/or complete a money management class. Despite these limitations, second chance accounts are often better in terms of fees and convenience than using prepaid debit cards and check cashing services. ## Joint Checking A joint account is a bank account shared by two or more people, often relatives or business partners. A [joint checking account](https://www.investopedia.com/best-joint-checking-accounts-5088312) functions like a standard checking account, but each named account holder can contribute to and use the money in the account. These accounts are useful for couples, parents and [teenagers](https://www.investopedia.com/best-checking-accounts-for-teens-5197119), and adult children helping aging parents manage their finances. Since everyone on the account has access to the funds, it’s important to set clear expectations from the start to avoid potential problems and overdrawing the account. Depending on the institution and state law, anyone on the account may be able to empty the joint account or even close the account altogether. ## Trust Checking If you are not a trustee or a trust beneficiary, this type of checking account won’t be on your radar. In any type of trust account, a trustee controls the account assets for the benefit of another person or group. The trustee is often a family member, attorney, or accountant who has accepted responsibility for managing the account. A trust typically needs its own checking account, which allows the trustee(s) to pay bills, make payments to beneficiaries (per the trust agreement), and manage the trust’s funds. A trust must be established before a [trust checking account](https://www.investopedia.com/personal-finance/what-trust-checking-account/) can be opened. Only the designated trustee(s) can open a bank account on behalf of the trust. In some cases, a trust agreement may contain rules regarding trust checking accounts—for example, that the trust must use a certain bank. Be sure to read the trust agreement and follow any rules before opening an account. ## Student Accounts [Student checking accounts](https://www.investopedia.com/what-is-a-student-bank-account-7643916) function just like standard checking accounts. Some banks and credit unions could offer a monthly maintenance fee waiver–or at least a discount on the monthly fee–for student checking accounts. Recent CFPB research seems to indicate that students may want to be cautious about student accounts and [shop around for options](https://www.investopedia.com/best-student-bank-accounts-4799707). Some student accounts could charge higher fees and penalties, with challenging requirements around qualifying balances and deposits. As with other checking accounts, you may be able to avoid fees if you [set up direct deposit](https://www.investopedia.com/how-to-set-up-direct-deposit-8608909), maintain a minimum daily balance, or make a certain number of debit card purchases each month. Student checking accounts are typically available to students ages 17-24. You may be required to provide proof of active enrollment in a qualifying high school, college, university, or vocational program.  ## ATM/Debit Cards [Debit cards](https://www.investopedia.com/terms/d/debitcard.asp) let you easily access the money in your checking account to pay for everyday expenses. Debit cards function like credit cards, except that money comes out of your checking account when you make a purchase. Essentially, using a debit card is just like writing a check, but with the convenience of using plastic. You can also use your debit card to withdraw cash from your checking account through an [ATM](https://www.investopedia.com/terms/a/atm.asp) in combination with the personal identification number (PIN) you created when opening your account. Note that you may be charged a fee for using your card outside of your bank’s ATM network, by both your bank and the ATM operator. If your card doesn’t have the Visa or MasterCard logo, it can only be used to make ATM cash withdrawals. Unlike debit cards, these ATM cards can’t be used to make purchases. ## How to Write a Check Writing a check can be confusing when you haven’t done it before, but it’s simple once you know what goes where. Here’s a quick look at how to write a check: * Fill out today’s date on the short line on the top right side of the check. * On the line next to PAY TO THE ORDER OF, enter the name of the person or company you intend to give money to. * In the box to the right of this line and the dollar sign, enter the amount the check is for, using numerals (e.g., 97.98). * On the next line, write out in words the dollar amount of the check (e.g., Ninety-seven and 98/100). This amount must match the numbers you entered in the box. To ensure the check won't be tampered with, fill the entire line. * At the bottom left, you can make a note to help you remember what the check is for; or, if you’re paying a bill and the company asks you to include an account number, put it here. * Your signature goes on the line at the bottom right. Your check won’t be accepted without a signature, so be sure to include it. It’s a good idea to fill out checks using the same process every time to make sure you include everything. You can work your way through from top to bottom. Here’s how the check looks before it’s filled out: ![Image]() :max_bytes(150000):strip_icc()/dotdash_Final_Routing_Number_vs_Account_Number_Whats_the_Difference_Aug_2020-8939d2501c14490e8d85b94088a0bec9-cbf2392d68a44e7484e66859449cc47c.jpg) Image by Sabrina Jiang © Investopedia 2020 ## How to Balance a Checking Account A basic way to manage your checking account is to [balance your checkbook](https://www.investopedia.com/how-to-balance-checkbook-5208188). This involves recording the dates and amounts of all your withdrawals and debit card purchases, plus any deposits and electronic transfers. Then, doing the math to make sure your balance matches your statement each month. To do this, check all the transactions on your statement against your entries to ensure everything matches, that you haven’t left anything out, and that there aren’t any math errors. When everything matches, your account is balanced. If it doesn’t balance, start by looking for transactions that may not have gotten recorded, and then check your math. Remember to include any interest earned. Balancing your checkbook regularly helps ensure you know how much money is in your account, which can keep you from overdrawing your account. You can track your transactions in your checkbook ledger, with a spreadsheet, or using an app (such as Mint). If you’re unwilling to balance your checkbook, you should at least check your balance online or with the bank’s app. You may also be able to sign up for text alerts that let you know if your account falls below a threshold that you specify. ## How Banks Protect Your Money If your bank is a member of the [Federal Deposit Insurance Corporation (FDIC)](https://www.investopedia.com/terms/f/fdic.asp), your deposits are guaranteed up to $250,000 per depositor for each account ownership category (e.g., single owner vs. joint owner). That means if you have different types of accounts at your bank–say, a checking account, a savings account, and a CD–all together, they are insured for up to $250,000 if the bank fails. Coverage is automatic when you open an account at an FDIC-insured bank, and it’s backed by the full faith and credit of the United States government. Credit unions offer comparable insurance. If your credit union is a member of the National Credit Union ShareInsurance Fund (NCUSIF), your “shares” (what credit unions call your deposits) are insured in a way that's similar to how your deposits are protected at an FDIC-insured bank. All federal credit unions are insured by the NCUSIF, administered by the [National Credit Union Administration (NCUA)](https://www.investopedia.com/terms/n/ncua-insured-institution.asp); state credit unions can be insured by NCUSIF or through their own state or private insurance. Since financial institutions can and do fail (just think back to 2008), it’s recommended that you open an account only at an FDIC-insured bank or a similarly insured credit union. Look for the FDIC sign on the bank’s website and at your local branch, or use the [FDIC’s BankFind tool](https://banks.data.fdic.gov/bankfind-suite/bankfind). You can look for the NCUA sign on a credit union's website or use [NCUA's Credit Union Locator tool](https://mapping.ncua.gov). ## What Do All the Numbers on a Check Mean? A long series of numbers can be found at the bottom of every check. The first series, on the left, is a nine-digit number that identifies your bank and is commonly called the [ABA or routing number](https://www.investopedia.com/terms/aba-transit-number.asp). The next series, in the middle, is your checking account number. With the routing number and your account number, the bank that accepts your check will know how to process the check (which bank and, specifically, which account, to draw from). The last series of numbers is the check number, which corresponds to the number in the top right corner of the check. ## What Is Overdraft Protection? An [overdraft](https://www.investopedia.com/terms/o/overdraft.asp) happens when you try to spend more than you have in your checking account. The transaction may be declined, or it could go through and trigger an overdraft fee from your bank, for which you could incur a charge. Most banks offer something called [overdraft protection](https://www.investopedia.com/ask/answers/071114/what-are-pros-and-cons-overdraft-protection.asp), which allows you to continue using your debit card for purchases and ATM card for withdrawals in exchange for a fee. If you prefer not to pay this fee, you can opt out of overdraft protection if you’re already enrolled, or don’t opt in when you open an account. If you’re not opted in, any transaction that would put you in the red will automatically be declined (and you won’t owe a fee). One alternative is to link your savings account to your checking account. Some banks will waive overdraft fees if they can move funds from your savings account to your checking account when needed to avoid an overdraft. You might still have to pay an “overdraft transfer fee,” but it’s usually much cheaper than the other fees. ## What Is a Cashier's Check? A [cashier’s check](https://www.investopedia.com/terms/c/cashierscheck.asp) is drawn from your bank’s funds instead of your own. These checks are used when you need to guarantee that funds are available for payment. They’re ideal for large purchases, such as a car or a house down payment when a credit or debit card payment wouldn’t be practical. Because you must first deposit the check amount into your bank’s account, the bank–and not you–guarantees its payment. A bank representative signs the check and includes the name of a payee (the entity to which the check is payable) and the name of the remitter (the entity paying for the check). If you buy a cashier’s check, you’ll pay the full face value of the check plus a small service fee unless your account has special perks. ## The Bottom Line You have lots of options if you’re shopping for a checking account. One of the first things to consider is whether you want to open an account with an online bank or at your local brick-and-mortar bank. In general, [online banks](https://www.investopedia.com/articles/pf/11/benefits-and-drawbacks-of-internet-banks.asp) offer perks like lower fees, better interest rates, convenience, and free ATM access to a typically large network of ATMs. However, online banks don’t offer in-person assistance, which means you’ll have to sort through a touchtone phone menu to reach a real person. Still, many people enjoy online accounts, as most banks today provide robust apps making it easy to deposit, withdraw, and transfer money. If you’re worried about Internet security, reputable online banks with up-to-date security measures are just as safe as brick-and-mortar banks. To find out how a specific bank protects your information, search for that bank’s name + security (e.g., Ally + security). The result should link you to the bank’s security center. Once you decide if you’d rather open an account at an online or a brick-and-mortar bank, you can start comparing your options, such as account types (e.g., student checking or joint checking), minimum balance requirements, monthly maintenance fees, and the like. If you have any questions, don’t hesitate to reach out to a bank representative, either in person (at a local branch) or by using the bank’s online chat feature (if available) or customer service phone line.

A checking account is a type of bank account that offers easy access to deposited funds. Unlike other types of bank accounts—including savings—checking accounts typically allow unlimited withdrawals and deposits, making them a good choice to cover your everyday spending. In exchange for this flexibility, checking accounts tend to pay low interest rates (if they pay interest at all) compared to savings accounts, certificates of deposit (CDs), and other accounts that allow you to grow your money. As such, it’s a good idea to use your checking account only for the money you’ll want to access for ordinary purchases and your monthly bills. Everything else should go into accounts that offer higher earnings potential. Key Takeaways Checking accounts are a standard offering at most banks and credit unions for both personal and business use.Checking accounts allow you to spend directly from the account via paper checks, debit cards, or electronic transfers.Various types of checking accounts are offered, with different features, benefits, and costs. How to Use Checking Accounts There are several convenient ways to access the money in a checking account. For example, you can: Write checksDeposit paper checks using a mobile appMake purchases with a debit card connected to your accountMake withdrawals and deposits with your ATM cardVisit your local branch to make withdrawals and depositsUse the bank’s online bill pay service to pay one-time bills or set up recurring paymentsSet up automatic payments through a company where you have an account, such as utilities and credit cardsTransfer funds to and from other bank accounts Before opening a checking account, it’s helpful to understand the different types of accounts that are available, as well as the practical aspects of maintaining a checking account–such as how to write a check and balance your account. To get you started, here’s a quick guide to help you choose and manage a checking account. Free Checking Accounts (and How to Qualify for One) According to the Consumer Financial Protection Bureau, any account described or advertised as "free" or "no cost" cannot have the following: Minimum balance requirementsMonthly maintenance or service feesExcess-transaction feesFees to deposit, withdraw, or transfer money Free doesn’t mean it's without any fees at all. You’ll still be on the hook for any overdraft charges and other fees, such as: Dormant account feesATM feesBounced check feesBalance inquiry feesCheck-printing feesStop payment fees The bank or credit union can change your account type and start charging more fees if it notifies you 30 days in advance. For other checking accounts, some banks don't charge monthly maintenance or service fees if you maintain a minimum deposit amount, sign up for electronic statements, or set up direct deposit. But remember that minimum direct deposit amount–say, $100 or $250 per month–because if you fall below that or the direct deposits stop, you’ll lose the free checking status. Interest-Bearing Checking Accounts With an interest-bearing checking account or high-yield checking account, you earn interest on the money in the account—just as you would in a savings account. Unlike a savings account, however, you’ll be able to write checks and use your debit card to make purchases and pay bills. Not all banks offer interest-bearing checking accounts, and those that do may have minimum balance requirements (which could be quite high). You may also see monthly maintenance fees and other requirements, such as a minimum number of debit card transactions each month. Interest rates vary greatly by bank, so it pays to shop around if interest is important to you. In general, you’ll find better rates at credit unions. Premium Accounts and Qualifications Premium checking accounts offer benefits beyond what you get with a standard account. Perks vary by bank and can include interest payments, waived fees (e.g., free notary services and free money orders), free financial advice, and discounts on the bank’s other financial products. At some banks, you can earn reward points when you make purchases, which can be redeemed for eligible products and services. In general, premium accounts require a higher balance than standard accounts in order to have the monthly fee waived. For instance, with Chase Premier Plus Checking, you'll need an average beginning day balance of $15,000 in deposits with Chase, or you'll pay a $25 monthly fee. Lifeline and Second Chance Checking Accounts Lifeline accounts (sometimes called basic accounts) are streamlined checking accounts designed for low-income customers. These accounts typically have low balance requirements and no monthly fees. Basic features like check writing are included, but you may be limited to a certain number of transactions each month. Large banks offer these accounts to provide banking services to the broad public–and some states require banks to offer them. Another type of account is a second chance checking account, also called a "lower risk account." This account type may be a good option if you’ve been turned down for a checking account due to a past banking mistake or bad credit. A second chance account is usually designed to help you avoid overdrawing your account. After a period of meeting the bank's expectations, you may even be able to transition to a traditional account with better terms. These accounts typically have monthly fees that can’t be waived. You may be required to set up a direct deposit and/or complete a money management class. Despite these limitations, second chance accounts are often better in terms of fees and convenience than using prepaid debit cards and check cashing services. Joint Checking A joint account is a bank account shared by two or more people, often relatives or business partners. A joint checking account functions like a standard checking account, but each named account holder can contribute to and use the money in the account. These accounts are useful for couples, parents and teenagers, and adult children helping aging parents manage their finances. Since everyone on the account has access to the funds, it’s important to set clear expectations from the start to avoid potential problems and overdrawing the account. Depending on the institution and state law, anyone on the account may be able to empty the joint account or even close the account altogether. Trust Checking If you are not a trustee or a trust beneficiary, this type of checking account won’t be on your radar. In any type of trust account, a trustee controls the account assets for the benefit of another person or group. The trustee is often a family member, attorney, or accountant who has accepted responsibility for managing the account. A trust typically needs its own checking account, which allows the trustee(s) to pay bills, make payments to beneficiaries (per the trust agreement), and manage the trust’s funds. A trust must be established before a trust checking account can be opened. Only the designated trustee(s) can open a bank account on behalf of the trust. In some cases, a trust agreement may contain rules regarding trust checking accounts—for example, that the trust must use a certain bank. Be sure to read the trust agreement and follow any rules before opening an account. Student Accounts Student checking accounts function just like standard checking accounts. Some banks and credit unions could offer a monthly maintenance fee waiver–or at least a discount on the monthly fee–for student checking accounts. Recent CFPB research seems to indicate that students may want to be cautious about student accounts and shop around for options. Some student accounts could charge higher fees and penalties, with challenging requirements around qualifying balances and deposits. As with other checking accounts, you may be able to avoid fees if you set up direct deposit, maintain a minimum daily balance, or make a certain number of debit card purchases each month. Student checking accounts are typically available to students ages 17-24. You may be required to provide proof of active enrollment in a qualifying high school, college, university, or vocational program.  ATM/Debit Cards Debit cards let you easily access the money in your checking account to pay for everyday expenses. Debit cards function like credit cards, except that money comes out of your checking account when you make a purchase. Essentially, using a debit card is just like writing a check, but with the convenience of using plastic. You can also use your debit card to withdraw cash from your checking account through an ATM in combination with the personal identification number (PIN) you created when opening your account. Note that you may be charged a fee for using your card outside of your bank’s ATM network, by both your bank and the ATM operator. If your card doesn’t have the Visa or MasterCard logo, it can only be used to make ATM cash withdrawals. Unlike debit cards, these ATM cards can’t be used to make purchases. How to Write a Check Writing a check can be confusing when you haven’t done it before, but it’s simple once you know what goes where. Here’s a quick look at how to write a check: Fill out today’s date on the short line on the top right side of the check.On the line next to PAY TO THE ORDER OF, enter the name of the person or company you intend to give money to.In the box to the right of this line and the dollar sign, enter the amount the check is for, using numerals (e.g., 97.98).On the next line, write out in words the dollar amount of the check (e.g., Ninety-seven and 98/100). This amount must match the numbers you entered in the box. To ensure the check won't be tampered with, fill the entire line.At the bottom left, you can make a note to help you remember what the check is for; or, if you’re paying a bill and the company asks you to include an account number, put it here.Your signature goes on the line at the bottom right. Your check won’t be accepted without a signature, so be sure to include it. It’s a good idea to fill out checks using the same process every time to make sure you include everything. You can work your way through from top to bottom. Here’s how the check looks before it’s filled out: Image by Sabrina Jiang © Investopedia 2020 How to Balance a Checking Account A basic way to manage your checking account is to balance your checkbook. This involves recording the dates and amounts of all your withdrawals and debit card purchases, plus any deposits and electronic transfers. Then, doing the math to make sure your balance matches your statement each month. To do this, check all the transactions on your statement against your entries to ensure everything matches, that you haven’t left anything out, and that there aren’t any math errors. When everything matches, your account is balanced. If it doesn’t balance, start by looking for transactions that may not have gotten recorded, and then check your math. Remember to include any interest earned. Balancing your checkbook regularly helps ensure you know how much money is in your account, which can keep you from overdrawing your account. You can track your transactions in your checkbook ledger, with a spreadsheet, or using an app (such as Mint). If you’re unwilling to balance your checkbook, you should at least check your balance online or with the bank’s app. You may also be able to sign up for text alerts that let you know if your account falls below a threshold that you specify. How Banks Protect Your Money If your bank is a member of the Federal Deposit Insurance Corporation (FDIC), your deposits are guaranteed up to $250,000 per depositor for each account ownership category (e.g., single owner vs. joint owner). That means if you have different types of accounts at your bank–say, a checking account, a savings account, and a CD–all together, they are insured for up to $250,000 if the bank fails. Coverage is automatic when you open an account at an FDIC-insured bank, and it’s backed by the full faith and credit of the United States government. Credit unions offer comparable insurance. If your credit union is a member of the National Credit Union Share Insurance Fund (NCUSIF), your “shares” (what credit unions call your deposits) are insured in a way that's similar to how your deposits are protected at an FDIC-insured bank. All federal credit unions are insured by the NCUSIF, administered by the National Credit Union Administration (NCUA); state credit unions can be insured by NCUSIF or through their own state or private insurance. Since financial institutions can and do fail (just think back to 2008), it’s recommended that you open an account only at an FDIC-insured bank or a similarly insured credit union. Look for the FDIC sign on the bank’s website and at your local branch, or use the FDIC’s BankFind tool. You can look for the NCUA sign on a credit union's website or use NCUA's Credit Union Locator tool. What Do All the Numbers on a Check Mean? A long series of numbers can be found at the bottom of every check. The first series, on the left, is a nine-digit number that identifies your bank and is commonly called the ABA or routing number. The next series, in the middle, is your checking account number. With the routing number and your account number, the bank that accepts your check will know how to process the check (which bank and, specifically, which account, to draw from). The last series of numbers is the check number, which corresponds to the number in the top right corner of the check. What Is Overdraft Protection? An overdraft happens when you try to spend more than you have in your checking account. The transaction may be declined, or it could go through and trigger an overdraft fee from your bank, for which you could incur a charge.Most banks offer something called overdraft protection, which allows you to continue using your debit card for purchases and ATM card for withdrawals in exchange for a fee. If you prefer not to pay this fee, you can opt out of overdraft protection if you’re already enrolled, or don’t opt in when you open an account. If you’re not opted in, any transaction that would put you in the red will automatically be declined (and you won’t owe a fee).One alternative is to link your savings account to your checking account. Some banks will waive overdraft fees if they can move funds from your savings account to your checking account when needed to avoid an overdraft. You might still have to pay an “overdraft transfer fee,” but it’s usually much cheaper than the other fees. What Is a Cashier's Check? A cashier’s check is drawn from your bank’s funds instead of your own. These checks are used when you need to guarantee that funds are available for payment. They’re ideal for large purchases, such as a car or a house down payment when a credit or debit card payment wouldn’t be practical.Because you must first deposit the check amount into your bank’s account, the bank–and not you–guarantees its payment. A bank representative signs the check and includes the name of a payee (the entity to which the check is payable) and the name of the remitter (the entity paying for the check). If you buy a cashier’s check, you’ll pay the full face value of the check plus a small service fee unless your account has special perks. The Bottom Line You have lots of options if you’re shopping for a checking account. One of the first things to consider is whether you want to open an account with an online bank or at your local brick-and-mortar bank. In general, online banks offer perks like lower fees, better interest rates, convenience, and free ATM access to a typically large network of ATMs. However, online banks don’t offer in-person assistance, which means you’ll have to sort through a touchtone phone menu to reach a real person. Still, many people enjoy online accounts, as most banks today provide robust apps making it easy to deposit, withdraw, and transfer money. If you’re worried about Internet security, reputable online banks with up-to-date security measures are just as safe as brick-and-mortar banks. To find out how a specific bank protects your information, search for that bank’s name + security (e.g., Ally + security). The result should link you to the bank’s security center. Once you decide if you’d rather open an account at an online or a brick-and-mortar bank, you can start comparing your options, such as account types (e.g., student checking or joint checking), minimum balance requirements, monthly maintenance fees, and the like. If you have any questions, don’t hesitate to reach out to a bank representative, either in person (at a local branch) or by using the bank’s online chat feature (if available) or customer service phone line.

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

Technical Analysis: What It Is and How to Use It in Investing

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-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 a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume. Unlike fundamental analysis, which attempts to evaluate a security's value based on business results such as sales and earnings, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/technical-analyst.asp">technical analysis</a> focuses on the study of price and volume. </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 is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/090916/top-5-books-learn-technical-analysis.asp">trading discipline</a> employed to evaluate investments and identify trading opportunities in price trends and patterns seen on charts.</li> <li>Technical analysts believe past trading activity and price changes of a security can be valuable indicators of the security's future price movements.</li> <li>Technical analysis may be contrasted with fundamental analysis, which focuses on a company's financials rather than historical price patterns or stock trends.</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/IZujvEzbNudSvo4Z1vXcHHvgzBE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Technical_Analysis_Final-4a96fc1863cf4dbc8a5c6f315ee49871.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/IZujvEzbNudSvo4Z1vXcHHvgzBE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Technical_Analysis_Final-4a96fc1863cf4dbc8a5c6f315ee49871.jpg" data-srcset="https://www.investopedia.com/thmb/w0IpkiyorGHGc0v2xUdHn8RIz20=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Technical_Analysis_Final-4a96fc1863cf4dbc8a5c6f315ee49871.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/IZujvEzbNudSvo4Z1vXcHHvgzBE=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Technical_Analysis_Final-4a96fc1863cf4dbc8a5c6f315ee49871.jpg" srcset="https://www.investopedia.com/thmb/w0IpkiyorGHGc0v2xUdHn8RIz20=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Technical_Analysis_Final-4a96fc1863cf4dbc8a5c6f315ee49871.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 / Candra Huff</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"> <a data-component="link" data-ordinal="1" 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 analysis tools</a> are used to scrutinize the ways supply and demand for a security will affect changes in price, volume, and implied volatility. It operates from the assumption that past trading activity and price changes of a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/security.asp">security</a> can be valuable indicators of the security's future price movements when paired with appropriate investing or trading rules. </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"> It is often used to generate short-term trading signals from various charting tools, but can also help improve the evaluation of a security's strength or weakness relative to the broader market or one of its sectors. This information helps analysts improve their overall valuation estimate. </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"> Technical analysis as we know it today <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-theory/10/pioneers-technical-analysis.asp">was first introduced by Charles Dow</a> and the Dow Theory in the late 1800s.<span class="ql-inline-citation" data-cite="1"></span> Several noteworthy researchers including William P. Hamilton, Robert Rhea, Edson Gould, and John Magee further contributed to Dow Theory concepts helping to form its basis. Nowadays technical analysis has evolved to include hundreds of patterns and signals developed through years of research. </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-using-technical-analysis"></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"> Using Technical Analysis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Professional analysts often use technical analysis in conjunction with other forms of research. Retail traders may make decisions based solely on the price charts of a security and similar statistics, but practicing equity analysts rarely limit their research to fundamental or technical analysis alone.<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"> Technical analysis can be applied to any security with historical trading data. This includes stocks, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futures.asp">futures</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commodity.asp">commodities</a>, fixed-income, currencies, and other securities. In fact, technical analysis is far more prevalent in commodities and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/forex.asp">forex</a> markets where <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/daytrader.asp">traders</a> focus on short-term price movements.<br/> </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"> Technical analysis attempts to forecast the price movement of virtually any tradable instrument that is generally subject to forces of supply and demand, including stocks, bonds, futures, and currency pairs. In fact, some view technical analysis as simply the study of supply and demand forces as reflected in the market price movements of a security. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Technical analysis most commonly applies to price changes, but some analysts track numbers other than just price, such as trading volume or open interest figures. </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"> Technical Analysis Indicators </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Across the industry, there are hundreds of patterns and signals that have been developed by researchers to support technical analysis trading. Technical analysts have also developed numerous types of trading systems to help them forecast and trade on price movements. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Some indicators are focused primarily on identifying the current market trend, including support and resistance areas, while others are focused on determining the strength of a trend and the likelihood of its continuation. Commonly used technical indicators and charting patterns include trendlines, channels, moving averages, and momentum indicators. </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 general, technical analysts look at the following broad types of indicators: </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>Price trends</li> <li>Chart patterns</li> <li>Volume and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/momentum-and-relative-strength-index/">momentum</a> indicators</li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/oscillator.asp">Oscillators</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/10/simple-exponential-moving-averages-compare.asp">Moving averages</a></li> <li>Support and resistance levels</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <span class="heading-toc" id="toc-underlying-assumptions-of-technical-analysis"></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"> Underlying Assumptions of Technical Analysis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> There are two primary methods used to analyze securities and make investment decisions: <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> and technical analysis. Fundamental analysis involves analyzing a company’s financial statements to determine the fair value of the business, while technical analysis assumes that a security's price already reflects all publicly available information and instead focuses on the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/05/logvslinear.asp">statistical analysis of price movements</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Technical analysis attempts to understand the market sentiment behind price trends by looking for patterns and trends rather than analyzing a security's fundamental attributes. </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"> Charles Dow released a series of editorials discussing technical analysis theory. His writings included two basic assumptions that have continued to form the framework for technical analysis trading. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_38-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> <li>Markets are efficient with values representing factors that influence a security's price, but</li><li>Even random market price movements appear to move in identifiable patterns and trends that tend to repeat over time.<span class="ql-inline-citation" data-cite="3"></span></li> </ol> <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"> Today the field of technical analysis builds on Dow's work. Professional analysts typically accept three general assumptions for the discipline: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> <li>The market discounts everything: Technical analysts believe that everything from a company's fundamentals to broad market factors to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketpsychology.asp">market psychology</a> is already priced into the stock. This point of view is congruent with the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/efficientmarkethypothesis.asp">Efficient Markets Hypothesis</a> (EMH) which assumes a similar conclusion about prices. The only thing remaining is the analysis of price movements, which technical analysts view as the product of supply and demand for a particular stock in the market.</li> <li>Price moves in trends: Technical analysts expect that prices, even in random market movements, will exhibit trends regardless of the time frame being observed. In other words, a stock price is more likely to continue a past trend than move erratically. Most technical trading strategies are based on this assumption.</li> <li>History tends to repeat itself: Technical analysts believe that history tends to repeat itself. The repetitive nature of price movements is often attributed to market psychology, which tends to be very predictable based on emotions like fear or excitement. Technical analysis uses chart patterns to analyze these emotions and subsequent market movements to understand trends. While many forms of technical analysis have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves.<span class="ql-inline-citation" data-cite="4"></span></li> </ol> <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-technical-analysis-vs-fundamental-analysis"></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"> Technical Analysis vs. Fundamental Analysis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Fundamental analysis and technical analysis, the major schools of thought when it comes to approaching the markets, are at opposite ends of the spectrum. Both methods are used for researching and forecasting future trends in stock prices, and like any investment strategy or philosophy, both have their advocates and adversaries. </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"> Fundamental analysis is a method of evaluating securities by attempting to measure the <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> of a stock. Fundamental analysts study everything from the overall economy and industry conditions to the financial condition and management of companies. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earnings.asp">Earnings</a>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expense.asp">expenses</a>, assets, and liabilities are all important characteristics to fundamental analysts. </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"> Technical analysis differs from fundamental analysis in that the stock's price and volume are the only inputs. The core assumption is that all known fundamentals are factored into price; thus, there is no need to pay close attention to them. Technical analysts do not attempt to measure a security's intrinsic value, but instead, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/forex/09/mcginley-dynamic-indicator.asp">use stock charts to identify patterns</a> and trends that suggest what a stock will do in the future. </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-limitations-of-technical-analysis"></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"> Limitations of Technical Analysis </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Some analysts and academic researchers expect that the EMH demonstrates why they shouldn't expect any actionable information to be contained in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/historic-pricing.asp">historical pric</a>e and volume data; however, by the same reasoning, neither should business fundamentals provide any actionable information. These points of view are known as the weak form and semi-strong form of the EMH. </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 criticism of technical analysis is that history does not repeat itself exactly, so price pattern study is of dubious importance and can be ignored. Prices seem to be better modeled by assuming a random walk. </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"> A third criticism of technical analysis is that it works in some cases but only because it constitutes a self-fulfilling prophecy. For example, many technical traders will 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 order</a> below the 200-day moving average of a certain company. If a large number of traders have done so and the stock reaches this price, there will be a large number of sell orders, which will push the stock down, confirming the movement traders anticipated. </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"> Then, other traders will see the price decrease and also sell their positions, reinforcing the strength of the trend. This short-term selling pressure can be considered self-fulfilling, but it will have little bearing on where the asset's price will be weeks or months from now. </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"> In sum, if enough people use the same signals, they could cause the movement foretold by the signal, but over the long run, this sole group of traders cannot drive the price. </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-chartered-market-technician-cmt"></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"> Chartered Market Technician (CMT) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> Among professional analysts, the CMT Association supports the largest collection of chartered or certified analysts using technical analysis professionally around the world. The association's Chartered Market Technician (CMT) designation can be obtained after three levels of exams that cover both a broad and deep look at technical analysis tools.<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_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> The association now waives Level 1 of the CMT exam for those who are Certified Financial Analyst (CFA) charterholders. This demonstrates how well the two disciplines reinforce each other.<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_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-assumptions-do-technical-analysts-make"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Assumptions Do Technical Analysts Make?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Professional technical analysts typically accept three general assumptions for the discipline. The first is that, similar to the efficient market hypothesis, the market discounts everything. Second, they expect that prices, even in random market movements, will exhibit trends regardless of the time frame being observed. Finally, they believe that history tends to repeat itself. The repetitive nature of price movements is often attributed to market psychology, which tends to be very predictable based on emotions like fear or excitement. </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-whats-the-difference-between-fundamental-and-technical-analysis"></span> <h2 class="mntl-sc-block-questionandanswer__question">What's the Difference Between Fundamental and Technical Analysis?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Fundamental analysis is a method of evaluating securities by attempting to measure the intrinsic value of a stock. The core assumption of technical analysis, on the other hand, is that all known fundamentals are factored into price; thus, there is no need to pay close attention to them. Technical analysts do not attempt to measure a security's intrinsic value, but instead, use stock charts to identify patterns and trends that might suggest what the security will do in the future.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_72-0"><span class="heading-toc" id="toc-how-can-i-learn-technical-analysis"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Learn Technical Analysis?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are a variety of ways to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/trading/best-ways-learn-technical-analysis/">learn technical analysis</a>. The first step is to learn the basics of investing, stocks, markets, and financials. This can all be done through books, online courses, online material, and classes. Once the basics are understood, from there you can use the same types of materials but those that focus specifically on technical analysis. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://academy.investopedia.com/products/technical-analysis?aca_ref=inline">Investopedia's course</a> on technical analysis is one specific option.</p></div> </div></div>

## What Is Technical Analysis? Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume. Unlike fundamental analysis, which attempts to evaluate a security's value based on business results such as sales and earnings, [technical analysis](https://www.investopedia.com/terms/t/technical-analyst.asp) focuses on the study of price and volume. ### Key Takeaways * Technical analysis is a [trading discipline](https://www.investopedia.com/articles/personal-finance/090916/top-5-books-learn-technical-analysis.asp) employed to evaluate investments and identify trading opportunities in price trends and patterns seen on charts. * Technical analysts believe past trading activity and price changes of a security can be valuable indicators of the security's future price movements. * Technical analysis may be contrasted with fundamental analysis, which focuses on a company's financials rather than historical price patterns or stock trends. ![Technical Analysis]() :max_bytes(150000):strip_icc()/Technical_Analysis_Final-4a96fc1863cf4dbc8a5c6f315ee49871.jpg) Investopedia / Candra Huff ## Understanding Technical Analysis [Technical analysis tools](https://www.investopedia.com/ask/answers/122314/what-exponential-moving-average-ema-formula-and-how-ema-calculated.asp) are used to scrutinize the ways supply and demand for a security will affect changes in price, volume, and implied volatility. It operates from the assumption that past trading activity and price changes of a [security](https://www.investopedia.com/terms/s/security.asp) can be valuable indicators of the security's future price movements when paired with appropriate investing or trading rules. It is often used to generate short-term trading signals from various charting tools, but can also help improve the evaluation of a security's strength or weakness relative to the broader market or one of its sectors. This information helps analysts improve their overall valuation estimate. Technical analysis as we know it today [was first introduced by Charles Dow](https://www.investopedia.com/articles/financial-theory/10/pioneers-technical-analysis.asp) and the Dow Theory in the late 1800s. Several noteworthy researchers including William P. Hamilton, Robert Rhea, Edson Gould, and John Magee further contributed to Dow Theory concepts helping to form its basis. Nowadays technical analysis has evolved to include hundreds of patterns and signals developed through years of research. ## Using Technical Analysis Professional analysts often use technical analysis in conjunction with other forms of research. Retail traders may make decisions based solely on the price charts of a security and similar statistics, but practicing equity analysts rarely limit their research to fundamental or technical analysis alone. Technical analysis can be applied to any security with historical trading data. This includes stocks, [futures](https://www.investopedia.com/terms/f/futures.asp), [commodities](https://www.investopedia.com/terms/c/commodity.asp), fixed-income, currencies, and other securities. In fact, technical analysis is far more prevalent in commodities and [forex](https://www.investopedia.com/terms/f/forex.asp) markets where [traders](https://www.investopedia.com/terms/d/daytrader.asp) focus on short-term price movements. Technical analysis attempts to forecast the price movement of virtually any tradable instrument that is generally subject to forces of supply and demand, including stocks, bonds, futures, and currency pairs. In fact, some view technical analysis as simply the study of supply and demand forces as reflected in the market price movements of a security. Technical analysis most commonly applies to price changes, but some analysts track numbers other than just price, such as trading volume or open interest figures. ### Technical Analysis Indicators Across the industry, there are hundreds of patterns and signals that have been developed by researchers to support technical analysis trading. Technical analysts have also developed numerous types of trading systems to help them forecast and trade on price movements. Some indicators are focused primarily on identifying the current market trend, including support and resistance areas, while others are focused on determining the strength of a trend and the likelihood of its continuation. Commonly used technical indicators and charting patterns include trendlines, channels, moving averages, and momentum indicators. In general, technical analysts look at the following broad types of indicators: * Price trends * Chart patterns * Volume and [momentum](https://www.investopedia.com/investing/momentum-and-relative-strength-index/) indicators * [Oscillators](https://www.investopedia.com/terms/o/oscillator.asp) * [Moving averages](https://www.investopedia.com/articles/trading/10/simple-exponential-moving-averages-compare.asp) * Support and resistance levels ## Underlying Assumptions of Technical Analysis There are two primary methods used to analyze securities and make investment decisions: [fundamental analysis](https://www.investopedia.com/terms/f/fundamentalanalysis.asp) and technical analysis. Fundamental analysis involves analyzing a company’s financial statements to determine the fair value of the business, while technical analysis assumes that a security's price already reflects all publicly available information and instead focuses on the [statistical analysis of price movements](https://www.investopedia.com/ask/answers/05/logvslinear.asp). Technical analysis attempts to understand the market sentiment behind price trends by looking for patterns and trends rather than analyzing a security's fundamental attributes. Charles Dow released a series of editorials discussing technical analysis theory. His writings included two basic assumptions that have continued to form the framework for technical analysis trading. 1. Markets are efficient with values representing factors that influence a security's price, but 2. Even random market price movements appear to move in identifiable patterns and trends that tend to repeat over time. Today the field of technical analysis builds on Dow's work. Professional analysts typically accept three general assumptions for the discipline: 1. The market discounts everything: Technical analysts believe that everything from a company's fundamentals to broad market factors to [market psychology](https://www.investopedia.com/terms/m/marketpsychology.asp) is already priced into the stock. This point of view is congruent with the [Efficient Markets Hypothesis](https://www.investopedia.com/terms/e/efficientmarkethypothesis.asp) (EMH) which assumes a similar conclusion about prices. The only thing remaining is the analysis of price movements, which technical analysts view as the product of supply and demand for a particular stock in the market. 2. Price moves in trends: Technical analysts expect that prices, even in random market movements, will exhibit trends regardless of the time frame being observed. In other words, a stock price is more likely to continue a past trend than move erratically. Most technical trading strategies are based on this assumption. 3. History tends to repeat itself: Technical analysts believe that history tends to repeat itself. The repetitive nature of price movements is often attributed to market psychology, which tends to be very predictable based on emotions like fear or excitement. Technical analysis uses chart patterns to analyze these emotions and subsequent market movements to understand trends. While many forms of technical analysis have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves. ## Technical Analysis vs. Fundamental Analysis Fundamental analysis and technical analysis, the major schools of thought when it comes to approaching the markets, are at opposite ends of the spectrum. Both methods are used for researching and forecasting future trends in stock prices, and like any investment strategy or philosophy, both have their advocates and adversaries. Fundamental analysis is a method of evaluating securities by attempting to measure the [intrinsic value](https://www.investopedia.com/terms/i/intrinsicvalue.asp) of a stock. Fundamental analysts study everything from the overall economy and industry conditions to the financial condition and management of companies. [Earnings](https://www.investopedia.com/terms/e/earnings.asp), [expenses](https://www.investopedia.com/terms/e/expense.asp), assets, and liabilities are all important characteristics to fundamental analysts. Technical analysis differs from fundamental analysis in that the stock's price and volume are the only inputs. The core assumption is that all known fundamentals are factored into price; thus, there is no need to pay close attention to them. Technical analysts do not attempt to measure a security's intrinsic value, but instead, [use stock charts to identify patterns](https://www.investopedia.com/articles/forex/09/mcginley-dynamic-indicator.asp) and trends that suggest what a stock will do in the future. ## Limitations of Technical Analysis Some analysts and academic researchers expect that the EMH demonstrates why they shouldn't expect any actionable information to be contained in [historical pric](https://www.investopedia.com/terms/h/historic-pricing.asp)e and volume data; however, by the same reasoning, neither should business fundamentals provide any actionable information. These points of view are known as the weak form and semi-strong form of the EMH. Another criticism of technical analysis is that history does not repeat itself exactly, so price pattern study is of dubious importance and can be ignored. Prices seem to be better modeled by assuming a random walk. A third criticism of technical analysis is that it works in some cases but only because it constitutes a self-fulfilling prophecy. For example, many technical traders will place a [stop-loss order](https://www.investopedia.com/terms/s/stop-lossorder.asp) below the 200-day moving average of a certain company. If a large number of traders have done so and the stock reaches this price, there will be a large number of sell orders, which will push the stock down, confirming the movement traders anticipated. Then, other traders will see the price decrease and also sell their positions, reinforcing the strength of the trend. This short-term selling pressure can be considered self-fulfilling, but it will have little bearing on where the asset's price will be weeks or months from now. In sum, if enough people use the same signals, they could cause the movement foretold by the signal, but over the long run, this sole group of traders cannot drive the price. ## Chartered Market Technician (CMT) Among professional analysts, the CMT Association supports the largest collection of chartered or certified analysts using technical analysis professionally around the world. The association's Chartered Market Technician (CMT) designation can be obtained after three levels of exams that cover both a broad and deep look at technical analysis tools. The association now waives Level 1 of the CMT exam for those who are Certified Financial Analyst (CFA) charterholders. This demonstrates how well the two disciplines reinforce each other. ## What Assumptions Do Technical Analysts Make? Professional technical analysts typically accept three general assumptions for the discipline. The first is that, similar to the efficient market hypothesis, the market discounts everything. Second, they expect that prices, even in random market movements, will exhibit trends regardless of the time frame being observed. Finally, they believe that history tends to repeat itself. The repetitive nature of price movements is often attributed to market psychology, which tends to be very predictable based on emotions like fear or excitement.  ## What's the Difference Between Fundamental and Technical Analysis? Fundamental analysis is a method of evaluating securities by attempting to measure the intrinsic value of a stock. The core assumption of technical analysis, on the other hand, is that all known fundamentals are factored into price; thus, there is no need to pay close attention to them. Technical analysts do not attempt to measure a security's intrinsic value, but instead, use stock charts to identify patterns and trends that might suggest what the security will do in the future. ## How Can I Learn Technical Analysis? There are a variety of ways to [learn technical analysis](https://www.investopedia.com/trading/best-ways-learn-technical-analysis/). The first step is to learn the basics of investing, stocks, markets, and financials. This can all be done through books, online courses, online material, and classes. Once the basics are understood, from there you can use the same types of materials but those that focus specifically on technical analysis. [Investopedia's course](https://academy.investopedia.com/products/technical-analysis?aca_ref=inline) on technical analysis is one specific option.

What Is Technical Analysis? Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities by analyzing statistical trends gathered from trading activity, such as price movement and volume. Unlike fundamental analysis, which attempts to evaluate a security's value based on business results such as sales and earnings, technical analysis focuses on the study of price and volume. Key Takeaways Technical analysis is a trading discipline employed to evaluate investments and identify trading opportunities in price trends and patterns seen on charts. Technical analysts believe past trading activity and price changes of a security can be valuable indicators of the security's future price movements. Technical analysis may be contrasted with fundamental analysis, which focuses on a company's financials rather than historical price patterns or stock trends. Investopedia / Candra Huff Understanding Technical Analysis Technical analysis tools are used to scrutinize the ways supply and demand for a security will affect changes in price, volume, and implied volatility. It operates from the assumption that past trading activity and price changes of a security can be valuable indicators of the security's future price movements when paired with appropriate investing or trading rules. It is often used to generate short-term trading signals from various charting tools, but can also help improve the evaluation of a security's strength or weakness relative to the broader market or one of its sectors. This information helps analysts improve their overall valuation estimate. Technical analysis as we know it today was first introduced by Charles Dow and the Dow Theory in the late 1800s. Several noteworthy researchers including William P. Hamilton, Robert Rhea, Edson Gould, and John Magee further contributed to Dow Theory concepts helping to form its basis. Nowadays technical analysis has evolved to include hundreds of patterns and signals developed through years of research. Using Technical Analysis Professional analysts often use technical analysis in conjunction with other forms of research. Retail traders may make decisions based solely on the price charts of a security and similar statistics, but practicing equity analysts rarely limit their research to fundamental or technical analysis alone. Technical analysis can be applied to any security with historical trading data. This includes stocks, futures, commodities, fixed-income, currencies, and other securities. In fact, technical analysis is far more prevalent in commodities and forex markets where traders focus on short-term price movements. Technical analysis attempts to forecast the price movement of virtually any tradable instrument that is generally subject to forces of supply and demand, including stocks, bonds, futures, and currency pairs. In fact, some view technical analysis as simply the study of supply and demand forces as reflected in the market price movements of a security. Technical analysis most commonly applies to price changes, but some analysts track numbers other than just price, such as trading volume or open interest figures. Technical Analysis Indicators Across the industry, there are hundreds of patterns and signals that have been developed by researchers to support technical analysis trading. Technical analysts have also developed numerous types of trading systems to help them forecast and trade on price movements. Some indicators are focused primarily on identifying the current market trend, including support and resistance areas, while others are focused on determining the strength of a trend and the likelihood of its continuation. Commonly used technical indicators and charting patterns include trendlines, channels, moving averages, and momentum indicators. In general, technical analysts look at the following broad types of indicators: Price trends Chart patterns Volume and momentum indicators Oscillators Moving averages Support and resistance levels Underlying Assumptions of Technical Analysis There are two primary methods used to analyze securities and make investment decisions: fundamental analysis and technical analysis. Fundamental analysis involves analyzing a company’s financial statements to determine the fair value of the business, while technical analysis assumes that a security's price already reflects all publicly available information and instead focuses on the statistical analysis of price movements. Technical analysis attempts to understand the market sentiment behind price trends by looking for patterns and trends rather than analyzing a security's fundamental attributes. Charles Dow released a series of editorials discussing technical analysis theory. His writings included two basic assumptions that have continued to form the framework for technical analysis trading. Markets are efficient with values representing factors that influence a security's price, butEven random market price movements appear to move in identifiable patterns and trends that tend to repeat over time. Today the field of technical analysis builds on Dow's work. Professional analysts typically accept three general assumptions for the discipline: The market discounts everything: Technical analysts believe that everything from a company's fundamentals to broad market factors to market psychology is already priced into the stock. This point of view is congruent with the Efficient Markets Hypothesis (EMH) which assumes a similar conclusion about prices. The only thing remaining is the analysis of price movements, which technical analysts view as the product of supply and demand for a particular stock in the market. Price moves in trends: Technical analysts expect that prices, even in random market movements, will exhibit trends regardless of the time frame being observed. In other words, a stock price is more likely to continue a past trend than move erratically. Most technical trading strategies are based on this assumption. History tends to repeat itself: Technical analysts believe that history tends to repeat itself. The repetitive nature of price movements is often attributed to market psychology, which tends to be very predictable based on emotions like fear or excitement. Technical analysis uses chart patterns to analyze these emotions and subsequent market movements to understand trends. While many forms of technical analysis have been used for more than 100 years, they are still believed to be relevant because they illustrate patterns in price movements that often repeat themselves. Technical Analysis vs. Fundamental Analysis Fundamental analysis and technical analysis, the major schools of thought when it comes to approaching the markets, are at opposite ends of the spectrum. Both methods are used for researching and forecasting future trends in stock prices, and like any investment strategy or philosophy, both have their advocates and adversaries. Fundamental analysis is a method of evaluating securities by attempting to measure the intrinsic value of a stock. Fundamental analysts study everything from the overall economy and industry conditions to the financial condition and management of companies. Earnings, expenses, assets, and liabilities are all important characteristics to fundamental analysts. Technical analysis differs from fundamental analysis in that the stock's price and volume are the only inputs. The core assumption is that all known fundamentals are factored into price; thus, there is no need to pay close attention to them. Technical analysts do not attempt to measure a security's intrinsic value, but instead, use stock charts to identify patterns and trends that suggest what a stock will do in the future. Limitations of Technical Analysis Some analysts and academic researchers expect that the EMH demonstrates why they shouldn't expect any actionable information to be contained in historical price and volume data; however, by the same reasoning, neither should business fundamentals provide any actionable information. These points of view are known as the weak form and semi-strong form of the EMH. Another criticism of technical analysis is that history does not repeat itself exactly, so price pattern study is of dubious importance and can be ignored. Prices seem to be better modeled by assuming a random walk. A third criticism of technical analysis is that it works in some cases but only because it constitutes a self-fulfilling prophecy. For example, many technical traders will place a stop-loss order below the 200-day moving average of a certain company. If a large number of traders have done so and the stock reaches this price, there will be a large number of sell orders, which will push the stock down, confirming the movement traders anticipated. Then, other traders will see the price decrease and also sell their positions, reinforcing the strength of the trend. This short-term selling pressure can be considered self-fulfilling, but it will have little bearing on where the asset's price will be weeks or months from now. In sum, if enough people use the same signals, they could cause the movement foretold by the signal, but over the long run, this sole group of traders cannot drive the price. Chartered Market Technician (CMT) Among professional analysts, the CMT Association supports the largest collection of chartered or certified analysts using technical analysis professionally around the world. The association's Chartered Market Technician (CMT) designation can be obtained after three levels of exams that cover both a broad and deep look at technical analysis tools. The association now waives Level 1 of the CMT exam for those who are Certified Financial Analyst (CFA) charterholders. This demonstrates how well the two disciplines reinforce each other. What Assumptions Do Technical Analysts Make? Professional technical analysts typically accept three general assumptions for the discipline. The first is that, similar to the efficient market hypothesis, the market discounts everything. Second, they expect that prices, even in random market movements, will exhibit trends regardless of the time frame being observed. Finally, they believe that history tends to repeat itself. The repetitive nature of price movements is often attributed to market psychology, which tends to be very predictable based on emotions like fear or excitement.  What's the Difference Between Fundamental and Technical Analysis? Fundamental analysis is a method of evaluating securities by attempting to measure the intrinsic value of a stock. The core assumption of technical analysis, on the other hand, is that all known fundamentals are factored into price; thus, there is no need to pay close attention to them. Technical analysts do not attempt to measure a security's intrinsic value, but instead, use stock charts to identify patterns and trends that might suggest what the security will do in the future. How Can I Learn Technical Analysis? There are a variety of ways to learn technical analysis. The first step is to learn the basics of investing, stocks, markets, and financials. This can all be done through books, online courses, online material, and classes. Once the basics are understood, from there you can use the same types of materials but those that focus specifically on technical analysis. Investopedia's course on technical analysis is one specific option.

https://www.investopedia.com/how-to-buy-safemoon-crypto-7367861

How to Buy SafeMoon Crypto

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> SafeMoon was designed to reward long-term holders and charges sellers a 10% fee, with part of that fee going back to existing holders.<span class="ql-inline-citation" data-cite="6"></span> First launched on the Build and Build (BNB) chain in March 2021, SafeMoon can now be bought on some exchanges such as Pancakeswap. </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 some may claim SafeMoon is resistant to manipulation, others note the dramatic volatility and fall of SafeMoon's price in 2022 as potentially unusual trading behavior. Investors should conduct thorough research before making all investment decisions, including and especially those involve cryptocurrencies.  </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>SafeMoon is a cryptocurrency launched in March 2021 with a unique tokenomics model that aims to reward holders and discourage short-term selling.</li><li>It employs a deflationary mechanism where a portion of each transaction is redistributed to existing holders, encouraging them to keep their tokens, which theoretically helps stabilize the price.</li><li>SafeMoon gained popularity due to its viral marketing and community-driven approach, attracting a large number of investors and enthusiasts.</li><li>Critics argue that the project lacks transparency and real-world utility, with some concerns raised about the sustainability of its tokenomics model.</li><li>As with any investment in the crypto space, potential investors should exercise caution, conduct thorough research, and be aware of the risks involved.</li></ul><p><br/></p></div></div></div> <span class="heading-toc" id="toc-what-is-safemoon"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> What Is SafeMoon? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Digital currencies are virtual assets, secured by cryptographic encryptions and powered by the distributed ledger technology known as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/blockchain.asp">blockchain</a>. Virtual currencies such as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin.asp">Bitcoin</a>, Ethereum, and other stablecoins now serve as media of exchange globally. Investing in cryptocurrencies can be complicated since thousands of them exist but only a handful are real. As an investor, you should research the quality and realness of a coin before leaping. </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 distinct features of SafeMoon include the static reward where 50% of tokens from its transaction fees (usually 10%) are distributed to token holders, as well as the manual burn where the supply of SafeMoon tokens reduces to increase the price and demand. SafeMoon also has a self-sustaining liquidity pool that can siphon tokens in the form of fees, which are then added to the token’s liquidity pool on Pancakeswap.<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"> In the past year, some celebrities have invested and endorsed SafeMoon. They include social media personality and professional boxer Jake Paul, with a YouTube channel of over 20 million subscribers, who has claimed that investing in SafeMoon can make everyone rich in the long run. Others are Brett Ratner and DJ Afrojack.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <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/crypto-exchange-interview-5209280">Investing in cryptocurrencies</a>, Decentralized Finance (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/decentralized-finance-defi-5113835">DeFi</a>), 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.</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"> SafeMoon vs. SafeMoon V2 </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> SafeMoon launched an updated SafeMoon token in December 2021.<span class="ql-inline-citation" data-cite="15"></span> The updated token consolidates the original version in a ratio of 1:1000 while ensuring transactions cost lower. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> If you hold original SafeMoon tokens in a wallet and choose to switch them to SafeMoon V2, it can only be done manually. The switching process is quite easy.  </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"> SafeMoon wallet users can update the app to the latest version and follow the instructions while those with other kinds of wallets can visit <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://swap.safemoon.com/#/swap" rel="nofollow">SafeMoon Swap</a> to convert their tokens. </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"> Additionally, if you hold your SafeMoon tokens on an exchange, you don't have to switch to the V2 tokens. This is because the exchange handles the migration process and gives an update on the status of the process. </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"> Compared to the original version, SafeMoon V2 processes transactions at a much lower cost. The V2 transaction fee is now 2% of the entire transaction.<span class="ql-inline-citation" data-cite="10"></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_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_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>An alternative way of buying SafeMoon is to use the SafeMoon Swap decentralized application that is available on the Build and Build chain. This way you trade BNB tokens for SafeMoon tokens.</p></div></div></div> <span class="heading-toc" id="toc-safemoon-fraud-allegations-and-criticisms"></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"> SafeMoon Fraud Allegations and Criticisms </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> It is important to note several allegations against SafeMoon as part of your research on deciding whether SafeMoon is the right investment for you. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> In April 2022, Stephen "Coffeezilla" Findeisen accused the SafeMoon team of misappropriating millions of dollars. Findeisen found evidence of SafeMoon's liquidity wallet moving funds to a wallet called the "Gabe (6abe) wallet," which withdrew funds to a separate company run by John Karony. Thomas "Papa" Smith, former SafeMoon CTO, responded to Findeisen's claims, stating that funds were taken from the "locked liquidity pool" before Karony's appointment.<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_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> In February 2022, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/classaction.asp">class-action lawsuit</a> against SafeMoon was filed, alleging the company is a pump and dump scheme. Jake Paul, Nick Carter, Soulja Boy, Lil Yachty, and Ben Phillips were accused of promoting the SafeMoon token with misleading information. In May 2022, multiple SafeMoon investors filed another class action lawsuit for security fraud. The lawsuit was voluntarily terminated in November 2022.<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_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> In December 2021, SafeMoon developed Version 2 of their token, SafeMoon V2, and set a deadline for token migration to avoid a 100% tax. They also introduced a decentralized exchange called "Safemoon Swap." In April 2022, they introduced the Safemoon card, a 2.5% fee debit card for goods using SafeMoon and other cryptocurrencies. However, the card's release has been delayed, causing criticism from experts.<span class="ql-inline-citation" data-cite="18"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <span class="heading-toc" id="toc-advantages-and-disadvantages-of-safemoon"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-heading__text"> Advantages and Disadvantages of SafeMoon </span> </h2> <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"> Pros of SafeMoon </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> SafeMoon, like other cryptocurrencies, operates on decentralized blockchain technology. This means there is no central authority controlling or governing the network. Decentralization can enhance security, transparency, and censorship resistance, as no single entity has full control over the platform. Note that SafeMoon has received criticisms for manipulation, as even decentralized currencies can be controlled. </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"> Part of SafeMoon's transaction fee is added to the liquidity pool, which is essentially a smart contract holding a reserve of the token. This liquidity pool can provide stability to the token's price by ensuring that there are funds available for trading even during periods of high volatility. The transaction fee that is distributed to existing token holders can incentivize people to hold their tokens. Long-term holders can benefit from increased token balances without having to actively participate in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/crop-yield.asp">yield farming</a> or staking. </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"> While the primary focus of SafeMoon is not explicitly on yield farming or staking, the reflective tokenomics model can create opportunities for holders to earn passive income. Some users might choose to participate in yield farming on decentralized finance (DeFi) platforms that support SafeMoon or stake their tokens in protocols offering rewards. </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"> Cons of SafeMoon </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Despite several advantages, there remain a vast number of downsides to SafeMoon. The obvious downside of SafeMoon is the future public perception of the cryptocurrency. The success of SafeMoon, like many other cryptocurrencies, is heavily reliant on community sentiment. Because SafeMoon has faced several lawsuits and allegations of fraud, it remains to be seen whether the cryptocurrency will experience growth or strong user adoption in the future. </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"> Cryptocurrencies, including SafeMoon, are known for their price volatility. Price fluctuations can occur rapidly and unpredictably, leading to significant gains for some investors but also substantial losses for others. This was most notably seen during the 2022 lawsuit filing when SafeMoon lost nearly all of its value. </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"> Beyond speculative trading and holding for potential price appreciation, SafeMoon has limited practical use cases. Also, even though it has existed for several years, SafeMoon is a relatively new project compared to more established cryptocurrencies with undefined schedules and unproven roadmap execution.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> Smaller cryptocurrencies like SafeMoon also might have limited liquidity compared to more established tokens. Though it does transmit some fees to liquidity pools, limited liquidity can make it difficult for holders to execute large trades at desired prices, making it possible but unprofitable to exist an investment position at times. </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"> Last and perhaps most importantly, SafeMoon remains a speculative investment with an unproven business model that has yet to experience wide adoption. In certain contexts, SafeMoon may be seen as a "rug pull", as many investors likely lost lots of money due to the legal ramifications of 2022. This is not to say future performance of SafeMoon may play out the same way; still, a downside of SafeMoon is the historical context of several price volatility leading to losses. </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-comparisonlist mntl-block" id="mntl-sc-block_57-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_58-0"> <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>Like many cryptocurrencies, exists on decentralized blockchain</p></li> <li><p>Operates a (relatively small) liquidity pool</p></li> <li><p>Operates a reflection mechanism which benefits long-term holders</p></li> <li><p>May present investors with DeFi opportunities</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>Has experience material price volatility (without having rebounded close to all-time highs)</p></li> <li><p>Has experienced numerous fraud and legal allegations</p></li> <li><p>Has yet to materialize large-scale real-world uses</p></li> <li><p>Tends to demonstrate Ponzi-like features</p></li> <li><p>May be larger to sell due to smaller liquidity pools</p></li> <li><p>May have negative public sentiment due to media coverage of fraud (i.e. Coffeezilla coverage)</p></li> </ul> </div> </div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <span class="heading-toc" id="toc-how-to-buy-safemoon"></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 Buy SafeMoon  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> With this information in hand, should you still decide SafeMoon is the type of investment best suited for your portfolio, there are crypto exchanges where you can buy SafeMoon. Crypto exchanges are platforms where a diverse ecosystem of cryptocurrencies can be bought or sold. However, investors must understand that not all coins can be bought with fiat but with other coins. One such coin is SafeMoon as it isn't listed on any centralized exchange that accepts fiat currency.  </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"> While SafeMoon isn't available on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.coinbase.com/partner/starter-us-offer?clickId=1JdVzbThYxyNUoITy8XhXRIbUkAy4LSpI0nLVY0&amp;utm_source=impact&amp;utm_medium=growthp&amp;utm_campaign=rt_p_m_w_d_acq_imp_gro_aff_Dotdash&amp;utm_content=1175448&amp;utm_creative=US%20-%20%245%20Bitcoin%20Incentive%20Offer&amp;irgwc=1" rel="sponsored nofollow">Coinbase</a> or <a data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://binance.pxf.io/c/2104074/1578490/12872?subid1=7254110&amp;subid2=nefee24521bc848cd91193937ca6f04ca13" rel="nofollow">Binance</a> centralized exchanges, you can still buy the tokens on these exchanges using the steps outlined below. </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"> <strong>Step 1: Download the wallet and sign up</strong> </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"> You can install your wallet on your computer or browser extension or directly download it via mobile app stores such as the Google Play Store or the Apple App Store. After downloading the wallet, you must set a username that should be kept safe.  </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"> <strong>Step 2: Securing your recovery phase</strong> </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"> After downloading a wallet and setting up the username, a 12-word recovery phrase will be presented to you for safekeeping. This recovery phrase is a key to your crypto that helps you retain your wallet should your device get damaged or lost. Remember that you aren’t supposed to share this phrase with anyone. Writing it out and keeping it in a safe is ideal. </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"> <strong>Step 3: Check to ensure you have enough Ethereum to cover fees</strong> </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 cost of a transaction depends on how busy the Ethereum network is, how quickly you want the transaction to be processed, and the size of the transaction. Ethereum network fees are also known as gas fees. </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"> <strong>Step 4: Buy and transfer Ethereum to the wallet </strong> </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"> Once you have met the user verification requirement, you can transfer cash to your wallet and proceed to buy some Ethereum coins with it. After purchase, the Ether (ETH) coins will be stored in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-ethereum-wallets-6830692">the Ethereum wallet</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_80-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_81-0"> <strong>Step 5: Use the Ether (ETH) to buy SafeMoon </strong> </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"> With your ETH in the wallet, you can swap ETH coins for SafeMoon directly. All you need to do is click the “swap” icon in the assets tab, choose SafeMoon, and swap ETH for the value of SafeMoon you desire. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_84-0"></div> <span class="heading-toc" id="toc-what-you-need-to-open-a-cryptocurrency-exchange-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_85-0"> <span class="mntl-sc-block-heading__text"> What You Need to Open a Cryptocurrency Exchange Account  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_86-0"> There are several requirements needed to open an exchange account. For decentralized exchanges, the process is pretty simple: Download the software or browser extension, set up an account, and store your recovery phase. </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"> For centralized exchanges, you are expected to meet the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/k/knowyourclient.asp">know-your-customer</a> (KYC) verification requirement before being able to fund your account and trade. Things needed to open an exchange account are explained below. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_89-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_90-0"><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_91-0"><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>Unlike traditional brokerage firms, cryptocurrency exchanges are not members of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sipc.asp">Securities Investor Protection Corp. (SIPC)</a>. Therefore, unless user terms specify otherwise, investors with cryptocurrency assets commingled on a custodial cryptocurrency exchange could potentially lose their funds as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unsecuredcreditor.asp#:~:text=An%20unsecured%20creditor%20is%20an,borrower%20default%20on%20the%20loan.">unsecured creditors</a>.<span class="ql-inline-citation" data-cite="11"></span></p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_92-0"> <span class="mntl-sc-block-subheading__text"> Personal Information </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_93-0"> Exchanges often mandate customers to provide their personal information to meet KYC requirements as mandated by regulatory authorities. Examples of personal information required include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_94-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_95-0"> <li>Full name</li><li>Means of Identification such as an International passport </li><li>Proof of address such as utility bills</li><li>Social Security number</li><li>Others as required by the exchange</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_96-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_97-0"> <span class="mntl-sc-block-subheading__text"> Minimum Deposits </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_98-0"> Every exchange has a range of deposits that users must fund their accounts with. For example, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.coinbase.com/partner/starter-us-offer?clickId=1JdVzbThYxyNUoITy8XhXRIbUkAy4LSpI0nLVY0&amp;utm_source=impact&amp;utm_medium=growthp&amp;utm_campaign=rt_p_m_w_d_acq_imp_gro_aff_Dotdash&amp;utm_content=1175448&amp;utm_creative=US%20-%20%245%20Bitcoin%20Incentive%20Offer&amp;irgwc=1" rel="sponsored nofollow">Coinbase</a> and <a data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://binance.pxf.io/c/2104074/1578490/12872?subid1=7254110&amp;subid2=nefee24521bc848cd91193937ca6f04ca13" rel="nofollow">Binance</a> require users to deposit a minimum of $50 and $10, respectively, to complete their trades.<span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_99-0"></div> <span class="heading-toc" id="toc-types-of-cryptocurrency-exchanges"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_100-0"> <span class="mntl-sc-block-heading__text"> Types of Cryptocurrency Exchanges </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_101-0"> <span class="mntl-sc-block-subheading__text"> Centralized Exchanges </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_102-0"> Centralized exchanges are custodial platforms that enable users to exchange their crypto assets safely. Though secure, these exchanges take custody of a user's private key which is needed to authorize transactions. </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"> Authorities or businesses that control centralized exchanges have the sole right to make decisions regarding the platform. Centralized exchanges have sustainable liquidity as they can partner with platforms that provide them with liquidity. </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"> Decentralized Exchanges </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_107-0"> Decentralized exchanges are platforms that give users sole custody of their private keys and require the consent of the community to make key decisions regarding the platform. </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"> Decentralized platforms eliminate the need for third parties, making transactions cheaper than centralized exchanges. Additionally, users risk losing access to their accounts should they lose their recovery phase. </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"> Hybrid Exchanges </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_112-0"> Hybrid exchanges are becoming quite popular. These exchanges combine the features of centralized and decentralized exchanges, allowing users to trade crypto seamlessly. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_113-0"></div> <span class="heading-toc" id="toc-best-cryptocurrency-exchanges"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_114-0"> <span class="mntl-sc-block-heading__text"> Best Cryptocurrency Exchanges </span> </h2> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_115-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 92px;"></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th> <b>Company</b></th> <th> <b>Transaction Fees</b></th> <th><b>Minimum Deposit or Purchase</b> </th> <th> <b>Trade Limits</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td><a class="null" data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://binance.pxf.io/c/2104074/1578490/12872?subid1=7254110&amp;subid2=nefee24521bc848cd91193937ca6f04ca13" rel="nofollow">Binance</a> </td> <td>Variable; between 0.00% to 0.45%</td> <td>$1</td> <td>No real deposit limit</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.coinbase.com/partner/starter-us-offer?clickId=1JdVzbThYxyNUoITy8XhXRIbUkAy4LSpI0nLVY0&amp;utm_source=impact&amp;utm_medium=growthp&amp;utm_campaign=rt_p_m_w_d_acq_imp_gro_aff_Dotdash&amp;utm_content=1175448&amp;utm_creative=US%20-%20%245%20Bitcoin%20Incentive%20Offer&amp;irgwc=1" rel="sponsored nofollow">Coinbase</a></td> <td>0.00% to 0.60% </td> <td>$50 </td> <td>Unlimited </td> </tr> <tr> <td><a class="null" data-affiliate-link-rewriter="subid1=${DOC_ID}&amp;subid2=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://robinhood.c3me6x.net/c/328256/1149283/10402" rel="sponsored nofollow">Robinhood</a></td> <td>Commission-free </td> <td>$1 </td> <td>$5,000 </td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_116-0"></div> <span class="heading-toc" id="toc-factors-to-consider-when-opening-a-cryptocurrency-exchange-account"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_117-0"> <span class="mntl-sc-block-heading__text"> Factors to Consider When Opening a Cryptocurrency Exchange Account </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_118-0"> As a crypto investor, there are factors you should consider when creating an exchange account. These factors include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_119-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_120-0"> <strong>Security</strong>: With the current activities of fraudsters, exchanges that protect and update their security architecture constantly have high trading volumes. When opening an account, you should check if the platform has multi-layer verification for withdrawals, two-factor authentication, or if it’s custodial. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_121-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_122-0"> <strong>Fees</strong>: From buying fees to swapping and exchanging fees, it’s often advised to compare the best in the industry before making a choice. However, security should not be compromised. </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"> <strong>Number and quality of coins supported</strong>: It’s important to check the number of coins an exchange supports, especially if you want to diversify your investment portfolio. Research the quality of coins in the exchange to avoid investing in scam tokens. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_125-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_126-0"> <strong>Wallet safety and quality</strong>: Before choosing an exchange, you should ensure it has a reputation for security. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_127-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_128-0"> <strong>Storage and custody</strong>: This feature has to do with if an exchange takes custody of your private keys or gives you the responsibility of holding them. Depending on your preferences, you may choose either a custodial or non-custodial wallet.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_129-0"></div> <span class="heading-toc" id="toc-centralized-vs-decentralized-exchanges"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_130-0"> <span class="mntl-sc-block-heading__text"> Centralized vs. Decentralized Exchanges </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_131-0"> While centralized and decentralized exchanges exist to trade crypto assets, the difference is based on how they do it and their mode of operation. Factors that differentiate both include regulation, supported coins, liquidity, security, user experience, and custody. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_132-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_133-0"> While centralized exchanges are more regulated, support several coins, have more liquidity, are less secure, have a great user experience, and take custody of users' private keys, decentralized exchanges are not. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_134-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_135-0"> Even though the crypto industry is at its early stage in terms of regulation, centralized exchanges are striving to comply with financial regulations. Regulation works to protect investors and their investments. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_136-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_137-0"> In November 2022, the world’s second-largest crypto exchange, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ftx-exchange-5200842">FTX, collapsed</a> and immediately filed for bankruptcy. Its books showed the exchange lacked tangible reserves and court filings alleged the exchange indiscriminately used customers' funds for both operational and personal use.<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_138-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_139-0"> Being a centralized exchange, key decisions were taken without the knowledge of the community. To prevent issues such as this, decentralized exchanges may just be a great fit. These exchanges are built on-chain and all information regarding them is available to the public. Above all, decisions can only be made after token holders have voted in favor of them. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_140-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_141-0"><span class="heading-toc" id="toc-how-does-safemoon-work"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does SafeMoon Work?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Though there may be a bit of controversy, SafeMoon works to encourage long-term investment and discourage selling by charging users a 10% fee, with 50% of this being distributed to existing SafeMoon users.<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_142-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_143-0"><span class="heading-toc" id="toc-how-do-i-use-safemoon"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Use SafeMoon?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>SafeMoon can serve as a means of investment, especially if you plan to leverage the reward and incentivization program. To achieve this, use the SafeMoon Swap decentralized application on the Build and Build chain and swap BNB coins for SafeMoon tokens. Then simply hold the tokens to qualify for rewards from transaction fees generated by the platform.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_144-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_145-0"><span class="heading-toc" id="toc-is-safemoon-safe"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is SafeMoon Safe?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Launched in 2021, SafeMoon is still relatively new, quite volatile with low trading volumes, and not listed on exchanges that accept fiat.<span class="ql-inline-citation" data-cite="15"></span> These are signs that the token may be lacking in terms of regulation. Hence, it’s still quite early to say if the token is safe or not.<br/></p><p><br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_146-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_147-0"><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_148-0"><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>It's important to remember that crypto assets are high-risk investments. Therefore, conducting thorough research is essential before making the decision to add SafeMoon to your crypto portfolio. </p></div></div></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_149-0"> <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_150-0"> SafeMoon is a relatively new cryptocurrency with unique tokenomics featuring a 10% transaction fee that redistributes 5% to existing holders and adds 5% to the liquidity pool. It aims to incentivize long-term holding and price stability. However, it has seen its fair share of allegations of fraud, and investors are encouraged to do independent research before deciding whether to invest in SafeMoon. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_151-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_152-0"> <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_153-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_154-0"> <em>Correction—July 29, 2023:</em> A previous version of this article incorrectly stated that SafeMoon could be directly purchased from Binance. A previous version of this article also incorrectly identified Jake Paul as a member of the UFC. </p></div>

SafeMoon was designed to reward long-term holders and charges sellers a 10% fee, with part of that fee going back to existing holders. First launched on the Build and Build (BNB) chain in March 2021, SafeMoon can now be bought on some exchanges such as Pancakeswap. Though some may claim SafeMoon is resistant to manipulation, others note the dramatic volatility and fall of SafeMoon's price in 2022 as potentially unusual trading behavior. Investors should conduct thorough research before making all investment decisions, including and especially those involve cryptocurrencies.  ### Key Takeaways * SafeMoon is a cryptocurrency launched in March 2021 with a unique tokenomics model that aims to reward holders and discourage short-term selling. * It employs a deflationary mechanism where a portion of each transaction is redistributed to existing holders, encouraging them to keep their tokens, which theoretically helps stabilize the price. * SafeMoon gained popularity due to its viral marketing and community-driven approach, attracting a large number of investors and enthusiasts. * Critics argue that the project lacks transparency and real-world utility, with some concerns raised about the sustainability of its tokenomics model. * As with any investment in the crypto space, potential investors should exercise caution, conduct thorough research, and be aware of the risks involved. ## What Is SafeMoon? Digital currencies are virtual assets, secured by cryptographic encryptions and powered by the distributed ledger technology known as the [blockchain](https://www.investopedia.com/terms/b/blockchain.asp). Virtual currencies such as [Bitcoin](https://www.investopedia.com/terms/b/bitcoin.asp), Ethereum, and other stablecoins now serve as media of exchange globally. Investing in cryptocurrencies can be complicated since thousands of them exist but only a handful are real. As an investor, you should research the quality and realness of a coin before leaping. Some distinct features of SafeMoon include the static reward where 50% of tokens from its transaction fees (usually 10%) are distributed to token holders, as well as the manual burn where the supply of SafeMoon tokens reduces to increase the price and demand. SafeMoon also has a self-sustaining liquidity pool that can siphon tokens in the form of fees, which are then added to the token’s liquidity pool on Pancakeswap.  In the past year, some celebrities have invested and endorsed SafeMoon. They include social media personality and professional boxer Jake Paul, with a YouTube channel of over 20 million subscribers, who has claimed that investing in SafeMoon can make everyone rich in the long run. Others are Brett Ratner and DJ Afrojack. ### [Investing in cryptocurrencies](https://www.investopedia.com/crypto-exchange-interview-5209280), Decentralized Finance ([DeFi](https://www.investopedia.com/decentralized-finance-defi-5113835)), 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. ### SafeMoon vs. SafeMoon V2 SafeMoon launched an updated SafeMoon token in December 2021. The updated token consolidates the original version in a ratio of 1:1000 while ensuring transactions cost lower. If you hold original SafeMoon tokens in a wallet and choose to switch them to SafeMoon V2, it can only be done manually. The switching process is quite easy.  SafeMoon wallet users can update the app to the latest version and follow the instructions while those with other kinds of wallets can visit [SafeMoon Swap](https://swap.safemoon.com/#/swap) to convert their tokens. Additionally, if you hold your SafeMoon tokens on an exchange, you don't have to switch to the V2 tokens. This is because the exchange handles the migration process and gives an update on the status of the process. Compared to the original version, SafeMoon V2 processes transactions at a much lower cost. The V2 transaction fee is now 2% of the entire transaction. ### An alternative way of buying SafeMoon is to use the SafeMoon Swap decentralized application that is available on the Build and Build chain. This way you trade BNB tokens for SafeMoon tokens. ## SafeMoon Fraud Allegations and Criticisms It is important to note several allegations against SafeMoon as part of your research on deciding whether SafeMoon is the right investment for you. In April 2022, Stephen "Coffeezilla" Findeisen accused the SafeMoon team of misappropriating millions of dollars. Findeisen found evidence of SafeMoon's liquidity wallet moving funds to a wallet called the "Gabe (6abe) wallet," which withdrew funds to a separate company run by John Karony. Thomas "Papa" Smith, former SafeMoon CTO, responded to Findeisen's claims, stating that funds were taken from the "locked liquidity pool" before Karony's appointment. In February 2022, a [class-action lawsuit](https://www.investopedia.com/terms/c/classaction.asp) against SafeMoon was filed, alleging the company is a pump and dump scheme. Jake Paul, Nick Carter, Soulja Boy, Lil Yachty, and Ben Phillips were accused of promoting the SafeMoon token with misleading information. In May 2022, multiple SafeMoon investors filed another class action lawsuit for security fraud. The lawsuit was voluntarily terminated in November 2022. In December 2021, SafeMoon developed Version 2 of their token, SafeMoon V2, and set a deadline for token migration to avoid a 100% tax. They also introduced a decentralized exchange called "Safemoon Swap." In April 2022, they introduced the Safemoon card, a 2.5% fee debit card for goods using SafeMoon and other cryptocurrencies. However, the card's release has been delayed, causing criticism from experts. ## Advantages and Disadvantages of SafeMoon ### Pros of SafeMoon SafeMoon, like other cryptocurrencies, operates on decentralized blockchain technology. This means there is no central authority controlling or governing the network. Decentralization can enhance security, transparency, and censorship resistance, as no single entity has full control over the platform. Note that SafeMoon has received criticisms for manipulation, as even decentralized currencies can be controlled. Part of SafeMoon's transaction fee is added to the liquidity pool, which is essentially a smart contract holding a reserve of the token. This liquidity pool can provide stability to the token's price by ensuring that there are funds available for trading even during periods of high volatility. The transaction fee that is distributed to existing token holders can incentivize people to hold their tokens. Long-term holders can benefit from increased token balances without having to actively participate in [yield farming](https://www.investopedia.com/terms/c/crop-yield.asp) or staking. While the primary focus of SafeMoon is not explicitly on yield farming or staking, the reflective tokenomics model can create opportunities for holders to earn passive income. Some users might choose to participate in yield farming on decentralized finance (DeFi) platforms that support SafeMoon or stake their tokens in protocols offering rewards. ### Cons of SafeMoon Despite several advantages, there remain a vast number of downsides to SafeMoon. The obvious downside of SafeMoon is the future public perception of the cryptocurrency. The success of SafeMoon, like many other cryptocurrencies, is heavily reliant on community sentiment. Because SafeMoon has faced several lawsuits and allegations of fraud, it remains to be seen whether the cryptocurrency will experience growth or strong user adoption in the future. Cryptocurrencies, including SafeMoon, are known for their price volatility. Price fluctuations can occur rapidly and unpredictably, leading to significant gains for some investors but also substantial losses for others. This was most notably seen during the 2022 lawsuit filing when SafeMoon lost nearly all of its value. Beyond speculative trading and holding for potential price appreciation, SafeMoon has limited practical use cases. Also, even though it has existed for several years, SafeMoon is a relatively new project compared to more established cryptocurrencies with undefined schedules and unproven roadmap execution. Smaller cryptocurrencies like SafeMoon also might have limited liquidity compared to more established tokens. Though it does transmit some fees to liquidity pools, limited liquidity can make it difficult for holders to execute large trades at desired prices, making it possible but unprofitable to exist an investment position at times. Last and perhaps most importantly, SafeMoon remains a speculative investment with an unproven business model that has yet to experience wide adoption. In certain contexts, SafeMoon may be seen as a "rug pull", as many investors likely lost lots of money due to the legal ramifications of 2022. This is not to say future performance of SafeMoon may play out the same way; still, a downside of SafeMoon is the historical context of several price volatility leading to losses. Pros * Like many cryptocurrencies, exists on decentralized blockchain * Operates a (relatively small) liquidity pool * Operates a reflection mechanism which benefits long-term holders * May present investors with DeFi opportunities Cons * Has experience material price volatility (without having rebounded close to all-time highs) * Has experienced numerous fraud and legal allegations * Has yet to materialize large-scale real-world uses * Tends to demonstrate Ponzi-like features * May be larger to sell due to smaller liquidity pools * May have negative public sentiment due to media coverage of fraud (i.e. Coffeezilla coverage) ## How to Buy SafeMoon With this information in hand, should you still decide SafeMoon is the type of investment best suited for your portfolio, there are crypto exchanges where you can buy SafeMoon. Crypto exchanges are platforms where a diverse ecosystem of cryptocurrencies can be bought or sold. However, investors must understand that not all coins can be bought with fiat but with other coins. One such coin is SafeMoon as it isn't listed on any centralized exchange that accepts fiat currency.  While SafeMoon isn't available on the [Coinbase](https://www.coinbase.com/partner/starter-us-offer?clickId=1JdVzbThYxyNUoITy8XhXRIbUkAy4LSpI0nLVY0&utm_source=impact&utm_medium=growthp&utm_campaign=rt_p_m_w_d_acq_imp_gro_aff_Dotdash&utm_content=1175448&utm_creative=US%20-%20%245%20Bitcoin%20Incentive%20Offer&irgwc=1) or [Binance](https://binance.pxf.io/c/2104074/1578490/12872?subid1=7254110&subid2=nefee24521bc848cd91193937ca6f04ca13) centralized exchanges, you can still buy the tokens on these exchanges using the steps outlined below. **Step 1: Download the wallet and sign up** You can install your wallet on your computer or browser extension or directly download it via mobile app stores such as the Google Play Store or the Apple App Store. After downloading the wallet, you must set a username that should be kept safe.  **Step 2: Securing your recovery phase** After downloading a wallet and setting up the username, a 12-word recovery phrase will be presented to you for safekeeping. This recovery phrase is a key to your crypto that helps you retain your wallet should your device get damaged or lost. Remember that you aren’t supposed to share this phrase with anyone. Writing it out and keeping it in a safe is ideal. **Step 3: Check to ensure you have enough Ethereum to cover fees** The cost of a transaction depends on how busy the Ethereum network is, how quickly you want the transaction to be processed, and the size of the transaction. Ethereum network fees are also known as gas fees. **Step 4: Buy and transfer Ethereum to the wallet** Once you have met the user verification requirement, you can transfer cash to your wallet and proceed to buy some Ethereum coins with it. After purchase, the Ether (ETH) coins will be stored in [the Ethereum wallet](https://www.investopedia.com/best-ethereum-wallets-6830692). **Step 5: Use the Ether (ETH) to buy SafeMoon** With your ETH in the wallet, you can swap ETH coins for SafeMoon directly. All you need to do is click the “swap” icon in the assets tab, choose SafeMoon, and swap ETH for the value of SafeMoon you desire. ## What You Need to Open a Cryptocurrency Exchange Account There are several requirements needed to open an exchange account. For decentralized exchanges, the process is pretty simple: Download the software or browser extension, set up an account, and store your recovery phase. For centralized exchanges, you are expected to meet the [know-your-customer](https://www.investopedia.com/terms/k/knowyourclient.asp) (KYC) verification requirement before being able to fund your account and trade. Things needed to open an exchange account are explained below. ### Unlike traditional brokerage firms, cryptocurrency exchanges are not members of the [Securities Investor Protection Corp. (SIPC)](https://www.investopedia.com/terms/s/sipc.asp). Therefore, unless user terms specify otherwise, investors with cryptocurrency assets commingled on a custodial cryptocurrency exchange could potentially lose their funds as [unsecured creditors](https://www.investopedia.com/terms/u/unsecuredcreditor.asp#:~:text=An%20unsecured%20creditor%20is%20an,borrower%20default%20on%20the%20loan.). ### Personal Information Exchanges often mandate customers to provide their personal information to meet KYC requirements as mandated by regulatory authorities. Examples of personal information required include: * Full name * Means of Identification such as an International passport * Proof of address such as utility bills * Social Security number * Others as required by the exchange ### Minimum Deposits Every exchange has a range of deposits that users must fund their accounts with. For example, [Coinbase](https://www.coinbase.com/partner/starter-us-offer?clickId=1JdVzbThYxyNUoITy8XhXRIbUkAy4LSpI0nLVY0&utm_source=impact&utm_medium=growthp&utm_campaign=rt_p_m_w_d_acq_imp_gro_aff_Dotdash&utm_content=1175448&utm_creative=US%20-%20%245%20Bitcoin%20Incentive%20Offer&irgwc=1) and [Binance](https://binance.pxf.io/c/2104074/1578490/12872?subid1=7254110&subid2=nefee24521bc848cd91193937ca6f04ca13) require users to deposit a minimum of $50 and $10, respectively, to complete their trades. ## Types of Cryptocurrency Exchanges ### Centralized Exchanges Centralized exchanges are custodial platforms that enable users to exchange their crypto assets safely. Though secure, these exchanges take custody of a user's private key which is needed to authorize transactions. Authorities or businesses that control centralized exchanges have the sole right to make decisions regarding the platform. Centralized exchanges have sustainable liquidity as they can partner with platforms that provide them with liquidity. ### Decentralized Exchanges Decentralized exchanges are platforms that give users sole custody of their private keys and require the consent of the community to make key decisions regarding the platform. Decentralized platforms eliminate the need for third parties, making transactions cheaper than centralized exchanges. Additionally, users risk losing access to their accounts should they lose their recovery phase. ### Hybrid Exchanges Hybrid exchanges are becoming quite popular. These exchanges combine the features of centralized and decentralized exchanges, allowing users to trade crypto seamlessly. ## Best Cryptocurrency Exchanges | **Company** | **Transaction Fees** | **Minimum Deposit or Purchase** | **Trade Limits** | | --- | --- | --- | --- | | [Binance](https://binance.pxf.io/c/2104074/1578490/12872?subid1=7254110&subid2=nefee24521bc848cd91193937ca6f04ca13) | Variable; between 0.00% to 0.45% | $1 | No real deposit limit | | [Coinbase](https://www.coinbase.com/partner/starter-us-offer?clickId=1JdVzbThYxyNUoITy8XhXRIbUkAy4LSpI0nLVY0&utm_source=impact&utm_medium=growthp&utm_campaign=rt_p_m_w_d_acq_imp_gro_aff_Dotdash&utm_content=1175448&utm_creative=US%20-%20%245%20Bitcoin%20Incentive%20Offer&irgwc=1) | 0.00% to 0.60% | $50 | Unlimited | | [Robinhood](https://robinhood.c3me6x.net/c/328256/1149283/10402) | Commission-free | $1 | $5,000 | ## Factors to Consider When Opening a Cryptocurrency Exchange Account As a crypto investor, there are factors you should consider when creating an exchange account. These factors include: **Security**: With the current activities of fraudsters, exchanges that protect and update their security architecture constantly have high trading volumes. When opening an account, you should check if the platform has multi-layer verification for withdrawals, two-factor authentication, or if it’s custodial. **Fees**: From buying fees to swapping and exchanging fees, it’s often advised to compare the best in the industry before making a choice. However, security should not be compromised. **Number and quality of coins supported**: It’s important to check the number of coins an exchange supports, especially if you want to diversify your investment portfolio. Research the quality of coins in the exchange to avoid investing in scam tokens. **Wallet safety and quality**: Before choosing an exchange, you should ensure it has a reputation for security. **Storage and custody**: This feature has to do with if an exchange takes custody of your private keys or gives you the responsibility of holding them. Depending on your preferences, you may choose either a custodial or non-custodial wallet.  ## Centralized vs. Decentralized Exchanges While centralized and decentralized exchanges exist to trade crypto assets, the difference is based on how they do it and their mode of operation. Factors that differentiate both include regulation, supported coins, liquidity, security, user experience, and custody. While centralized exchanges are more regulated, support several coins, have more liquidity, are less secure, have a great user experience, and take custody of users' private keys, decentralized exchanges are not. Even though the crypto industry is at its early stage in terms of regulation, centralized exchanges are striving to comply with financial regulations. Regulation works to protect investors and their investments. In November 2022, the world’s second-largest crypto exchange, [FTX, collapsed](https://www.investopedia.com/ftx-exchange-5200842) and immediately filed for bankruptcy. Its books showed the exchange lacked tangible reserves and court filings alleged the exchange indiscriminately used customers' funds for both operational and personal use. Being a centralized exchange, key decisions were taken without the knowledge of the community. To prevent issues such as this, decentralized exchanges may just be a great fit. These exchanges are built on-chain and all information regarding them is available to the public. Above all, decisions can only be made after token holders have voted in favor of them. ## How Does SafeMoon Work? Though there may be a bit of controversy, SafeMoon works to encourage long-term investment and discourage selling by charging users a 10% fee, with 50% of this being distributed to existing SafeMoon users. ## How Do I Use SafeMoon? SafeMoon can serve as a means of investment, especially if you plan to leverage the reward and incentivization program. To achieve this, use the SafeMoon Swap decentralized application on the Build and Build chain and swap BNB coins for SafeMoon tokens. Then simply hold the tokens to qualify for rewards from transaction fees generated by the platform. ## Is SafeMoon Safe? Launched in 2021, SafeMoon is still relatively new, quite volatile with low trading volumes, and not listed on exchanges that accept fiat. These are signs that the token may be lacking in terms of regulation. Hence, it’s still quite early to say if the token is safe or not. ### It's important to remember that crypto assets are high-risk investments. Therefore, conducting thorough research is essential before making the decision to add SafeMoon to your crypto portfolio.  ## The Bottom Line SafeMoon is a relatively new cryptocurrency with unique tokenomics featuring a 10% transaction fee that redistributes 5% to existing holders and adds 5% to the liquidity pool. It aims to incentivize long-term holding and price stability. However, it has seen its fair share of allegations of fraud, and investors are encouraged to do independent research before deciding whether to invest in SafeMoon. *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.* *Correction—July 29, 2023:* A previous version of this article incorrectly stated that SafeMoon could be directly purchased from Binance. A previous version of this article also incorrectly identified Jake Paul as a member of the UFC.

SafeMoon was designed to reward long-term holders and charges sellers a 10% fee, with part of that fee going back to existing holders. First launched on the Build and Build (BNB) chain in March 2021, SafeMoon can now be bought on some exchanges such as Pancakeswap. Though some may claim SafeMoon is resistant to manipulation, others note the dramatic volatility and fall of SafeMoon's price in 2022 as potentially unusual trading behavior. Investors should conduct thorough research before making all investment decisions, including and especially those involve cryptocurrencies.  Key Takeaways SafeMoon is a cryptocurrency launched in March 2021 with a unique tokenomics model that aims to reward holders and discourage short-term selling.It employs a deflationary mechanism where a portion of each transaction is redistributed to existing holders, encouraging them to keep their tokens, which theoretically helps stabilize the price.SafeMoon gained popularity due to its viral marketing and community-driven approach, attracting a large number of investors and enthusiasts.Critics argue that the project lacks transparency and real-world utility, with some concerns raised about the sustainability of its tokenomics model.As with any investment in the crypto space, potential investors should exercise caution, conduct thorough research, and be aware of the risks involved. What Is SafeMoon? Digital currencies are virtual assets, secured by cryptographic encryptions and powered by the distributed ledger technology known as the blockchain. Virtual currencies such as Bitcoin, Ethereum, and other stablecoins now serve as media of exchange globally. Investing in cryptocurrencies can be complicated since thousands of them exist but only a handful are real. As an investor, you should research the quality and realness of a coin before leaping. Some distinct features of SafeMoon include the static reward where 50% of tokens from its transaction fees (usually 10%) are distributed to token holders, as well as the manual burn where the supply of SafeMoon tokens reduces to increase the price and demand. SafeMoon also has a self-sustaining liquidity pool that can siphon tokens in the form of fees, which are then added to the token’s liquidity pool on Pancakeswap.  In the past year, some celebrities have invested and endorsed SafeMoon. They include social media personality and professional boxer Jake Paul, with a YouTube channel of over 20 million subscribers, who has claimed that investing in SafeMoon can make everyone rich in the long run. Others are Brett Ratner and DJ Afrojack. 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. SafeMoon vs. SafeMoon V2 SafeMoon launched an updated SafeMoon token in December 2021. The updated token consolidates the original version in a ratio of 1:1000 while ensuring transactions cost lower. If you hold original SafeMoon tokens in a wallet and choose to switch them to SafeMoon V2, it can only be done manually. The switching process is quite easy.  SafeMoon wallet users can update the app to the latest version and follow the instructions while those with other kinds of wallets can visit SafeMoon Swap to convert their tokens. Additionally, if you hold your SafeMoon tokens on an exchange, you don't have to switch to the V2 tokens. This is because the exchange handles the migration process and gives an update on the status of the process. Compared to the original version, SafeMoon V2 processes transactions at a much lower cost. The V2 transaction fee is now 2% of the entire transaction. An alternative way of buying SafeMoon is to use the SafeMoon Swap decentralized application that is available on the Build and Build chain. This way you trade BNB tokens for SafeMoon tokens. SafeMoon Fraud Allegations and Criticisms It is important to note several allegations against SafeMoon as part of your research on deciding whether SafeMoon is the right investment for you. In April 2022, Stephen "Coffeezilla" Findeisen accused the SafeMoon team of misappropriating millions of dollars. Findeisen found evidence of SafeMoon's liquidity wallet moving funds to a wallet called the "Gabe (6abe) wallet," which withdrew funds to a separate company run by John Karony. Thomas "Papa" Smith, former SafeMoon CTO, responded to Findeisen's claims, stating that funds were taken from the "locked liquidity pool" before Karony's appointment. In February 2022, a class-action lawsuit against SafeMoon was filed, alleging the company is a pump and dump scheme. Jake Paul, Nick Carter, Soulja Boy, Lil Yachty, and Ben Phillips were accused of promoting the SafeMoon token with misleading information. In May 2022, multiple SafeMoon investors filed another class action lawsuit for security fraud. The lawsuit was voluntarily terminated in November 2022. In December 2021, SafeMoon developed Version 2 of their token, SafeMoon V2, and set a deadline for token migration to avoid a 100% tax. They also introduced a decentralized exchange called "Safemoon Swap." In April 2022, they introduced the Safemoon card, a 2.5% fee debit card for goods using SafeMoon and other cryptocurrencies. However, the card's release has been delayed, causing criticism from experts. Advantages and Disadvantages of SafeMoon Pros of SafeMoon SafeMoon, like other cryptocurrencies, operates on decentralized blockchain technology. This means there is no central authority controlling or governing the network. Decentralization can enhance security, transparency, and censorship resistance, as no single entity has full control over the platform. Note that SafeMoon has received criticisms for manipulation, as even decentralized currencies can be controlled. Part of SafeMoon's transaction fee is added to the liquidity pool, which is essentially a smart contract holding a reserve of the token. This liquidity pool can provide stability to the token's price by ensuring that there are funds available for trading even during periods of high volatility. The transaction fee that is distributed to existing token holders can incentivize people to hold their tokens. Long-term holders can benefit from increased token balances without having to actively participate in yield farming or staking. While the primary focus of SafeMoon is not explicitly on yield farming or staking, the reflective tokenomics model can create opportunities for holders to earn passive income. Some users might choose to participate in yield farming on decentralized finance (DeFi) platforms that support SafeMoon or stake their tokens in protocols offering rewards. Cons of SafeMoon Despite several advantages, there remain a vast number of downsides to SafeMoon. The obvious downside of SafeMoon is the future public perception of the cryptocurrency. The success of SafeMoon, like many other cryptocurrencies, is heavily reliant on community sentiment. Because SafeMoon has faced several lawsuits and allegations of fraud, it remains to be seen whether the cryptocurrency will experience growth or strong user adoption in the future. Cryptocurrencies, including SafeMoon, are known for their price volatility. Price fluctuations can occur rapidly and unpredictably, leading to significant gains for some investors but also substantial losses for others. This was most notably seen during the 2022 lawsuit filing when SafeMoon lost nearly all of its value. Beyond speculative trading and holding for potential price appreciation, SafeMoon has limited practical use cases. Also, even though it has existed for several years, SafeMoon is a relatively new project compared to more established cryptocurrencies with undefined schedules and unproven roadmap execution. Smaller cryptocurrencies like SafeMoon also might have limited liquidity compared to more established tokens. Though it does transmit some fees to liquidity pools, limited liquidity can make it difficult for holders to execute large trades at desired prices, making it possible but unprofitable to exist an investment position at times. Last and perhaps most importantly, SafeMoon remains a speculative investment with an unproven business model that has yet to experience wide adoption. In certain contexts, SafeMoon may be seen as a "rug pull", as many investors likely lost lots of money due to the legal ramifications of 2022. This is not to say future performance of SafeMoon may play out the same way; still, a downside of SafeMoon is the historical context of several price volatility leading to losses. Pros Like many cryptocurrencies, exists on decentralized blockchain Operates a (relatively small) liquidity pool Operates a reflection mechanism which benefits long-term holders May present investors with DeFi opportunities Cons Has experience material price volatility (without having rebounded close to all-time highs) Has experienced numerous fraud and legal allegations Has yet to materialize large-scale real-world uses Tends to demonstrate Ponzi-like features May be larger to sell due to smaller liquidity pools May have negative public sentiment due to media coverage of fraud (i.e. Coffeezilla coverage) How to Buy SafeMoon  With this information in hand, should you still decide SafeMoon is the type of investment best suited for your portfolio, there are crypto exchanges where you can buy SafeMoon. Crypto exchanges are platforms where a diverse ecosystem of cryptocurrencies can be bought or sold. However, investors must understand that not all coins can be bought with fiat but with other coins. One such coin is SafeMoon as it isn't listed on any centralized exchange that accepts fiat currency.  While SafeMoon isn't available on the Coinbase or Binance centralized exchanges, you can still buy the tokens on these exchanges using the steps outlined below. Step 1: Download the wallet and sign up You can install your wallet on your computer or browser extension or directly download it via mobile app stores such as the Google Play Store or the Apple App Store. After downloading the wallet, you must set a username that should be kept safe.  Step 2: Securing your recovery phase After downloading a wallet and setting up the username, a 12-word recovery phrase will be presented to you for safekeeping. This recovery phrase is a key to your crypto that helps you retain your wallet should your device get damaged or lost. Remember that you aren’t supposed to share this phrase with anyone. Writing it out and keeping it in a safe is ideal. Step 3: Check to ensure you have enough Ethereum to cover fees The cost of a transaction depends on how busy the Ethereum network is, how quickly you want the transaction to be processed, and the size of the transaction. Ethereum network fees are also known as gas fees. Step 4: Buy and transfer Ethereum to the wallet  Once you have met the user verification requirement, you can transfer cash to your wallet and proceed to buy some Ethereum coins with it. After purchase, the Ether (ETH) coins will be stored in the Ethereum wallet. Step 5: Use the Ether (ETH) to buy SafeMoon  With your ETH in the wallet, you can swap ETH coins for SafeMoon directly. All you need to do is click the “swap” icon in the assets tab, choose SafeMoon, and swap ETH for the value of SafeMoon you desire. What You Need to Open a Cryptocurrency Exchange Account  There are several requirements needed to open an exchange account. For decentralized exchanges, the process is pretty simple: Download the software or browser extension, set up an account, and store your recovery phase. For centralized exchanges, you are expected to meet the know-your-customer (KYC) verification requirement before being able to fund your account and trade. Things needed to open an exchange account are explained below. Unlike traditional brokerage firms, cryptocurrency exchanges are not members of the Securities Investor Protection Corp. (SIPC). Therefore, unless user terms specify otherwise, investors with cryptocurrency assets commingled on a custodial cryptocurrency exchange could potentially lose their funds as unsecured creditors. Personal Information Exchanges often mandate customers to provide their personal information to meet KYC requirements as mandated by regulatory authorities. Examples of personal information required include: Full nameMeans of Identification such as an International passport Proof of address such as utility billsSocial Security numberOthers as required by the exchange Minimum Deposits Every exchange has a range of deposits that users must fund their accounts with. For example, Coinbase and Binance require users to deposit a minimum of $50 and $10, respectively, to complete their trades. Types of Cryptocurrency Exchanges Centralized Exchanges Centralized exchanges are custodial platforms that enable users to exchange their crypto assets safely. Though secure, these exchanges take custody of a user's private key which is needed to authorize transactions. Authorities or businesses that control centralized exchanges have the sole right to make decisions regarding the platform. Centralized exchanges have sustainable liquidity as they can partner with platforms that provide them with liquidity. Decentralized Exchanges Decentralized exchanges are platforms that give users sole custody of their private keys and require the consent of the community to make key decisions regarding the platform. Decentralized platforms eliminate the need for third parties, making transactions cheaper than centralized exchanges. Additionally, users risk losing access to their accounts should they lose their recovery phase. Hybrid Exchanges Hybrid exchanges are becoming quite popular. These exchanges combine the features of centralized and decentralized exchanges, allowing users to trade crypto seamlessly. Best Cryptocurrency Exchanges  Company  Transaction Fees Minimum Deposit or Purchase   Trade Limits Binance  Variable; between 0.00% to 0.45% $1 No real deposit limit Coinbase 0.00% to 0.60%  $50  Unlimited  Robinhood Commission-free  $1  $5,000  Factors to Consider When Opening a Cryptocurrency Exchange Account As a crypto investor, there are factors you should consider when creating an exchange account. These factors include: Security: With the current activities of fraudsters, exchanges that protect and update their security architecture constantly have high trading volumes. When opening an account, you should check if the platform has multi-layer verification for withdrawals, two-factor authentication, or if it’s custodial. Fees: From buying fees to swapping and exchanging fees, it’s often advised to compare the best in the industry before making a choice. However, security should not be compromised. Number and quality of coins supported: It’s important to check the number of coins an exchange supports, especially if you want to diversify your investment portfolio. Research the quality of coins in the exchange to avoid investing in scam tokens. Wallet safety and quality: Before choosing an exchange, you should ensure it has a reputation for security. Storage and custody: This feature has to do with if an exchange takes custody of your private keys or gives you the responsibility of holding them. Depending on your preferences, you may choose either a custodial or non-custodial wallet.  Centralized vs. Decentralized Exchanges While centralized and decentralized exchanges exist to trade crypto assets, the difference is based on how they do it and their mode of operation. Factors that differentiate both include regulation, supported coins, liquidity, security, user experience, and custody. While centralized exchanges are more regulated, support several coins, have more liquidity, are less secure, have a great user experience, and take custody of users' private keys, decentralized exchanges are not. Even though the crypto industry is at its early stage in terms of regulation, centralized exchanges are striving to comply with financial regulations. Regulation works to protect investors and their investments. In November 2022, the world’s second-largest crypto exchange, FTX, collapsed and immediately filed for bankruptcy. Its books showed the exchange lacked tangible reserves and court filings alleged the exchange indiscriminately used customers' funds for both operational and personal use. Being a centralized exchange, key decisions were taken without the knowledge of the community. To prevent issues such as this, decentralized exchanges may just be a great fit. These exchanges are built on-chain and all information regarding them is available to the public. Above all, decisions can only be made after token holders have voted in favor of them. How Does SafeMoon Work? Though there may be a bit of controversy, SafeMoon works to encourage long-term investment and discourage selling by charging users a 10% fee, with 50% of this being distributed to existing SafeMoon users. How Do I Use SafeMoon? SafeMoon can serve as a means of investment, especially if you plan to leverage the reward and incentivization program. To achieve this, use the SafeMoon Swap decentralized application on the Build and Build chain and swap BNB coins for SafeMoon tokens. Then simply hold the tokens to qualify for rewards from transaction fees generated by the platform. Is SafeMoon Safe? Launched in 2021, SafeMoon is still relatively new, quite volatile with low trading volumes, and not listed on exchanges that accept fiat. These are signs that the token may be lacking in terms of regulation. Hence, it’s still quite early to say if the token is safe or not. It's important to remember that crypto assets are high-risk investments. Therefore, conducting thorough research is essential before making the decision to add SafeMoon to your crypto portfolio.  The Bottom Line SafeMoon is a relatively new cryptocurrency with unique tokenomics featuring a 10% transaction fee that redistributes 5% to existing holders and adds 5% to the liquidity pool. It aims to incentivize long-term holding and price stability. However, it has seen its fair share of allegations of fraud, and investors are encouraged to do independent research before deciding whether to invest in SafeMoon. The comments, opinions, and analyses expressed on Investopedia are for informational purposes online. Read our warranty and liability disclaimer for more info. Correction—July 29, 2023: A previous version of this article incorrectly stated that SafeMoon could be directly purchased from Binance. A previous version of this article also incorrectly identified Jake Paul as a member of the UFC.

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

What Is a Mortgage? Types, How They Work, 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-mortgage"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Mortgage? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A mortgage is a type of loan used to purchase or maintain a home, plot of land, or other type of real estate. The borrower agrees to pay the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lender.asp">lender</a> over time, typically in a series of regular payments that are divided into <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/principal.asp">principal</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interest.asp">interest</a>. The property then serves as <a data-component="link" data-ordinal="4" 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_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> A borrower must apply for a mortgage through their preferred lender and ensure that they meet several requirements, including minimum <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit scores</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/down_payment.asp">down payments</a>. Mortgage applications go through a rigorous <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underwriting.asp">underwriting</a> process before they reach the closing phase. Mortgage types, such as conventional or fixed-rate loans, vary based on the needs of the borrower. </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>Mortgages are loans that are used to buy homes and other types of real estate.</li><li>The property itself serves as collateral for the loan.</li><li>Mortgages are available in a variety of types, including fixed-rate and adjustable-rate.</li><li>The cost of a mortgage will depend on the type of loan, the term (such as 30 years), and the interest rate that the lender charges.</li><li>Mortgage rates can vary widely depending on the type of product and the qualifications of the applicant.</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="Mortgage" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/uVMt0zqGSIqTc-SCdvZ0eu5aHjI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/mortgage-69f02f04cdae4863806bd0455255106e.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/uVMt0zqGSIqTc-SCdvZ0eu5aHjI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/mortgage-69f02f04cdae4863806bd0455255106e.png" data-srcset="https://www.investopedia.com/thmb/kF2HKyYQ0chyYYdOpRZtuNIokgE=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/mortgage-69f02f04cdae4863806bd0455255106e.png 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Mortgage" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/uVMt0zqGSIqTc-SCdvZ0eu5aHjI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/mortgage-69f02f04cdae4863806bd0455255106e.png" srcset="https://www.investopedia.com/thmb/kF2HKyYQ0chyYYdOpRZtuNIokgE=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/mortgage-69f02f04cdae4863806bd0455255106e.png 750w" width="1500"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Zoe Hansen / Investopedia</p></span> </figcaption></figure> <span class="heading-toc" id="toc-how-mortgages-work"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> How Mortgages Work </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Individuals and businesses use mortgages to buy real estate without paying the entire purchase price up front. The borrower repays the loan plus interest over a specified number of years until they own the property <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/freeandclear.asp">free and clear</a>. Most traditional mortgages are <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fully_amortizing_payment.asp">fully-amortizing</a>. This means that the regular payment amount will stay the same, but different proportions of principal vs. interest will be paid over the life of the loan with each payment. Typical mortgage terms are for 15 or 30 years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Mortgages are also known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lien.asp">liens</a> against property or claims on property. If the borrower stops paying the mortgage, the lender can <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/foreclosure.asp">foreclose</a> on the property. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> For example, a residential homebuyer pledges their house to their lender, which then has a claim on the property. This ensures the lender’s interest in the property should the buyer <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 their financial <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/obligation.asp">obligation</a>. In the case of a foreclosure, the lender may evict the residents, sell the property, and use the money from the sale to pay off the mortgage debt.<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-the-mortgage-process"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_16-0"> <span class="mntl-sc-block-heading__text"> The Mortgage Process </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Would-be borrowers begin <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-process-explained-5213694">the process</a> by applying to one or more mortgage lenders. The lender will ask for evidence that the borrower is capable of repaying the loan. This may include bank and investment statements, recent <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>, and proof of current employment. The lender will generally run a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-inquiry.asp">credit check</a> as well. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> If the application is approved, the lender will offer the borrower a loan of up to a certain amount and at a particular interest rate. Homebuyers can apply for a mortgage after they have chosen a property to buy or even while they are still shopping for one, thanks to a process known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-preapproval-4776405">pre-approval</a>. Being pre-approved for a mortgage can give buyers an edge in a tight housing market because sellers will know that they have the money to back up their offer. </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"> Once a buyer and seller agree on the terms of their deal, they or their representatives will meet at what’s called a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/closing.asp">closing</a>. This is when the borrower makes their down payment to the lender. The seller will transfer ownership of the property to the buyer and receive the agreed-upon sum of money, and the buyer will sign any remaining mortgage documents. The lender may charge fees for originating the loan (sometimes in the form of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/points.asp">points</a>) at the closing. </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">Options</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>There are hundreds of options on where you can get a mortgage. You can get a mortgage through a credit union, bank, mortgage-specific lender, online-only lender, or <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mortgagebroker.asp">mortgage broker</a>. No matter which option you choose, compare rates across types to make sure that you’re getting the best deal.</p></div></div></div> <span class="heading-toc" id="toc-types-of-mortgages"></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 Mortgages </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Mortgages come in a variety of forms. The most common types are 30-year and 15-year fixed-rate mortgages. Some mortgage terms are as short as five years, while others can run 40 years or longer. Stretching payments over more years may reduce the monthly payment, but it also increases the total amount of interest that the borrower pays over the life of the loan. </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"> Within the different term lengths are numerous <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/types-of-home-loans-5212836">types of home loans</a>, including <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fhaloan.asp">Federal Housing Administration (FHA) loans</a>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/usda-loan-5116841">U.S. Department of Agriculture (USDA) loans</a>, and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valoan.asp">U.S. Department of Veterans Affairs (VA) loans</a> available for specific populations that may not have the income, credit scores, or down payments required to qualify for <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/conventionalmortgage.asp">conventional mortgages</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> The following are just a few examples of some of the most popular types of mortgage loans available to borrowers. </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"> Fixed-Rate Mortgages </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> The standard type of mortgage is fixed-rate. With a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixed-rate_mortgage.asp">fixed-rate mortgage</a>, the <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> stays the same for the entire term of the loan, as do the borrower's monthly payments toward the mortgage. A fixed-rate mortgage is also called a traditional mortgage. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_35-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_36-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Mortgage lending discrimination is illegal. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/housing-discrimination-what-can-you-do-5074478">If you think you’ve been discriminated against</a> based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps that you can take. One such step is to file a report with the <a data-component="link" data-ordinal="2" 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> or the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/us-department-housing-urban-development-hud.asp">U.S. Department of Housing and Urban Development (HUD)</a>.<span class="ql-inline-citation" data-cite="12"></span><span class="ql-inline-citation" data-cite="13"></span></p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_37-0"> <span class="mntl-sc-block-subheading__text"> Adjustable-Rate Mortgage (ARM) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> With an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/arm.asp">adjustable-rate mortgage (ARM)</a>, the interest rate is fixed for an initial term, after which it can <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/022117/can-mortgage-company-change-terms.asp">change periodically</a> based on prevailing interest rates. The <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/initial-interest-rate.asp">initial interest rate</a> is often a below-market rate, which can make the mortgage more affordable in the short term but possibly less affordable long-term if the rate rises substantially. </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"> ARMs typically have limits, or caps, on how much the interest rate can rise <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/periodiccap.asp">each time it adjusts</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lifetimecap.asp">in total</a> over the life of the loan. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_42-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_43-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/5-1_arm.asp">5/1 adjustable-rate mortgage</a> is an ARM that maintains a fixed interest rate for the first five years and then adjusts each year after that.</p></div></div></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"> Interest-Only Loans </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Other, less common types of mortgages, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestonlymortgage.asp">interest-only mortgages</a> and payment-option ARMs, can involve complex repayment schedules and are best used by sophisticated borrowers. These types of loans may feature a large <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/balloon-payment.asp">balloon payment</a> at its end. </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"> Many homeowners got into financial trouble with these types of mortgages during the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/housing_bubble.asp">housing bubble</a> of the early 2000s.<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_48-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_49-0"> <span class="mntl-sc-block-subheading__text"> Reverse Mortgages </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> As their name suggests, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/reverse-mortgage/">reverse mortgages</a> are a very different financial product. They are designed for homeowners age 62 or older who want to convert part of the equity in their homes into cash. </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"> These homeowners can borrow against the value of their home and receive the money as a lump sum, fixed monthly payment, or line of credit. The entire loan balance becomes due when the borrower dies, moves away permanently, or sells the home.<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_53-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_54-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_55-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" 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>Within each type of mortgage, borrowers have the option to buy <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discountpoints.asp">discount points</a> to buy their interest rate down. Points are essentially a fee that borrowers pay up front to have a lower interest rate over the life of their loan. When comparing mortgage rates, make sure you are comparing rates with the same number of discount points for a true apples-to-apples comparison.</p></div></div></div> <span class="heading-toc" id="toc-average-mortgage-rates-so-far-for-2024"></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"> Average Mortgage Rates (So Far for 2024) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> How much you’ll have to pay for a mortgage depends on the type of mortgage (such as fixed or adjustable), its term (such as 20 or 30 years), any discount points paid, and interest rates at the time. Interest rates can vary from week to week and from lender to lender, so it pays to shop around. </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"> Mortgage rates sank to historic lows in 2020 and 2021, recording their cheapest levels in almost 50 years. From roughly the start of the pandemic (i.e., April 2020) to Jan. 2022, the 30-year rate average wavered below 3.50%—including an ultimate low of 2.65%.<span class="ql-inline-citation" data-cite="15"></span><span class="ql-inline-citation" data-cite="16"></span><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_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> But 2022 and 2023 saw mortgage rates skyrocket, setting records in the opposite direction. The 30-year average breached the 7% threshold for the first time in Oct. 2022, and this past October, it was closer to 8%, notching a 23-year peak reading of 7.79%.<span class="ql-inline-citation" data-cite="11"></span> In the months since then, the 30-year mortgage rate has fluctuated, dropping by more than a percentage point in Feb. 2024 and surpassing 7% again in April and May 2024. </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"> According to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/freddiemac.asp">Federal Home Loan Mortgage Corp.</a>, average interest rates looked like this as of May 2024: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> <li><strong>30-year fixed-rate mortgage</strong>: 7.09%</li><li><strong>15-year fixed-rate mortgage</strong>: 6.38%<span class="ql-inline-citation" data-cite="8"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_67-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/1JU2T/2/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Weekly Mortgage Rates"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <span class="heading-toc" id="toc-how-to-compare-mortgages"></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"> How to Compare Mortgages </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> Banks, savings and loan associations, and credit unions were virtually the only sources of mortgages at one time. Today, a burgeoning share of the mortgage market includes <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nbfcs.asp">nonbank lenders</a>, such as Better, loanDepot, Rocket Mortgage, and SoFi. </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"> If you’re shopping for a mortgage, an online <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-calculator-5084794">mortgage calculator</a> can help you compare <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/calculate-your-mortgage-payment-5225171">estimated monthly payments</a>, based on the type of mortgage, the interest rate, and how large a down payment you plan to make. It also can help you determine how expensive a property you can reasonably afford. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> In addition to the principal and interest that you’ll be paying on the mortgage, the lender or mortgage <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loan_servicing.asp">servicer</a> may set up an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/escrow.asp">escrow</a> account to pay local <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/propertytax.asp">property taxes</a>, <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/homeowners-insurance.asp">homeowners insurance</a> premiums, and certain other expenses. Those costs will add to your monthly mortgage payment. </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"> Also, note that if you make less than a 20% down payment when you take out your mortgage, your lender may require that you purchase <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/09/pmi.asp">private mortgage insurance (PMI)</a>, which becomes another added monthly cost.<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_77-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--mortgage-loan-calculator" id="mntl-sc-block_78-0"><div class="comp mortgage-loan-calculator mntl-block" data-defer="load" id="mortgage-loan-calculator_1-0"></div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_79-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_80-0"><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_81-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_6-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_6-0"><p>If you have a mortgage, you still own your home (instead of the bank). Your bank may have loaned you money to purchase the house, but rather than owning the property, they impose a lien on it (the house is used as collateral, but only if the loan goes into default). If you default and foreclose on your mortgage, however, the bank may become the new owner of your home.</p></div></div></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-why-do-people-need-mortgages"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Do People Need Mortgages?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The price of a home is often far greater than the amount of money that most households save. As a result, mortgages allow individuals and families to purchase a home by putting down only a relatively small down payment, such as 20% of the purchase price, and obtaining a loan for the balance. The loan is then secured by the value of the property in case the borrower defaults.</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-can-anybody-get-a-mortgage"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can Anybody Get a Mortgage?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Mortgage lenders will need to approve prospective borrowers through an application and underwriting process. Home loans are only provided to those who have sufficient assets and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/debt-consolidation-affect-ability-buy-home-8424570">income relative to their debts</a> to practically carry the value of a home over time. A person’s credit score is also evaluated when making the decision to extend a mortgage. The interest rate on the mortgage also varies, with riskier borrowers receiving higher interest rates.</p><p>Mortgages are offered by a variety of sources. Banks and credit unions often provide home loans. There are also specialized mortgage companies that deal only with home loans. You may also employ an unaffiliated mortgage broker to help you shop around for the best rate among different lenders.</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-what-does-fixed-vs-variable-mean-on-a-mortgage"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Does Fixed vs. Variable Mean on a Mortgage?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Many mortgages carry a fixed interest rate. This means that the rate will not change for the entire term of the mortgage—typically 15 or 30 years—even if interest rates rise or fall in the future. A variable- or adjustable-rate mortgage (ARM) has an interest rate that fluctuates over the loan’s life based on what interest rates are doing.</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-how-many-mortgages-can-i-have-on-my-home"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Many Mortgages Can I Have on My Home?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Lenders generally issue a first or primary mortgage before they allow for a second mortgage. This additional mortgage is commonly known as 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>. Most lenders don’t provide for a subsequent mortgage backed by the same property. There’s technically no limit to how many junior loans you can have on your home as long as you have the equity, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dti.asp">debt-to-income ratio</a>, and credit score to get approved for them.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_89-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_90-0"><span class="heading-toc" id="toc-why-is-it-called-a-mortgage"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Is It Called a Mortgage?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The word "mortgage" comes from Old English and French meaning "death vow." It gets that name since this type of loan "dies" when it is either fully repaid or if the borrower defaults.<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_91-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_92-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_93-0"> Mortgages are an essential part of the home buying process for most borrowers who aren’t sitting on hundreds of thousands of dollars of cash to buy a property outright. Different types of home loans are available for whatever your circumstances may be. Different government-backed programs make it possible for more people to qualify for mortgages and make their dream of homeownership a reality. </p> <div class="comp nativemortgage native mm-ads-native" data-selector=".mntl-sc-block--mortgage-loan-calculator + .mntl-sc-block" id="nativemortgage_1-0" style="--native-ad-height: auto"><div class="comp mm-ads-native__adunit mm-ads-gpt-dynamic-adunit mm-ads-gpt-adunit scads-to-load gpt nativemortgage dynamic" id="mm-ads-native__adunit_1-0"> <div class="wrapper" data-pos="nativemortgage" data-priority="4" data-rtb="false" data-sizes='[[1, 3],"fluid"]' data-targeting="{}" data-type="nativemortgage" data-wait-for-third-party="false" id="nativemortgage"></div> </div></div></div>

## What Is a Mortgage? A mortgage is a type of loan used to purchase or maintain a home, plot of land, or other type of real estate. The borrower agrees to pay the [lender](https://www.investopedia.com/terms/l/lender.asp) over time, typically in a series of regular payments that are divided into [principal](https://www.investopedia.com/terms/p/principal.asp) and [interest](https://www.investopedia.com/terms/i/interest.asp). The property then serves as [collateral](https://www.investopedia.com/terms/c/collateral.asp) to secure the loan. A borrower must apply for a mortgage through their preferred lender and ensure that they meet several requirements, including minimum [credit scores](https://www.investopedia.com/terms/c/credit_score.asp) and [down payments](https://www.investopedia.com/terms/d/down_payment.asp). Mortgage applications go through a rigorous [underwriting](https://www.investopedia.com/terms/u/underwriting.asp) process before they reach the closing phase. Mortgage types, such as conventional or fixed-rate loans, vary based on the needs of the borrower. ### Key Takeaways * Mortgages are loans that are used to buy homes and other types of real estate. * The property itself serves as collateral for the loan. * Mortgages are available in a variety of types, including fixed-rate and adjustable-rate. * The cost of a mortgage will depend on the type of loan, the term (such as 30 years), and the interest rate that the lender charges. * Mortgage rates can vary widely depending on the type of product and the qualifications of the applicant. ![Mortgage]() :max_bytes(150000):strip_icc()/mortgage-69f02f04cdae4863806bd0455255106e.png) Zoe Hansen / Investopedia ## How Mortgages Work Individuals and businesses use mortgages to buy real estate without paying the entire purchase price up front. The borrower repays the loan plus interest over a specified number of years until they own the property [free and clear](https://www.investopedia.com/terms/f/freeandclear.asp). Most traditional mortgages are [fully-amortizing](https://www.investopedia.com/terms/f/fully_amortizing_payment.asp). This means that the regular payment amount will stay the same, but different proportions of principal vs. interest will be paid over the life of the loan with each payment. Typical mortgage terms are for 15 or 30 years. Mortgages are also known as [liens](https://www.investopedia.com/terms/l/lien.asp) against property or claims on property. If the borrower stops paying the mortgage, the lender can [foreclose](https://www.investopedia.com/terms/f/foreclosure.asp) on the property. For example, a residential homebuyer pledges their house to their lender, which then has a claim on the property. This ensures the lender’s interest in the property should the buyer [default](https://www.investopedia.com/terms/d/default2.asp) on their financial [obligation](https://www.investopedia.com/terms/o/obligation.asp). In the case of a foreclosure, the lender may evict the residents, sell the property, and use the money from the sale to pay off the mortgage debt. ## The Mortgage Process Would-be borrowers begin [the process](https://www.investopedia.com/mortgage-process-explained-5213694) by applying to one or more mortgage lenders. The lender will ask for evidence that the borrower is capable of repaying the loan. This may include bank and investment statements, recent [tax returns](https://www.investopedia.com/terms/t/taxreturn.asp), and proof of current employment. The lender will generally run a [credit check](https://www.investopedia.com/terms/c/credit-inquiry.asp) as well. If the application is approved, the lender will offer the borrower a loan of up to a certain amount and at a particular interest rate. Homebuyers can apply for a mortgage after they have chosen a property to buy or even while they are still shopping for one, thanks to a process known as [pre-approval](https://www.investopedia.com/mortgage-preapproval-4776405). Being pre-approved for a mortgage can give buyers an edge in a tight housing market because sellers will know that they have the money to back up their offer. Once a buyer and seller agree on the terms of their deal, they or their representatives will meet at what’s called a [closing](https://www.investopedia.com/terms/c/closing.asp). This is when the borrower makes their down payment to the lender. The seller will transfer ownership of the property to the buyer and receive the agreed-upon sum of money, and the buyer will sign any remaining mortgage documents. The lender may charge fees for originating the loan (sometimes in the form of [points](https://www.investopedia.com/terms/p/points.asp)) at the closing. ### Options There are hundreds of options on where you can get a mortgage. You can get a mortgage through a credit union, bank, mortgage-specific lender, online-only lender, or [mortgage broker](https://www.investopedia.com/terms/m/mortgagebroker.asp). No matter which option you choose, compare rates across types to make sure that you’re getting the best deal. ## Types of Mortgages Mortgages come in a variety of forms. The most common types are 30-year and 15-year fixed-rate mortgages. Some mortgage terms are as short as five years, while others can run 40 years or longer. Stretching payments over more years may reduce the monthly payment, but it also increases the total amount of interest that the borrower pays over the life of the loan. Within the different term lengths are numerous [types of home loans](https://www.investopedia.com/types-of-home-loans-5212836), including [Federal Housing Administration (FHA) loans](https://www.investopedia.com/terms/f/fhaloan.asp), [U.S. Department of Agriculture (USDA) loans](https://www.investopedia.com/usda-loan-5116841), and [U.S. Department of Veterans Affairs (VA) loans](https://www.investopedia.com/terms/v/valoan.asp) available for specific populations that may not have the income, credit scores, or down payments required to qualify for [conventional mortgages](https://www.investopedia.com/terms/c/conventionalmortgage.asp). The following are just a few examples of some of the most popular types of mortgage loans available to borrowers. ### Fixed-Rate Mortgages The standard type of mortgage is fixed-rate. With a [fixed-rate mortgage](https://www.investopedia.com/terms/f/fixed-rate_mortgage.asp), the [interest rate](https://www.investopedia.com/terms/i/interestrate.asp) stays the same for the entire term of the loan, as do the borrower's monthly payments toward the mortgage. A fixed-rate mortgage is also called a traditional mortgage. ### Mortgage lending discrimination is illegal. [If you think you’ve been discriminated against](https://www.investopedia.com/housing-discrimination-what-can-you-do-5074478) based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps that you can take. One such step is to file a report with the [Consumer Financial Protection Bureau (CFPB)](https://www.investopedia.com/terms/c/consumer-financial-protection-bureau-cfpb.asp) or the [U.S. Department of Housing and Urban Development (HUD)](https://www.investopedia.com/terms/u/us-department-housing-urban-development-hud.asp). ### Adjustable-Rate Mortgage (ARM) With an [adjustable-rate mortgage (ARM)](https://www.investopedia.com/terms/a/arm.asp), the interest rate is fixed for an initial term, after which it can [change periodically](https://www.investopedia.com/articles/personal-finance/022117/can-mortgage-company-change-terms.asp) based on prevailing interest rates. The [initial interest rate](https://www.investopedia.com/terms/i/initial-interest-rate.asp) is often a below-market rate, which can make the mortgage more affordable in the short term but possibly less affordable long-term if the rate rises substantially. ARMs typically have limits, or caps, on how much the interest rate can rise [each time it adjusts](https://www.investopedia.com/terms/p/periodiccap.asp) and [in total](https://www.investopedia.com/terms/l/lifetimecap.asp) over the life of the loan. ### A [5/1 adjustable-rate mortgage](https://www.investopedia.com/terms/1/5-1_arm.asp) is an ARM that maintains a fixed interest rate for the first five years and then adjusts each year after that. ### Interest-Only Loans Other, less common types of mortgages, such as [interest-only mortgages](https://www.investopedia.com/terms/i/interestonlymortgage.asp) and payment-option ARMs, can involve complex repayment schedules and are best used by sophisticated borrowers. These types of loans may feature a large [balloon payment](https://www.investopedia.com/terms/b/balloon-payment.asp) at its end. Many homeowners got into financial trouble with these types of mortgages during the [housing bubble](https://www.investopedia.com/terms/h/housing_bubble.asp) of the early 2000s. ### Reverse Mortgages As their name suggests, [reverse mortgages](https://www.investopedia.com/mortgage/reverse-mortgage/) are a very different financial product. They are designed for homeowners age 62 or older who want to convert part of the equity in their homes into cash. These homeowners can borrow against the value of their home and receive the money as a lump sum, fixed monthly payment, or line of credit. The entire loan balance becomes due when the borrower dies, moves away permanently, or sells the home. ### Within each type of mortgage, borrowers have the option to buy [discount points](https://www.investopedia.com/terms/d/discountpoints.asp) to buy their interest rate down. Points are essentially a fee that borrowers pay up front to have a lower interest rate over the life of their loan. When comparing mortgage rates, make sure you are comparing rates with the same number of discount points for a true apples-to-apples comparison. ## Average Mortgage Rates (So Far for 2024) How much you’ll have to pay for a mortgage depends on the type of mortgage (such as fixed or adjustable), its term (such as 20 or 30 years), any discount points paid, and interest rates at the time. Interest rates can vary from week to week and from lender to lender, so it pays to shop around. Mortgage rates sank to historic lows in 2020 and 2021, recording their cheapest levels in almost 50 years. From roughly the start of the pandemic (i.e., April 2020) to Jan. 2022, the 30-year rate average wavered below 3.50%—including an ultimate low of 2.65%. But 2022 and 2023 saw mortgage rates skyrocket, setting records in the opposite direction. The 30-year average breached the 7% threshold for the first time in Oct. 2022, and this past October, it was closer to 8%, notching a 23-year peak reading of 7.79%. In the months since then, the 30-year mortgage rate has fluctuated, dropping by more than a percentage point in Feb. 2024 and surpassing 7% again in April and May 2024. According to the [Federal Home Loan Mortgage Corp.](https://www.investopedia.com/terms/f/freddiemac.asp), average interest rates looked like this as of May 2024: * **30-year fixed-rate mortgage**: 7.09% * **15-year fixed-rate mortgage**: 6.38% ## How to Compare Mortgages Banks, savings and loan associations, and credit unions were virtually the only sources of mortgages at one time. Today, a burgeoning share of the mortgage market includes [nonbank lenders](https://www.investopedia.com/terms/n/nbfcs.asp), such as Better, loanDepot, Rocket Mortgage, and SoFi. If you’re shopping for a mortgage, an online [mortgage calculator](https://www.investopedia.com/mortgage-calculator-5084794) can help you compare [estimated monthly payments](https://www.investopedia.com/calculate-your-mortgage-payment-5225171), based on the type of mortgage, the interest rate, and how large a down payment you plan to make. It also can help you determine how expensive a property you can reasonably afford. In addition to the principal and interest that you’ll be paying on the mortgage, the lender or mortgage [servicer](https://www.investopedia.com/terms/l/loan_servicing.asp) may set up an [escrow](https://www.investopedia.com/terms/e/escrow.asp) account to pay local [property taxes](https://www.investopedia.com/terms/p/propertytax.asp), [homeowners insurance](https://www.investopedia.com/terms/h/homeowners-insurance.asp) premiums, and certain other expenses. Those costs will add to your monthly mortgage payment. Also, note that if you make less than a 20% down payment when you take out your mortgage, your lender may require that you purchase [private mortgage insurance (PMI)](https://www.investopedia.com/ask/answers/09/pmi.asp), which becomes another added monthly cost. ### If you have a mortgage, you still own your home (instead of the bank). Your bank may have loaned you money to purchase the house, but rather than owning the property, they impose a lien on it (the house is used as collateral, but only if the loan goes into default). If you default and foreclose on your mortgage, however, the bank may become the new owner of your home. ## Why Do People Need Mortgages? The price of a home is often far greater than the amount of money that most households save. As a result, mortgages allow individuals and families to purchase a home by putting down only a relatively small down payment, such as 20% of the purchase price, and obtaining a loan for the balance. The loan is then secured by the value of the property in case the borrower defaults. ## Can Anybody Get a Mortgage? Mortgage lenders will need to approve prospective borrowers through an application and underwriting process. Home loans are only provided to those who have sufficient assets and [income relative to their debts](https://www.investopedia.com/debt-consolidation-affect-ability-buy-home-8424570) to practically carry the value of a home over time. A person’s credit score is also evaluated when making the decision to extend a mortgage. The interest rate on the mortgage also varies, with riskier borrowers receiving higher interest rates. Mortgages are offered by a variety of sources. Banks and credit unions often provide home loans. There are also specialized mortgage companies that deal only with home loans. You may also employ an unaffiliated mortgage broker to help you shop around for the best rate among different lenders. ## What Does Fixed vs. Variable Mean on a Mortgage? Many mortgages carry a fixed interest rate. This means that the rate will not change for the entire term of the mortgage—typically 15 or 30 years—even if interest rates rise or fall in the future. A variable- or adjustable-rate mortgage (ARM) has an interest rate that fluctuates over the loan’s life based on what interest rates are doing. ## How Many Mortgages Can I Have on My Home? Lenders generally issue a first or primary mortgage before they allow for a second mortgage. This additional mortgage is commonly known as a [home equity loan](https://www.investopedia.com/terms/h/homeequityloan.asp). Most lenders don’t provide for a subsequent mortgage backed by the same property. There’s technically no limit to how many junior loans you can have on your home as long as you have the equity, [debt-to-income ratio](https://www.investopedia.com/terms/d/dti.asp), and credit score to get approved for them. ## Why Is It Called a Mortgage? The word "mortgage" comes from Old English and French meaning "death vow." It gets that name since this type of loan "dies" when it is either fully repaid or if the borrower defaults. ## The Bottom Line Mortgages are an essential part of the home buying process for most borrowers who aren’t sitting on hundreds of thousands of dollars of cash to buy a property outright. Different types of home loans are available for whatever your circumstances may be. Different government-backed programs make it possible for more people to qualify for mortgages and make their dream of homeownership a reality.

What Is a Mortgage? A mortgage is a type of loan used to purchase or maintain a home, plot of land, or other type of real estate. The borrower agrees to pay the lender over time, typically in a series of regular payments that are divided into principal and interest. The property then serves as collateral to secure the loan. A borrower must apply for a mortgage through their preferred lender and ensure that they meet several requirements, including minimum credit scores and down payments. Mortgage applications go through a rigorous underwriting process before they reach the closing phase. Mortgage types, such as conventional or fixed-rate loans, vary based on the needs of the borrower. Key Takeaways Mortgages are loans that are used to buy homes and other types of real estate.The property itself serves as collateral for the loan.Mortgages are available in a variety of types, including fixed-rate and adjustable-rate.The cost of a mortgage will depend on the type of loan, the term (such as 30 years), and the interest rate that the lender charges.Mortgage rates can vary widely depending on the type of product and the qualifications of the applicant. Zoe Hansen / Investopedia How Mortgages Work Individuals and businesses use mortgages to buy real estate without paying the entire purchase price up front. The borrower repays the loan plus interest over a specified number of years until they own the property free and clear. Most traditional mortgages are fully-amortizing. This means that the regular payment amount will stay the same, but different proportions of principal vs. interest will be paid over the life of the loan with each payment. Typical mortgage terms are for 15 or 30 years. Mortgages are also known as liens against property or claims on property. If the borrower stops paying the mortgage, the lender can foreclose on the property. For example, a residential homebuyer pledges their house to their lender, which then has a claim on the property. This ensures the lender’s interest in the property should the buyer default on their financial obligation. In the case of a foreclosure, the lender may evict the residents, sell the property, and use the money from the sale to pay off the mortgage debt. The Mortgage Process Would-be borrowers begin the process by applying to one or more mortgage lenders. The lender will ask for evidence that the borrower is capable of repaying the loan. This may include bank and investment statements, recent tax returns, and proof of current employment. The lender will generally run a credit check as well. If the application is approved, the lender will offer the borrower a loan of up to a certain amount and at a particular interest rate. Homebuyers can apply for a mortgage after they have chosen a property to buy or even while they are still shopping for one, thanks to a process known as pre-approval. Being pre-approved for a mortgage can give buyers an edge in a tight housing market because sellers will know that they have the money to back up their offer. Once a buyer and seller agree on the terms of their deal, they or their representatives will meet at what’s called a closing. This is when the borrower makes their down payment to the lender. The seller will transfer ownership of the property to the buyer and receive the agreed-upon sum of money, and the buyer will sign any remaining mortgage documents. The lender may charge fees for originating the loan (sometimes in the form of points) at the closing. Options There are hundreds of options on where you can get a mortgage. You can get a mortgage through a credit union, bank, mortgage-specific lender, online-only lender, or mortgage broker. No matter which option you choose, compare rates across types to make sure that you’re getting the best deal. Types of Mortgages Mortgages come in a variety of forms. The most common types are 30-year and 15-year fixed-rate mortgages. Some mortgage terms are as short as five years, while others can run 40 years or longer. Stretching payments over more years may reduce the monthly payment, but it also increases the total amount of interest that the borrower pays over the life of the loan. Within the different term lengths are numerous types of home loans, including Federal Housing Administration (FHA) loans, U.S. Department of Agriculture (USDA) loans, and U.S. Department of Veterans Affairs (VA) loans available for specific populations that may not have the income, credit scores, or down payments required to qualify for conventional mortgages. The following are just a few examples of some of the most popular types of mortgage loans available to borrowers. Fixed-Rate Mortgages The standard type of mortgage is fixed-rate. With a fixed-rate mortgage, the interest rate stays the same for the entire term of the loan, as do the borrower's monthly payments toward the mortgage. A fixed-rate mortgage is also called a traditional mortgage. 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 that you can take. One such step is to file a report with the Consumer Financial Protection Bureau (CFPB) or the U.S. Department of Housing and Urban Development (HUD). Adjustable-Rate Mortgage (ARM) With an adjustable-rate mortgage (ARM), the interest rate is fixed for an initial term, after which it can change periodically based on prevailing interest rates. The initial interest rate is often a below-market rate, which can make the mortgage more affordable in the short term but possibly less affordable long-term if the rate rises substantially. ARMs typically have limits, or caps, on how much the interest rate can rise each time it adjusts and in total over the life of the loan. A 5/1 adjustable-rate mortgage is an ARM that maintains a fixed interest rate for the first five years and then adjusts each year after that. Interest-Only Loans Other, less common types of mortgages, such as interest-only mortgages and payment-option ARMs, can involve complex repayment schedules and are best used by sophisticated borrowers. These types of loans may feature a large balloon payment at its end. Many homeowners got into financial trouble with these types of mortgages during the housing bubble of the early 2000s. Reverse Mortgages As their name suggests, reverse mortgages are a very different financial product. They are designed for homeowners age 62 or older who want to convert part of the equity in their homes into cash. These homeowners can borrow against the value of their home and receive the money as a lump sum, fixed monthly payment, or line of credit. The entire loan balance becomes due when the borrower dies, moves away permanently, or sells the home. Within each type of mortgage, borrowers have the option to buy discount points to buy their interest rate down. Points are essentially a fee that borrowers pay up front to have a lower interest rate over the life of their loan. When comparing mortgage rates, make sure you are comparing rates with the same number of discount points for a true apples-to-apples comparison. Average Mortgage Rates (So Far for 2024) How much you’ll have to pay for a mortgage depends on the type of mortgage (such as fixed or adjustable), its term (such as 20 or 30 years), any discount points paid, and interest rates at the time. Interest rates can vary from week to week and from lender to lender, so it pays to shop around. Mortgage rates sank to historic lows in 2020 and 2021, recording their cheapest levels in almost 50 years. From roughly the start of the pandemic (i.e., April 2020) to Jan. 2022, the 30-year rate average wavered below 3.50%—including an ultimate low of 2.65%. But 2022 and 2023 saw mortgage rates skyrocket, setting records in the opposite direction. The 30-year average breached the 7% threshold for the first time in Oct. 2022, and this past October, it was closer to 8%, notching a 23-year peak reading of 7.79%. In the months since then, the 30-year mortgage rate has fluctuated, dropping by more than a percentage point in Feb. 2024 and surpassing 7% again in April and May 2024. According to the Federal Home Loan Mortgage Corp., average interest rates looked like this as of May 2024: 30-year fixed-rate mortgage: 7.09%15-year fixed-rate mortgage: 6.38% How to Compare Mortgages Banks, savings and loan associations, and credit unions were virtually the only sources of mortgages at one time. Today, a burgeoning share of the mortgage market includes nonbank lenders, such as Better, loanDepot, Rocket Mortgage, and SoFi. If you’re shopping for a mortgage, an online mortgage calculator can help you compare estimated monthly payments, based on the type of mortgage, the interest rate, and how large a down payment you plan to make. It also can help you determine how expensive a property you can reasonably afford. In addition to the principal and interest that you’ll be paying on the mortgage, the lender or mortgage servicer may set up an escrow account to pay local property taxes, homeowners insurance premiums, and certain other expenses. Those costs will add to your monthly mortgage payment. Also, note that if you make less than a 20% down payment when you take out your mortgage, your lender may require that you purchase private mortgage insurance (PMI), which becomes another added monthly cost. If you have a mortgage, you still own your home (instead of the bank). Your bank may have loaned you money to purchase the house, but rather than owning the property, they impose a lien on it (the house is used as collateral, but only if the loan goes into default). If you default and foreclose on your mortgage, however, the bank may become the new owner of your home. Why Do People Need Mortgages? The price of a home is often far greater than the amount of money that most households save. As a result, mortgages allow individuals and families to purchase a home by putting down only a relatively small down payment, such as 20% of the purchase price, and obtaining a loan for the balance. The loan is then secured by the value of the property in case the borrower defaults. Can Anybody Get a Mortgage? Mortgage lenders will need to approve prospective borrowers through an application and underwriting process. Home loans are only provided to those who have sufficient assets and income relative to their debts to practically carry the value of a home over time. A person’s credit score is also evaluated when making the decision to extend a mortgage. The interest rate on the mortgage also varies, with riskier borrowers receiving higher interest rates.Mortgages are offered by a variety of sources. Banks and credit unions often provide home loans. There are also specialized mortgage companies that deal only with home loans. You may also employ an unaffiliated mortgage broker to help you shop around for the best rate among different lenders. What Does Fixed vs. Variable Mean on a Mortgage? Many mortgages carry a fixed interest rate. This means that the rate will not change for the entire term of the mortgage—typically 15 or 30 years—even if interest rates rise or fall in the future. A variable- or adjustable-rate mortgage (ARM) has an interest rate that fluctuates over the loan’s life based on what interest rates are doing. How Many Mortgages Can I Have on My Home? Lenders generally issue a first or primary mortgage before they allow for a second mortgage. This additional mortgage is commonly known as a home equity loan. Most lenders don’t provide for a subsequent mortgage backed by the same property. There’s technically no limit to how many junior loans you can have on your home as long as you have the equity, debt-to-income ratio, and credit score to get approved for them. Why Is It Called a Mortgage? The word "mortgage" comes from Old English and French meaning "death vow." It gets that name since this type of loan "dies" when it is either fully repaid or if the borrower defaults. The Bottom Line Mortgages are an essential part of the home buying process for most borrowers who aren’t sitting on hundreds of thousands of dollars of cash to buy a property outright. Different types of home loans are available for whatever your circumstances may be. Different government-backed programs make it possible for more people to qualify for mortgages and make their dream of homeownership a reality.

https://www.investopedia.com/how-does-financial-aid-work-4782003

How Does Financial Aid Work?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Families spent $26,373, on average, to pay for college during the 2020–21 school year, according to a 2021 survey by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sallie-mae-student-loans-review-4800305">Sallie Mae</a> and market research company Ipsos. Almost half of that amount (49%) came from financial aid.<span class="ql-inline-citation" data-cite="2"></span> From this data, two things are immediately clear—first, college is expensive, and second, paying for it generally requires financial aid. </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>Start planning early for how and where to obtain financial aid.</li><li>Financial aid can be need-based, merit-based, or both.</li><li>The FAFSA form is required for federal aid as well as for most state and institutional aid.</li><li>The CSS Profile is required by many private colleges.</li><li>If the amount of aid you receive isn't enough, you can ask for more.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-financial-aid"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> What Is Financial Aid? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Financial aid is any college funding that doesn't come from family or personal savings or earnings. It can take the form of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/grant.asp" rel="noopener noreferrer">grants</a>, scholarships, work-study jobs, and federal or private loans. Financial aid can be used to cover most higher education expenses, including tuition and fees, room and board, books and supplies, and transportation. </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"> Aid can come from a variety of sources. This can include federal and state agencies, colleges, high schools, community organizations, foundations, corporations, and more. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/061814/5-ways-get-maximum-student-financial-aid.asp" rel="noopener noreferrer">amount of financial aid</a> you receive will depend on rules set by the various sources as well as federal, state, and university guidelines. </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-start-early"></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"> Start Early </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Whether you are a potential college student or the parent of one, it's never too early to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/08/affordable-college-education.asp" rel="noopener noreferrer">start planning</a>. The U.S. Department of Education (DOE) Office of Federal Student Aid publishes a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://studentaid.gov/sites/default/files/college-prep-checklist.pdf" rel="noopener noreferrer">College Preparation Checklist</a> that will help guide you from wherever you are—elementary, middle school, high school, or young adult—to where you want to end up—in college with a plan to pay for your education. </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"> Ask your high school counselor about aid that may be available to you or your child from local and state organizations, including scholarships and grants that may be awarded while you are still in high school. Although you will have to declare any outside aid you receive when you apply through your college—and that aid will reduce the amount of federal, state, and college aid you can receive—it will also reduce the amount of aid you need, so the net effect is a wash. </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"> Keep note of all financial aid application deadlines and don't let them pass before you apply. Use the DOE checklist mentioned above to build a foundation and the information in this article to guide your search for financial aid. </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-need-based-aid-vs-merit-based-aid"></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"> Need-Based Aid vs. Merit-Based Aid </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The two main <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/understanding-scholarships-need-and-merit-4783132">categories of financial aid</a> are need-based and non-need or merit-based. Simply put, need-based aid is awarded based on the awarding organization's assessment of your ability to pay for college. Merit-based aid is awarded for special talent or demonstrated ability in academics, athletics, music, or other areas. </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"> Whether your financial aid is need-based or merit-based (or both) does not determine whether you have to pay it back. That is determined by the specific type of aid you receive. Most <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/121015/how-much-can-students-realistically-get-scholarships.asp">scholarships</a> and grants, for example, do not have to be repaid. Most loans do. </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-2-important-application-forms-fafsa-and-the-css-profile"></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"> 2 Important Application Forms: FAFSA and the CSS Profile </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> There are two primary pathways to financial aid as you enter college. One is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federal-application-of-student-aid-fafsa.asp">Free Application for Federal Student Aid</a> (FAFSA) sponsored by the U.S. Department of Education and required for you to be considered for federal aid as well as for most college and state assistance. </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 second, known as the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-the-css-profile-5077582#can-you-change-your-css-profile">CSS Profile</a>, is sponsored by the College Board and used by roughly 400 mostly private colleges and universities to allocate non-government financial aid from those institutions. </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"> Each form has its own deadlines and procedures (see details below). You should submit the FAFSA even if you don't believe you will qualify for federal financial aid. That's because (a) you may be wrong, and (b) even if you're right, the FAFSA is also required for most local, state, and individual school financial aid, including merit scholarships. Whether you should submit the CSS Profile probably depends on whether the financial aid you are interested in or the school you plan to attend requires it. </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-breaking-down-fafsa"></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"> Breaking Down FAFSA </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Be sure to submit your FAFSA on October 1 (or shortly after) for the following academic year. That means, for example, that you would have submitted it on Oct. 1, 2020, for the 2021–22 school year. Although the federal deadline to submit is June 30 of the academic year (in this case June 30, 2022), that will likely be too late to obtain most financial aid. It will also likely be well past the deadline for aid dispersed by most states and colleges.<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_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> You must also <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/090815/quick-guide-how-fafsa-loans-work.asp">renew your FAFSA</a> for each academic year you are in school or you will not qualify for additional federal financial aid (including renewable aid you received the previous year). To maximize your access to aid, renew your FAFSA on October 1 of the year <em>before</em> the academic year you are renewing for, just as you did with your first year of college. </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 renewal process is usually easier and faster than the original because much of your personal and demographic information is retained. You still need to check it to make sure it is accurate, but there is no cost to submit or renew the FAFSA. </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-breaking-down-the-css-profile"></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"> Breaking Down the CSS Profile </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Submit the CSS Profile if the college or university you plan to attend uses CSS as part of its financial aid process. Do this October 1, at the same time you submit your FAFSA, and every year after on the same date if required. </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"> Check the College Board list of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://profile.collegeboard.org/profile/ppi/participatingInstitutions.aspx">Participating Institutions and Programs</a> for detailed information about which schools require CSS and which classifications of students or parents are required to file. </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"> Amherst College in Amherst, Mass., for example, requires the CSS Profile for domestic and international students, as well as from noncustodial parents of either. Loyola University in Baltimore, Md., on the other hand, requires the CSS Profile for both domestic and international students but does not require information from noncustodial parents. </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"> Most people pay a $25 fee to submit their initial CSS Profile ($16 for each additional college). Waivers may be available for first-time domestic college applicants if: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> <li>You received an SAT fee waiver.</li><li>Your parents' income is $45,000 or less for a family of four.</li><li>You are an orphan or ward of the court under age 24.<span class="ql-inline-citation" data-cite="8"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_47-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_48-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The open date—the soonest you can apply for financial aid—is more important than the deadline, which is the latest you can apply.</p></div></div></div> <span class="heading-toc" id="toc-check-open-dates-not-deadlines"></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"> Check Open Dates, Not Deadlines </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Procrastinators beware! Although the FAFSA, the CSS Profile, colleges, and universities all have deadlines—the last date you can apply for aid each year—the most important date to remember is the open date—the first date each year you can apply for financial aid. </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 noted above, the open date for the FAFSA and the CSS Profile is October 1 of the calendar year before the academic year for which you are applying for aid. The open date for the academic year 2022–23, for example, was Oct. 1, 2021. </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 apply for federal aid through the FAFSA for the academic year 2023–24 anytime between Oct. 1, 2022, and June 30, 2024. However, keep in mind that state and college/university aid open dates and deadlines, including those through the FAFSA and the CSS Profile, are typically much earlier than June 30, with some states and schools instructing you to apply "as soon as possible" after the October 1 FAFSA/CSS open date. Others set their deadline sometime between January and March of the next year and a few even follow the FAFSA June 30 deadline. State deadlines are available on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://studentaid.gov/h/apply-for-aid/fafsa#deadlines">FAFSA deadlines webpage</a>.<span class="ql-inline-citation" data-cite="11"></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_55-0"></div> <span class="heading-toc" id="toc-types-of-financial-aid"></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"> Types of Financial Aid </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> Whether need-based or merit-based, federal or private, financial aid typically comes in one of the following forms: </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"> Grants </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> A grant is "free" money that doesn't need to be paid back (except when you fail to live up to the terms of the grant, such as by leaving school). Grants can come from the federal or state government, schools, or private or nonprofit organizations. Most grants are need-based but merit-based grants are also available. </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 Federal <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pell-grant.asp" rel="noopener noreferrer">Pell Grant</a> and Federal Supplemental Educational Opportunity Grant (FSEOG) are examples of need-based grants. Information about merit-based grants, such as the Wyoming NASA Space Grant and the Broadcast Education Association (BEA) Grant, can usually be found at your state higher education website or through your school counselor's office. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_64-0"> <span class="mntl-sc-block-subheading__text"> Scholarships </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> Like grants, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-find-scholarships-4782490">scholarships are gifts</a> and do not need to be repaid unless you don't live up to the terms of the scholarship. Also like grants, scholarships can come from the federal or state government, universities, or private or nonprofit organizations. </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"> Scholarships tend to be merit-based, though there are also scholarships that are need-based or that take both merit and need into consideration. Some scholarships are aimed at specific groups, such as women, minorities, or students from military families. Learn about scholarships that may be available to you through your school counselor, college financial aid office, or even at your local library. </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"> Work-Study/Non-Work Study </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> Work-study typically refers to federal work-study, a program that provides part-time work on or off-campus while you are enrolled in school. Federal work-study is only available to you if you have demonstrated financial need. Qualifying does not guarantee you a job. You will need to apply, interview, and be hired. You will earn at least the federal minimum wage (more for higher-skilled jobs) depending on when you apply, your financial need, and the school's available funding.<span class="ql-inline-citation" data-cite="17"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> Another type of job, known as a non-work study, is also available at many colleges and universities. These jobs are not government-sponsored, earnings vary, and funding comes from the department doing the hiring. To learn more about both programs, contact your college financial aid office. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_74-0"> <span class="mntl-sc-block-subheading__text"> Federal Student Loans </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> Federal student loans are government loans and include terms and conditions with benefits (i.e., <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixedinterestrate.asp">fixed interest rates</a>, income-based repayment plans) that are not available with most private loans. The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federal-direct-student-loan-program.asp">Federal Direct Loan Program</a> offers four types of federal loans: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_76-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> <li>Direct subsidized loans<strong> </strong>for eligible undergraduate students with demonstrated financial need</li><li>Direct unsubsidized loans for eligible graduate or undergraduate students but not based on need</li><li>Direct PLUS loans for graduate or professional students and parents of dependent undergraduate students, not based on need but a credit check is required</li><li>Direct consolidation loans that let you combine all of your eligible federal student loans into a single loan</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_79-0"> <span class="mntl-sc-block-subheading__text"> Private Student Loans </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_80-0"> Private student loans are made by banks, credit unions, and other state-based organizations. These loans include terms and conditions set by the lender and are generally (though not always) more expensive than federal student loans. </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"> Unlike most <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" rel="noopener noreferrer">federal loans</a>, private loan rates are based on your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp" rel="noopener noreferrer">credit score</a> and lenders may offer you a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/variableinterestrate.asp" rel="noopener noreferrer">variable interest rate</a> (instead of a fixed one). You may be required to begin paying back your private loan while still in school. Federal loans allow you to wait until you leave school or graduate. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <span class="heading-toc" id="toc-how-is-financial-aid-awarded"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_84-0"> <span class="mntl-sc-block-heading__text"> How Is Financial Aid Awarded? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_85-0"> Most of the details of obtaining financial aid take place at the college or university level. Importantly, while there are lots of similarities in the ways colleges award aid, each school has its unique process when it comes to open dates, deadlines, procedures, and the actual awards process. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_86-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_87-0"> It's especially important to understand the differences between scholarships, grants, and loans (see above) when you read your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/understanding-your-financial-aid-award-letter-4783535" rel="noopener noreferrer">financial award letter</a>. Some schools, for example, promise to cover 100% of your financial aid needs but do so by including student loans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_88-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_89-0"> Others package financial aid with no loans and some even raise your financial aid package each year to cover tuition increases. It pays to know not only what you will get but also how it will be packaged. A big part of the financial aid awards process has to do with you and your family's ability to pay for college—that is, your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expected-family-contribution.asp" rel="noopener noreferrer">expected family contribution</a> (EFC). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_90-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_91-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_92-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" 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>Keep in mind, however, that beginning in July 2023, the term "student aid index" (SAI) will replace EFC on all FAFSA forms. In addition to some changes in the way the SAI is calculated, the change attempts to clarify what this figure is—an eligibility index for student aid, not a reflection of what a family can or will pay for postsecondary expenses.</p></div></div></div> <span class="heading-toc" id="toc-when-will-you-know-how-much-you-will-receive"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_93-0"> <span class="mntl-sc-block-heading__text"> When Will You Know How Much You Will Receive? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_94-0"> You will eventually receive a financial aid <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/award-letter.asp">award letter</a> from all colleges you applied to via your FAFSA or your CSS Profile. When the letter will arrive depends on the school, but generally, you can expect it at about the same time you receive your acceptance letter from that school. </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"> The amount of aid offered can range from zero to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-colleges-make-money-5199835">full cost of attending college</a>. It will be broken down into three categories: free money you don't have to pay back, earned money (via work-study or non-work study), and borrowed money (either from federal or private student loans). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_97-0"></div> <span class="heading-toc" id="toc-what-if-its-not-enough"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_98-0"> <span class="mntl-sc-block-heading__text"> What If It's Not Enough? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_99-0"> If you feel your federal financial aid award is inadequate, you can request a professional judgment review by the awarding school. However, you will need a legitimate reason to convince the school your award is insufficient. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_100-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_101-0"> One way would be to demonstrate that your family's financial situation has changed for the worse. If that's the case, the school will typically ask you to submit a letter summarizing the new circumstances. This could include a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/divorced-parents-financial-aid-5206693">divorce</a>, a death in the family, a job loss, or sudden high medical costs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_102-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_103-0"><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_104-0"><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 another school has offered you a larger award, you could try contacting the school offering the lower award and ask if they will match the larger offer.</p></div></div></div> <span class="heading-toc" id="toc-a-new-agreement-may-help-you-get-the-most-aid"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_105-0"> <span class="mntl-sc-block-heading__text"> A New Agreement May Help You Get the Most Aid </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_106-0"> Historically, many colleges and universities have been criticized for encouraging college candidates to commit early with the understanding they could not switch colleges, even though the understanding was not legally binding. For the candidates, early commitment could mean passing up a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/061814/5-ways-get-maximum-student-financial-aid.asp">better financial aid package</a> from another school. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_107-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_108-0"> Now, however, students will have recourse. Action taken in September 2019 by the National Association for College Admission Counseling (NACAC) to strip provisions from its Code of Ethics and Professional Practice (CEPP) lets college counselors recruit students even after they have committed to another school. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_109-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_110-0"> Furthermore, NACAC members are now allowed to encourage enrolled students to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/community-college-students-transferring-four-year-schools-6824884">transfer to a school</a> with a better financial aid package, offer perks (such as special scholarships and priority course selection for early enrollees), and recruit students beyond the traditional May 1 deadline, giving those students more time to choose the best financial aid package. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_111-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_112-0"> The NACAC's action, in the form of a consent decree, came in advance of a U.S. Department of Justice (DOJ) lawsuit filed in December 2019 charging the NACAC with violating <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/09/antitrust-law.asp">antitrust laws</a>. The NACAC has said it will follow the restrictions outlined in the consent decree, although it believes the deleted provisions of the CEPP did provide substantial aid and protection to students.<span class="ql-inline-citation" data-cite="25"></span><span class="ql-inline-citation" data-cite="24"></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_113-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_114-0"> Understanding how this process works is the best way to establish as much control and choice over financing college as possible. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_115-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_116-0"><span class="heading-toc" id="toc-do-you-have-to-pay-financial-aid-back"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do You Have to Pay Financial Aid Back?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Financial aid in the form of a loan is to be paid back. If it is a federal loan, repayment begins after a student has graduated, with a grace period of six months after finishing school. On the other hand, privately-issued loans may require repayment during the school year. Other forms of financial aid, such as scholarships and grants do not need to be paid back.<br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_117-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_118-0"><span class="heading-toc" id="toc-what-are-four-types-of-financial-aid"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Four Types of Financial Aid?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Grants, scholarships, loans, and work-study are four primary forms of financial aid. Students may be eligible for more than one type of financial aid, based on their financial need and academic, athletic, or artistic achievement. <br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_119-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_120-0"><span class="heading-toc" id="toc-how-is-aid-calculated"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Is Aid Calculated?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>FAFSA aid is calculated based on a number of factors. Broadly speaking, these include a student’s Expected Family Contribution (EFC) and cost of attendance. A student’s EFC is subtracted from their COA to determine the amount of need-based aid the student is eligible for. Next, to identify non-need-based aid, any financial aid already received is subtracted from the COA.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_121-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_122-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_123-0"> Remember that planning can never start too early. One of the basics to know is that aid can come from a variety of sources. This can include federal and state agencies, colleges, high schools, community organizations, foundations, corporations, and more. The amount of financial aid you receive will depend on rules set by the various sources as well as federal, state, and university guidelines. Be sure to look at the College Preparation Checklist published by the U.S. Department of Education's Office of Federal Student AI. This will guide you from wherever you are—elementary, middle school, high school, or young adult—to college with a plan to pay for your education.<br/> </p></div>

Families spent $26,373, on average, to pay for college during the 2020–21 school year, according to a 2021 survey by [Sallie Mae](https://www.investopedia.com/sallie-mae-student-loans-review-4800305) and market research company Ipsos. Almost half of that amount (49%) came from financial aid. From this data, two things are immediately clear—first, college is expensive, and second, paying for it generally requires financial aid. ### Key Takeaways * Start planning early for how and where to obtain financial aid. * Financial aid can be need-based, merit-based, or both. * The FAFSA form is required for federal aid as well as for most state and institutional aid. * The CSS Profile is required by many private colleges. * If the amount of aid you receive isn't enough, you can ask for more. ## What Is Financial Aid? Financial aid is any college funding that doesn't come from family or personal savings or earnings. It can take the form of [grants](https://www.investopedia.com/terms/g/grant.asp), scholarships, work-study jobs, and federal or private loans. Financial aid can be used to cover most higher education expenses, including tuition and fees, room and board, books and supplies, and transportation. Aid can come from a variety of sources. This can include federal and state agencies, colleges, high schools, community organizations, foundations, corporations, and more. The [amount of financial aid](https://www.investopedia.com/articles/personal-finance/061814/5-ways-get-maximum-student-financial-aid.asp) you receive will depend on rules set by the various sources as well as federal, state, and university guidelines. ## Start Early Whether you are a potential college student or the parent of one, it's never too early to [start planning](https://www.investopedia.com/articles/pf/08/affordable-college-education.asp). The U.S. Department of Education (DOE) Office of Federal Student Aid publishes a [College Preparation Checklist](https://studentaid.gov/sites/default/files/college-prep-checklist.pdf) that will help guide you from wherever you are—elementary, middle school, high school, or young adult—to where you want to end up—in college with a plan to pay for your education. Ask your high school counselor about aid that may be available to you or your child from local and state organizations, including scholarships and grants that may be awarded while you are still in high school. Although you will have to declare any outside aid you receive when you apply through your college—and that aid will reduce the amount of federal, state, and college aid you can receive—it will also reduce the amount of aid you need, so the net effect is a wash. Keep note of all financial aid application deadlines and don't let them pass before you apply. Use the DOE checklist mentioned above to build a foundation and the information in this article to guide your search for financial aid. ## Need-Based Aid vs. Merit-Based Aid The two main [categories of financial aid](https://www.investopedia.com/understanding-scholarships-need-and-merit-4783132) are need-based and non-need or merit-based. Simply put, need-based aid is awarded based on the awarding organization's assessment of your ability to pay for college. Merit-based aid is awarded for special talent or demonstrated ability in academics, athletics, music, or other areas. Whether your financial aid is need-based or merit-based (or both) does not determine whether you have to pay it back. That is determined by the specific type of aid you receive. Most [scholarships](https://www.investopedia.com/articles/personal-finance/121015/how-much-can-students-realistically-get-scholarships.asp) and grants, for example, do not have to be repaid. Most loans do. ## 2 Important Application Forms: FAFSA and the CSS Profile There are two primary pathways to financial aid as you enter college. One is the [Free Application for Federal Student Aid](https://www.investopedia.com/terms/f/federal-application-of-student-aid-fafsa.asp) (FAFSA) sponsored by the U.S. Department of Education and required for you to be considered for federal aid as well as for most college and state assistance. The second, known as the [CSS Profile](https://www.investopedia.com/what-is-the-css-profile-5077582#can-you-change-your-css-profile), is sponsored by the College Board and used by roughly 400 mostly private colleges and universities to allocate non-government financial aid from those institutions. Each form has its own deadlines and procedures (see details below). You should submit the FAFSA even if you don't believe you will qualify for federal financial aid. That's because (a) you may be wrong, and (b) even if you're right, the FAFSA is also required for most local, state, and individual school financial aid, including merit scholarships. Whether you should submit the CSS Profile probably depends on whether the financial aid you are interested in or the school you plan to attend requires it. ## Breaking Down FAFSA Be sure to submit your FAFSA on October 1 (or shortly after) for the following academic year. That means, for example, that you would have submitted it on Oct. 1, 2020, for the 2021–22 school year. Although the federal deadline to submit is June 30 of the academic year (in this case June 30, 2022), that will likely be too late to obtain most financial aid. It will also likely be well past the deadline for aid dispersed by most states and colleges. You must also [renew your FAFSA](https://www.investopedia.com/articles/personal-finance/090815/quick-guide-how-fafsa-loans-work.asp) for each academic year you are in school or you will not qualify for additional federal financial aid (including renewable aid you received the previous year). To maximize your access to aid, renew your FAFSA on October 1 of the year *before* the academic year you are renewing for, just as you did with your first year of college. The renewal process is usually easier and faster than the original because much of your personal and demographic information is retained. You still need to check it to make sure it is accurate, but there is no cost to submit or renew the FAFSA. ## Breaking Down the CSS Profile Submit the CSS Profile if the college or university you plan to attend uses CSS as part of its financial aid process. Do this October 1, at the same time you submit your FAFSA, and every year after on the same date if required. Check the College Board list of [Participating Institutions and Programs](https://profile.collegeboard.org/profile/ppi/participatingInstitutions.aspx) for detailed information about which schools require CSS and which classifications of students or parents are required to file. Amherst College in Amherst, Mass., for example, requires the CSS Profile for domestic and international students, as well as from noncustodial parents of either. Loyola University in Baltimore, Md., on the other hand, requires the CSS Profile for both domestic and international students but does not require information from noncustodial parents. Most people pay a $25 fee to submit their initial CSS Profile ($16 for each additional college). Waivers may be available for first-time domestic college applicants if: * You received an SAT fee waiver. * Your parents' income is $45,000 or less for a family of four. * You are an orphan or ward of the court under age 24. ### The open date—the soonest you can apply for financial aid—is more important than the deadline, which is the latest you can apply. ## Check Open Dates, Not Deadlines Procrastinators beware! Although the FAFSA, the CSS Profile, colleges, and universities all have deadlines—the last date you can apply for aid each year—the most important date to remember is the open date—the first date each year you can apply for financial aid. As noted above, the open date for the FAFSA and the CSS Profile is October 1 of the calendar year before the academic year for which you are applying for aid. The open date for the academic year 2022–23, for example, was Oct. 1, 2021. You can apply for federal aid through the FAFSA for the academic year 2023–24 anytime between Oct. 1, 2022, and June 30, 2024. However, keep in mind that state and college/university aid open dates and deadlines, including those through the FAFSA and the CSS Profile, are typically much earlier than June 30, with some states and schools instructing you to apply "as soon as possible" after the October 1 FAFSA/CSS open date. Others set their deadline sometime between January and March of the next year and a few even follow the FAFSA June 30 deadline. State deadlines are available on the [FAFSA deadlines webpage](https://studentaid.gov/h/apply-for-aid/fafsa#deadlines). ## Types of Financial Aid Whether need-based or merit-based, federal or private, financial aid typically comes in one of the following forms: ### Grants A grant is "free" money that doesn't need to be paid back (except when you fail to live up to the terms of the grant, such as by leaving school). Grants can come from the federal or state government, schools, or private or nonprofit organizations. Most grants are need-based but merit-based grants are also available. The Federal [Pell Grant](https://www.investopedia.com/terms/p/pell-grant.asp) and Federal Supplemental Educational Opportunity Grant (FSEOG) are examples of need-based grants. Information about merit-based grants, such as the Wyoming NASA Space Grant and the Broadcast Education Association (BEA) Grant, can usually be found at your state higher education website or through your school counselor's office. ### Scholarships Like grants, [scholarships are gifts](https://www.investopedia.com/how-to-find-scholarships-4782490) and do not need to be repaid unless you don't live up to the terms of the scholarship. Also like grants, scholarships can come from the federal or state government, universities, or private or nonprofit organizations. Scholarships tend to be merit-based, though there are also scholarships that are need-based or that take both merit and need into consideration. Some scholarships are aimed at specific groups, such as women, minorities, or students from military families. Learn about scholarships that may be available to you through your school counselor, college financial aid office, or even at your local library. ### Work-Study/Non-Work Study Work-study typically refers to federal work-study, a program that provides part-time work on or off-campus while you are enrolled in school. Federal work-study is only available to you if you have demonstrated financial need. Qualifying does not guarantee you a job. You will need to apply, interview, and be hired. You will earn at least the federal minimum wage (more for higher-skilled jobs) depending on when you apply, your financial need, and the school's available funding. Another type of job, known as a non-work study, is also available at many colleges and universities. These jobs are not government-sponsored, earnings vary, and funding comes from the department doing the hiring. To learn more about both programs, contact your college financial aid office. ### Federal Student Loans Federal student loans are government loans and include terms and conditions with benefits (i.e., [fixed interest rates](https://www.investopedia.com/terms/f/fixedinterestrate.asp), income-based repayment plans) that are not available with most private loans. The [Federal Direct Loan Program](https://www.investopedia.com/terms/f/federal-direct-student-loan-program.asp) offers four types of federal loans: * Direct subsidized loansfor eligible undergraduate students with demonstrated financial need * Direct unsubsidized loans for eligible graduate or undergraduate students but not based on need * Direct PLUS loans for graduate or professional students and parents of dependent undergraduate students, not based on need but a credit check is required * Direct consolidation loans that let you combine all of your eligible federal student loans into a single loan ### Private Student Loans Private student loans are made by banks, credit unions, and other state-based organizations. These loans include terms and conditions set by the lender and are generally (though not always) more expensive than federal student loans. Unlike most [federal loans](https://www.investopedia.com/articles/younginvestors/09/private-or-federal-student-loans.asp), private loan rates are based on your [credit score](https://www.investopedia.com/terms/c/credit_score.asp) and lenders may offer you a [variable interest rate](https://www.investopedia.com/terms/v/variableinterestrate.asp) (instead of a fixed one). You may be required to begin paying back your private loan while still in school. Federal loans allow you to wait until you leave school or graduate. ## How Is Financial Aid Awarded? Most of the details of obtaining financial aid take place at the college or university level. Importantly, while there are lots of similarities in the ways colleges award aid, each school has its unique process when it comes to open dates, deadlines, procedures, and the actual awards process. It's especially important to understand the differences between scholarships, grants, and loans (see above) when you read your [financial award letter](https://www.investopedia.com/understanding-your-financial-aid-award-letter-4783535). Some schools, for example, promise to cover 100% of your financial aid needs but do so by including student loans. Others package financial aid with no loans and some even raise your financial aid package each year to cover tuition increases. It pays to know not only what you will get but also how it will be packaged. A big part of the financial aid awards process has to do with you and your family's ability to pay for college—that is, your [expected family contribution](https://www.investopedia.com/terms/e/expected-family-contribution.asp) (EFC). ### Keep in mind, however, that beginning in July 2023, the term "student aid index" (SAI) will replace EFC on all FAFSA forms. In addition to some changes in the way the SAI is calculated, the change attempts to clarify what this figure is—an eligibility index for student aid, not a reflection of what a family can or will pay for postsecondary expenses. ## When Will You Know How Much You Will Receive? You will eventually receive a financial aid [award letter](https://www.investopedia.com/terms/a/award-letter.asp) from all colleges you applied to via your FAFSA or your CSS Profile. When the letter will arrive depends on the school, but generally, you can expect it at about the same time you receive your acceptance letter from that school. The amount of aid offered can range from zero to the [full cost of attending college](https://www.investopedia.com/how-colleges-make-money-5199835). It will be broken down into three categories: free money you don't have to pay back, earned money (via work-study or non-work study), and borrowed money (either from federal or private student loans). ## What If It's Not Enough? If you feel your federal financial aid award is inadequate, you can request a professional judgment review by the awarding school. However, you will need a legitimate reason to convince the school your award is insufficient. One way would be to demonstrate that your family's financial situation has changed for the worse. If that's the case, the school will typically ask you to submit a letter summarizing the new circumstances. This could include a [divorce](https://www.investopedia.com/divorced-parents-financial-aid-5206693), a death in the family, a job loss, or sudden high medical costs. ### If another school has offered you a larger award, you could try contacting the school offering the lower award and ask if they will match the larger offer. ## A New Agreement May Help You Get the Most Aid Historically, many colleges and universities have been criticized for encouraging college candidates to commit early with the understanding they could not switch colleges, even though the understanding was not legally binding. For the candidates, early commitment could mean passing up a [better financial aid package](https://www.investopedia.com/articles/personal-finance/061814/5-ways-get-maximum-student-financial-aid.asp) from another school. Now, however, students will have recourse. Action taken in September 2019 by the National Association for College Admission Counseling (NACAC) to strip provisions from its Code of Ethics and Professional Practice (CEPP) lets college counselors recruit students even after they have committed to another school. Furthermore, NACAC members are now allowed to encourage enrolled students to [transfer to a school](https://www.investopedia.com/community-college-students-transferring-four-year-schools-6824884) with a better financial aid package, offer perks (such as special scholarships and priority course selection for early enrollees), and recruit students beyond the traditional May 1 deadline, giving those students more time to choose the best financial aid package. The NACAC's action, in the form of a consent decree, came in advance of a U.S. Department of Justice (DOJ) lawsuit filed in December 2019 charging the NACAC with violating [antitrust laws](https://www.investopedia.com/ask/answers/09/antitrust-law.asp). The NACAC has said it will follow the restrictions outlined in the consent decree, although it believes the deleted provisions of the CEPP did provide substantial aid and protection to students. Understanding how this process works is the best way to establish as much control and choice over financing college as possible. ## Do You Have to Pay Financial Aid Back? Financial aid in the form of a loan is to be paid back. If it is a federal loan, repayment begins after a student has graduated, with a grace period of six months after finishing school. On the other hand, privately-issued loans may require repayment during the school year. Other forms of financial aid, such as scholarships and grants do not need to be paid back. ## What Are Four Types of Financial Aid? Grants, scholarships, loans, and work-study are four primary forms of financial aid. Students may be eligible for more than one type of financial aid, based on their financial need and academic, athletic, or artistic achievement.  ## How Is Aid Calculated? FAFSA aid is calculated based on a number of factors. Broadly speaking, these include a student’s Expected Family Contribution (EFC) and cost of attendance. A student’s EFC is subtracted from their COA to determine the amount of need-based aid the student is eligible for. Next, to identify non-need-based aid, any financial aid already received is subtracted from the COA. ## The Bottom Line Remember that planning can never start too early. One of the basics to know is that aid can come from a variety of sources. This can include federal and state agencies, colleges, high schools, community organizations, foundations, corporations, and more. The amount of financial aid you receive will depend on rules set by the various sources as well as federal, state, and university guidelines. Be sure to look at the College Preparation Checklist published by the U.S. Department of Education's Office of Federal Student AI. This will guide you from wherever you are—elementary, middle school, high school, or young adult—to college with a plan to pay for your education.

Families spent $26,373, on average, to pay for college during the 2020–21 school year, according to a 2021 survey by Sallie Mae and market research company Ipsos. Almost half of that amount (49%) came from financial aid. From this data, two things are immediately clear—first, college is expensive, and second, paying for it generally requires financial aid. Key Takeaways Start planning early for how and where to obtain financial aid.Financial aid can be need-based, merit-based, or both.The FAFSA form is required for federal aid as well as for most state and institutional aid.The CSS Profile is required by many private colleges.If the amount of aid you receive isn't enough, you can ask for more. What Is Financial Aid? Financial aid is any college funding that doesn't come from family or personal savings or earnings. It can take the form of grants, scholarships, work-study jobs, and federal or private loans. Financial aid can be used to cover most higher education expenses, including tuition and fees, room and board, books and supplies, and transportation. Aid can come from a variety of sources. This can include federal and state agencies, colleges, high schools, community organizations, foundations, corporations, and more. The amount of financial aid you receive will depend on rules set by the various sources as well as federal, state, and university guidelines. Start Early Whether you are a potential college student or the parent of one, it's never too early to start planning. The U.S. Department of Education (DOE) Office of Federal Student Aid publishes a College Preparation Checklist that will help guide you from wherever you are—elementary, middle school, high school, or young adult—to where you want to end up—in college with a plan to pay for your education. Ask your high school counselor about aid that may be available to you or your child from local and state organizations, including scholarships and grants that may be awarded while you are still in high school. Although you will have to declare any outside aid you receive when you apply through your college—and that aid will reduce the amount of federal, state, and college aid you can receive—it will also reduce the amount of aid you need, so the net effect is a wash. Keep note of all financial aid application deadlines and don't let them pass before you apply. Use the DOE checklist mentioned above to build a foundation and the information in this article to guide your search for financial aid. Need-Based Aid vs. Merit-Based Aid The two main categories of financial aid are need-based and non-need or merit-based. Simply put, need-based aid is awarded based on the awarding organization's assessment of your ability to pay for college. Merit-based aid is awarded for special talent or demonstrated ability in academics, athletics, music, or other areas. Whether your financial aid is need-based or merit-based (or both) does not determine whether you have to pay it back. That is determined by the specific type of aid you receive. Most scholarships and grants, for example, do not have to be repaid. Most loans do. 2 Important Application Forms: FAFSA and the CSS Profile There are two primary pathways to financial aid as you enter college. One is the Free Application for Federal Student Aid (FAFSA) sponsored by the U.S. Department of Education and required for you to be considered for federal aid as well as for most college and state assistance. The second, known as the CSS Profile, is sponsored by the College Board and used by roughly 400 mostly private colleges and universities to allocate non-government financial aid from those institutions. Each form has its own deadlines and procedures (see details below). You should submit the FAFSA even if you don't believe you will qualify for federal financial aid. That's because (a) you may be wrong, and (b) even if you're right, the FAFSA is also required for most local, state, and individual school financial aid, including merit scholarships. Whether you should submit the CSS Profile probably depends on whether the financial aid you are interested in or the school you plan to attend requires it. Breaking Down FAFSA Be sure to submit your FAFSA on October 1 (or shortly after) for the following academic year. That means, for example, that you would have submitted it on Oct. 1, 2020, for the 2021–22 school year. Although the federal deadline to submit is June 30 of the academic year (in this case June 30, 2022), that will likely be too late to obtain most financial aid. It will also likely be well past the deadline for aid dispersed by most states and colleges. You must also renew your FAFSA for each academic year you are in school or you will not qualify for additional federal financial aid (including renewable aid you received the previous year). To maximize your access to aid, renew your FAFSA on October 1 of the year before the academic year you are renewing for, just as you did with your first year of college. The renewal process is usually easier and faster than the original because much of your personal and demographic information is retained. You still need to check it to make sure it is accurate, but there is no cost to submit or renew the FAFSA. Breaking Down the CSS Profile Submit the CSS Profile if the college or university you plan to attend uses CSS as part of its financial aid process. Do this October 1, at the same time you submit your FAFSA, and every year after on the same date if required. Check the College Board list of Participating Institutions and Programs for detailed information about which schools require CSS and which classifications of students or parents are required to file. Amherst College in Amherst, Mass., for example, requires the CSS Profile for domestic and international students, as well as from noncustodial parents of either. Loyola University in Baltimore, Md., on the other hand, requires the CSS Profile for both domestic and international students but does not require information from noncustodial parents. Most people pay a $25 fee to submit their initial CSS Profile ($16 for each additional college). Waivers may be available for first-time domestic college applicants if: You received an SAT fee waiver.Your parents' income is $45,000 or less for a family of four.You are an orphan or ward of the court under age 24. The open date—the soonest you can apply for financial aid—is more important than the deadline, which is the latest you can apply. Check Open Dates, Not Deadlines Procrastinators beware! Although the FAFSA, the CSS Profile, colleges, and universities all have deadlines—the last date you can apply for aid each year—the most important date to remember is the open date—the first date each year you can apply for financial aid. As noted above, the open date for the FAFSA and the CSS Profile is October 1 of the calendar year before the academic year for which you are applying for aid. The open date for the academic year 2022–23, for example, was Oct. 1, 2021. You can apply for federal aid through the FAFSA for the academic year 2023–24 anytime between Oct. 1, 2022, and June 30, 2024. However, keep in mind that state and college/university aid open dates and deadlines, including those through the FAFSA and the CSS Profile, are typically much earlier than June 30, with some states and schools instructing you to apply "as soon as possible" after the October 1 FAFSA/CSS open date. Others set their deadline sometime between January and March of the next year and a few even follow the FAFSA June 30 deadline. State deadlines are available on the FAFSA deadlines webpage. Types of Financial Aid Whether need-based or merit-based, federal or private, financial aid typically comes in one of the following forms: Grants A grant is "free" money that doesn't need to be paid back (except when you fail to live up to the terms of the grant, such as by leaving school). Grants can come from the federal or state government, schools, or private or nonprofit organizations. Most grants are need-based but merit-based grants are also available. The Federal Pell Grant and Federal Supplemental Educational Opportunity Grant (FSEOG) are examples of need-based grants. Information about merit-based grants, such as the Wyoming NASA Space Grant and the Broadcast Education Association (BEA) Grant, can usually be found at your state higher education website or through your school counselor's office. Scholarships Like grants, scholarships are gifts and do not need to be repaid unless you don't live up to the terms of the scholarship. Also like grants, scholarships can come from the federal or state government, universities, or private or nonprofit organizations. Scholarships tend to be merit-based, though there are also scholarships that are need-based or that take both merit and need into consideration. Some scholarships are aimed at specific groups, such as women, minorities, or students from military families. Learn about scholarships that may be available to you through your school counselor, college financial aid office, or even at your local library. Work-Study/Non-Work Study Work-study typically refers to federal work-study, a program that provides part-time work on or off-campus while you are enrolled in school. Federal work-study is only available to you if you have demonstrated financial need. Qualifying does not guarantee you a job. You will need to apply, interview, and be hired. You will earn at least the federal minimum wage (more for higher-skilled jobs) depending on when you apply, your financial need, and the school's available funding. Another type of job, known as a non-work study, is also available at many colleges and universities. These jobs are not government-sponsored, earnings vary, and funding comes from the department doing the hiring. To learn more about both programs, contact your college financial aid office. Federal Student Loans Federal student loans are government loans and include terms and conditions with benefits (i.e., fixed interest rates, income-based repayment plans) that are not available with most private loans. The Federal Direct Loan Program offers four types of federal loans: Direct subsidized loans for eligible undergraduate students with demonstrated financial needDirect unsubsidized loans for eligible graduate or undergraduate students but not based on needDirect PLUS loans for graduate or professional students and parents of dependent undergraduate students, not based on need but a credit check is requiredDirect consolidation loans that let you combine all of your eligible federal student loans into a single loan Private Student Loans Private student loans are made by banks, credit unions, and other state-based organizations. These loans include terms and conditions set by the lender and are generally (though not always) more expensive than federal student loans. Unlike most federal loans, private loan rates are based on your credit score and lenders may offer you a variable interest rate (instead of a fixed one). You may be required to begin paying back your private loan while still in school. Federal loans allow you to wait until you leave school or graduate. How Is Financial Aid Awarded? Most of the details of obtaining financial aid take place at the college or university level. Importantly, while there are lots of similarities in the ways colleges award aid, each school has its unique process when it comes to open dates, deadlines, procedures, and the actual awards process. It's especially important to understand the differences between scholarships, grants, and loans (see above) when you read your financial award letter. Some schools, for example, promise to cover 100% of your financial aid needs but do so by including student loans. Others package financial aid with no loans and some even raise your financial aid package each year to cover tuition increases. It pays to know not only what you will get but also how it will be packaged. A big part of the financial aid awards process has to do with you and your family's ability to pay for college—that is, your expected family contribution (EFC). Keep in mind, however, that beginning in July 2023, the term "student aid index" (SAI) will replace EFC on all FAFSA forms. In addition to some changes in the way the SAI is calculated, the change attempts to clarify what this figure is—an eligibility index for student aid, not a reflection of what a family can or will pay for postsecondary expenses. When Will You Know How Much You Will Receive? You will eventually receive a financial aid award letter from all colleges you applied to via your FAFSA or your CSS Profile. When the letter will arrive depends on the school, but generally, you can expect it at about the same time you receive your acceptance letter from that school. The amount of aid offered can range from zero to the full cost of attending college. It will be broken down into three categories: free money you don't have to pay back, earned money (via work-study or non-work study), and borrowed money (either from federal or private student loans). What If It's Not Enough? If you feel your federal financial aid award is inadequate, you can request a professional judgment review by the awarding school. However, you will need a legitimate reason to convince the school your award is insufficient. One way would be to demonstrate that your family's financial situation has changed for the worse. If that's the case, the school will typically ask you to submit a letter summarizing the new circumstances. This could include a divorce, a death in the family, a job loss, or sudden high medical costs. If another school has offered you a larger award, you could try contacting the school offering the lower award and ask if they will match the larger offer. A New Agreement May Help You Get the Most Aid Historically, many colleges and universities have been criticized for encouraging college candidates to commit early with the understanding they could not switch colleges, even though the understanding was not legally binding. For the candidates, early commitment could mean passing up a better financial aid package from another school. Now, however, students will have recourse. Action taken in September 2019 by the National Association for College Admission Counseling (NACAC) to strip provisions from its Code of Ethics and Professional Practice (CEPP) lets college counselors recruit students even after they have committed to another school. Furthermore, NACAC members are now allowed to encourage enrolled students to transfer to a school with a better financial aid package, offer perks (such as special scholarships and priority course selection for early enrollees), and recruit students beyond the traditional May 1 deadline, giving those students more time to choose the best financial aid package. The NACAC's action, in the form of a consent decree, came in advance of a U.S. Department of Justice (DOJ) lawsuit filed in December 2019 charging the NACAC with violating antitrust laws. The NACAC has said it will follow the restrictions outlined in the consent decree, although it believes the deleted provisions of the CEPP did provide substantial aid and protection to students. Understanding how this process works is the best way to establish as much control and choice over financing college as possible. Do You Have to Pay Financial Aid Back? Financial aid in the form of a loan is to be paid back. If it is a federal loan, repayment begins after a student has graduated, with a grace period of six months after finishing school. On the other hand, privately-issued loans may require repayment during the school year. Other forms of financial aid, such as scholarships and grants do not need to be paid back. What Are Four Types of Financial Aid? Grants, scholarships, loans, and work-study are four primary forms of financial aid. Students may be eligible for more than one type of financial aid, based on their financial need and academic, athletic, or artistic achievement.  How Is Aid Calculated? FAFSA aid is calculated based on a number of factors. Broadly speaking, these include a student’s Expected Family Contribution (EFC) and cost of attendance. A student’s EFC is subtracted from their COA to determine the amount of need-based aid the student is eligible for. Next, to identify non-need-based aid, any financial aid already received is subtracted from the COA. The Bottom Line Remember that planning can never start too early. One of the basics to know is that aid can come from a variety of sources. This can include federal and state agencies, colleges, high schools, community organizations, foundations, corporations, and more. The amount of financial aid you receive will depend on rules set by the various sources as well as federal, state, and university guidelines. Be sure to look at the College Preparation Checklist published by the U.S. Department of Education's Office of Federal Student AI. This will guide you from wherever you are—elementary, middle school, high school, or young adult—to college with a plan to pay for your education.

https://www.investopedia.com/self-serving-bias-7369313

Self-Serving Bias: Definition and Examples

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-self-serving-bias"></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 Self-Serving Bias? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Self-serving bias is a cognitive <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bias.asp">bias</a> in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/behavioraleconomics.asp">behavioral economics</a> whereby individuals attribute their successes and achievements solely to their own abilities and efforts while blaming others or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/attribution-bias-7369317">external factors for their failures</a>. In this way, it is a form of attribution bias. This psychological phenomenon is thought to stem from the human tendency to make sense of the world with the resulting by-products of a positive self-image and protection of one’s self-esteem.<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_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> By attributing positive developments and outcomes to one’s own personal attributes and negative outcomes to external circumstances, people come to create a self-enhancing pattern of thought that can, however, distort their perception of reality and their own abilities, leading to poor decision-making.<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>Self-serving bias is a cognitive bias where individuals attribute successes to themselves but failures to external factors.</li><li>In investing, self-serving bias can cause investors to overestimate their skills, leading to suboptimal investment decisions.</li><li>At the same time, investment losses are chalked up to external factors or bad luck rather than to one’s own poor choices.</li><li>Investors can avoid self-serving bias by implementing strategies that promote objective analysis and self-awareness.</li><li>This bias can manifest in various other areas of life, including the workplace, the classroom, and interpersonal relationships.</li></ul></div></div></div> <span class="heading-toc" id="toc-self-serving-bias-in-investing"></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"> Self-Serving Bias in Investing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Self-serving bias is a cognitive bias where people attribute successes to their own abilities and efforts while blaming external factors or others for failures—and discounting the role of luck. This tendency can have a significant negative impact on <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investor.asp">investors</a> and their financial decisions. </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"> Self-serving bias can lead investors to attribute the positive performance of their investments to their knowledge and skills while attributing negative returns to broader market forces and factors beyond their control. This biased perspective can lead to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/060513/avoid-these-common-investing-psychology-traps.asp">overconfidence</a> and what behavioral finance calls the “superiority trap.” </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 instance, investors may <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/dunning-kruger-effect-7368715">become overly confident</a> in their ability to pick stocks or time the market, leading them to take on excessive risk. They might also hold onto underperforming investments for too long, hoping that they will eventually rebound, rather than accepting that their initial decision was incorrect. </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"> Furthermore, self-serving bias can lead investors to ignore or dismiss valuable information and advice that contradicts their beliefs, because they come to believe that their own ideas are superior. This resistance to new information can result in a failure to adapt to changing market conditions or an inability to recognize mistakes and learn from them, a form of what is known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/confirmation-bias.asp">confirmation bias</a>. Instead, when things don’t go according to plan, investors can explain away losses by blaming market conditions, government policies, or other factors rather than acknowledging the role of one’s own decision making. </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"> Many investors have lost fortunes by being convinced that they were better and smarter than the rest. But this bias often only fuels losses. Moreover, these people can become easy prey for more skilled and sophisticated market participants who feed off of the mistakes of arrogant and stubborn investors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <span class="heading-toc" id="toc-how-investors-can-avoid-self-serving-bias"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-heading__text"> How Investors Can Avoid Self-Serving Bias </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Investors can take steps to avoid falling victim to self-serving bias and becoming overconfident in their trading ability. The first step is to recognize its existence and understand how it affects your decision-making process. Once you are aware, these steps can also help:<br/> </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>Maintain a written record of investment decisions and the rationale behind them to facilitate objective analysis.</li> <li>Seek feedback from others, including peers, mentors, or professional advisors. Alternative viewpoints and expert opinions can help investors remain open to new information and counteract self-serving bias.</li> <li>Regularly review and evaluate investment performance and decisions objectively. Evaluating investment performance using objective metrics, such as benchmark comparisons or risk-adjusted returns, can help investors to assess their decisions more accurately and identify areas for improvement.</li> <li>Implement a disciplined investment process with well-defined rules and criteria. Set <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/091813/which-order-use-stoploss-or-stoplimit-orders.asp">stop-losses</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/take-profitorder.asp">take-profit levels</a> ahead of time, so that if you do turn out to be wrong, you will be stopped out. Periodically assess your investment decisions to identify patterns of success and failure.</li> <li>Practice humility and recognize the role of both good and bad luck in investment outcomes. Luck is often dismissed or misattributed for one’s own doing—respect the role of randomness in investment outcomes.</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"> A recent study found that providing traders with feedback on their past performance and the accuracy of their price predictions was helpful in reducing investors’ self-serving bias. This was found to be more effective than presenting investors with contradictory information from others prior to their trading decisions.<span class="ql-inline-citation" data-cite="8"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_26-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-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>Recent research also shows that the degree of self-serving bias differs among investors. The results show that both sociodemographic and investor sophistication significantly impact the self-serving bias of equity market investors. All else equal, men were found to be more sensitive to this bias than women, as well as those who traded more frequently.<span class="ql-inline-citation" data-cite="7"></span></p></div></div></div> <span class="heading-toc" id="toc-other-examples-of-self-serving-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"> Other Examples of Self-Serving Bias </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Self-serving bias, or one’s tendency to take credit for successes while blaming others for failures, is ubiquitous and can manifest in many contexts beyond <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investing.asp">investing</a>. Below, we list just some examples where self-serving bias can often present itself. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_31-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_32-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>People are usually optimistic when predicting their outcomes and experiences. They expect to pass tests, get good jobs, and have long-lasting relationships rather than fail, get fired, or divorce.<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_33-0"> <span class="mntl-sc-block-subheading__text"> In the Workplace </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Employees might attribute their promotions or successful projects to their hard work and skills, while blaming unfavorable work conditions or difficult teammates for failed projects. Likewise, managers and executives may credit themselves for the positive performance of a company’s stock but blame things like the broader <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/economy.asp">economy</a> (e.g., rising interest rates or recessionary pressures) on a stock’s poor performance. </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"> In the Classroom </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Students may come to believe that they earned high grades due to their intelligence and effort, while attributing low grades to unfair exams, distractions from classmates, or poor instruction from teachers. Teachers may also attribute the success of their students to themselves but find excuses for their failures in things like insufficient school funding, inadequate classroom tools, or students’ parents who don’t prioritize their kids’ education.<br/> </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"> In Athletics </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Athletes may attribute their victories, personal records, or outstanding performances to their hard work, talent, dedication, or effective training regimens, but negative outcomes to factors such as unfavorable weather conditions, biased referees, or inadequate coaching. In team sports, those exhibiting this bias may take credit for a team’s victories, emphasizing their pivotal role as a star player in achieving positive outcomes, while attributing losses or poor team performance to the shortcomings of their teammates. </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-factors-that-affect-self-serving-bias"></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"> Factors That Affect Self-Serving Bias </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Self-serving bias appears to be a psychological tendency that is deeply seated in many of us. It is a natural desire to present a positive self-image and avoid embarrassing mistakes. That said, self-serving bias seems to be more prevalent in individualistic cultures (such as the United States) than in collectivist cultures (such as China).<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_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> This means that there is likely an interplay between one’s individual cognitive dispositions and social and cultural forces that act on individuals in a certain society. Indeed, research suggests that self-serving bias is driven by both motivational and cognitive factors that work together to create a distorted perception of one’s own abilities and responsibility for outcomes. </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"> It is worth noting that people seem to engage in self-serving bias as a sincere attempt to understand the reasons for events or outcomes in their lives, rather than as a deliberate attempt to artificially boost their self-esteem or manipulate the perceptions of others.<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_48-0"></div> <span class="heading-toc" id="toc-impact-of-self-serving-bias"></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"> Impact of Self-Serving Bias </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_50-0"> <span class="mntl-sc-block-subheading__text"> Individuals </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Self-serving bias can distort one’s perception of their actual knowledge and abilities, leading to overconfidence and potentially to poor decision making. By taking personal credit for successes and blaming others for failures, one’s ego can become inflated and morph into arrogance or hubris. This inflated sense of self-worth and expertise can impede personal growth, learning, and the ability to adapt to new situations. </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"> Moreover, this bias can put strain on one’s interpersonal relationships and limit collaboration, as others may think of that individual as conceited and unwilling to accept responsibility. If left unchecked, self-serving bias could result in a stagnation of personal and professional development. </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"> Systemic </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> When self-serving bias becomes widespread within organizations or in society, it can contribute to a broader culture of self-interestedness and blame that hinders accountability and impedes productivity and progress. When self-serving bias permeates society at large, it can contribute to social fragmentation, increased polarization, and a weakening of social bonds and shared values. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_58-0"><span class="heading-toc" id="toc-what-is-the-opposite-of-self-serving-bias"></span> <h2 class="mntl-sc-block-questionandanswer__question">What is the opposite of self-serving bias?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The opposite of self-serving bias is self-effacing or self-deprecating bias, where individuals attribute their successes to external factors and their failures to their own shortcomings. Someone with this mindset will tend to downplay their successes and internalize their failures. Those who are depressed or suffer from chronically low self-esteem tend to take the blame for their failures but deny responsibility for their successes.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_60-0"><span class="heading-toc" id="toc-what-is-the-difference-between-self-serving-bias-and-fundamental-attribution-error"></span> <h2 class="mntl-sc-block-questionandanswer__question">What is the difference between self-serving bias and fundamental attribution error?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Both of these are classified as attribution biases in psychology, but the two differ somewhat.</p><p>Fundamental attribution error is the tendency to overemphasize internal factors, such as personality traits or abilities, when explaining others’ behaviors, while underestimating the influence of external factors, such as situational constraints or circumstances. This bias leads to an imbalance in the way people judge the actions of others compared to their own actions.</p><p>Self-serving bias, on the other hand, considers how one attributes their own successes and failures to either their own skills or external factors, respectively.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_62-0"><span class="heading-toc" id="toc-what-is-the-difference-between-self-serving-bias-and-confirmation-bias"></span> <h2 class="mntl-sc-block-questionandanswer__question">What is the difference between self-serving bias and confirmation bias?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Confirmation bias is the psychological tendency to seek out or prioritize information that conforms to one’s already-held beliefs while dismissing or discounting information that contradicts it.</p><p>Self-serving bias, on the other hand, is more about attributing successes to one’s own skills and failures to external factors. However, self-serving bias can create resistance against information that contradicts one’s beliefs, which can feed into confirmation bias.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_64-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> Self-serving bias is a psychological tendency in which individuals attribute their achievements or successes to their own abilities or wherewithal, and at the same time blame others or external factors for their missteps or failures. This bias helps protect one’s self-esteem and maintain a positive self-image, but it can also lead to a distorted perception of the world and one’s actual abilities. </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"> Self-serving bias can be a significant obstacle to making optimal financial decisions in the world of investing. By understanding how this cognitive bias affects our judgments and employing strategies to overcome it, investors can improve their decision-making processes and increase their chances of achieving financial success. Remember that no one is completely immune to self-serving bias, but with conscious effort and a willingness to learn from mistakes, it is possible to minimize its negative impact on your investment choices. </p></div>

## What Is Self-Serving Bias? Self-serving bias is a cognitive [bias](https://www.investopedia.com/terms/b/bias.asp) in [behavioral economics](https://www.investopedia.com/terms/b/behavioraleconomics.asp) whereby individuals attribute their successes and achievements solely to their own abilities and efforts while blaming others or [external factors for their failures](https://www.investopedia.com/attribution-bias-7369317). In this way, it is a form of attribution bias. This psychological phenomenon is thought to stem from the human tendency to make sense of the world with the resulting by-products of a positive self-image and protection of one’s self-esteem. By attributing positive developments and outcomes to one’s own personal attributes and negative outcomes to external circumstances, people come to create a self-enhancing pattern of thought that can, however, distort their perception of reality and their own abilities, leading to poor decision-making. ### Key Takeaways * Self-serving bias is a cognitive bias where individuals attribute successes to themselves but failures to external factors. * In investing, self-serving bias can cause investors to overestimate their skills, leading to suboptimal investment decisions. * At the same time, investment losses are chalked up to external factors or bad luck rather than to one’s own poor choices. * Investors can avoid self-serving bias by implementing strategies that promote objective analysis and self-awareness. * This bias can manifest in various other areas of life, including the workplace, the classroom, and interpersonal relationships. ## Self-Serving Bias in Investing Self-serving bias is a cognitive bias where people attribute successes to their own abilities and efforts while blaming external factors or others for failures—and discounting the role of luck. This tendency can have a significant negative impact on [investors](https://www.investopedia.com/terms/i/investor.asp) and their financial decisions. Self-serving bias can lead investors to attribute the positive performance of their investments to their knowledge and skills while attributing negative returns to broader market forces and factors beyond their control. This biased perspective can lead to [overconfidence](https://www.investopedia.com/articles/investing/060513/avoid-these-common-investing-psychology-traps.asp) and what behavioral finance calls the “superiority trap.” For instance, investors may [become overly confident](https://www.investopedia.com/dunning-kruger-effect-7368715) in their ability to pick stocks or time the market, leading them to take on excessive risk. They might also hold onto underperforming investments for too long, hoping that they will eventually rebound, rather than accepting that their initial decision was incorrect. Furthermore, self-serving bias can lead investors to ignore or dismiss valuable information and advice that contradicts their beliefs, because they come to believe that their own ideas are superior. This resistance to new information can result in a failure to adapt to changing market conditions or an inability to recognize mistakes and learn from them, a form of what is known as [confirmation bias](https://www.investopedia.com/terms/c/confirmation-bias.asp). Instead, when things don’t go according to plan, investors can explain away losses by blaming market conditions, government policies, or other factors rather than acknowledging the role of one’s own decision making. Many investors have lost fortunes by being convinced that they were better and smarter than the rest. But this bias often only fuels losses. Moreover, these people can become easy prey for more skilled and sophisticated market participants who feed off of the mistakes of arrogant and stubborn investors. ## How Investors Can Avoid Self-Serving Bias Investors can take steps to avoid falling victim to self-serving bias and becoming overconfident in their trading ability. The first step is to recognize its existence and understand how it affects your decision-making process. Once you are aware, these steps can also help: * Maintain a written record of investment decisions and the rationale behind them to facilitate objective analysis. * Seek feedback from others, including peers, mentors, or professional advisors. Alternative viewpoints and expert opinions can help investors remain open to new information and counteract self-serving bias. * Regularly review and evaluate investment performance and decisions objectively. Evaluating investment performance using objective metrics, such as benchmark comparisons or risk-adjusted returns, can help investors to assess their decisions more accurately and identify areas for improvement. * Implement a disciplined investment process with well-defined rules and criteria. Set [stop-losses](https://www.investopedia.com/articles/active-trading/091813/which-order-use-stoploss-or-stoplimit-orders.asp) and [take-profit levels](https://www.investopedia.com/terms/t/take-profitorder.asp) ahead of time, so that if you do turn out to be wrong, you will be stopped out. Periodically assess your investment decisions to identify patterns of success and failure. * Practice humility and recognize the role of both good and bad luck in investment outcomes. Luck is often dismissed or misattributed for one’s own doing—respect the role of randomness in investment outcomes. A recent study found that providing traders with feedback on their past performance and the accuracy of their price predictions was helpful in reducing investors’ self-serving bias. This was found to be more effective than presenting investors with contradictory information from others prior to their trading decisions. ### Recent research also shows that the degree of self-serving bias differs among investors. The results show that both sociodemographic and investor sophistication significantly impact the self-serving bias of equity market investors. All else equal, men were found to be more sensitive to this bias than women, as well as those who traded more frequently. ## Other Examples of Self-Serving Bias Self-serving bias, or one’s tendency to take credit for successes while blaming others for failures, is ubiquitous and can manifest in many contexts beyond [investing](https://www.investopedia.com/terms/i/investing.asp). Below, we list just some examples where self-serving bias can often present itself. ### People are usually optimistic when predicting their outcomes and experiences. They expect to pass tests, get good jobs, and have long-lasting relationships rather than fail, get fired, or divorce. ### In the Workplace Employees might attribute their promotions or successful projects to their hard work and skills, while blaming unfavorable work conditions or difficult teammates for failed projects. Likewise, managers and executives may credit themselves for the positive performance of a company’s stock but blame things like the broader [economy](https://www.investopedia.com/terms/e/economy.asp) (e.g., rising interest rates or recessionary pressures) on a stock’s poor performance. ### In the Classroom Students may come to believe that they earned high grades due to their intelligence and effort, while attributing low grades to unfair exams, distractions from classmates, or poor instruction from teachers. Teachers may also attribute the success of their students to themselves but find excuses for their failures in things like insufficient school funding, inadequate classroom tools, or students’ parents who don’t prioritize their kids’ education. ### In Athletics Athletes may attribute their victories, personal records, or outstanding performances to their hard work, talent, dedication, or effective training regimens, but negative outcomes to factors such as unfavorable weather conditions, biased referees, or inadequate coaching. In team sports, those exhibiting this bias may take credit for a team’s victories, emphasizing their pivotal role as a star player in achieving positive outcomes, while attributing losses or poor team performance to the shortcomings of their teammates. ## Factors That Affect Self-Serving Bias Self-serving bias appears to be a psychological tendency that is deeply seated in many of us. It is a natural desire to present a positive self-image and avoid embarrassing mistakes. That said, self-serving bias seems to be more prevalent in individualistic cultures (such as the United States) than in collectivist cultures (such as China). This means that there is likely an interplay between one’s individual cognitive dispositions and social and cultural forces that act on individuals in a certain society. Indeed, research suggests that self-serving bias is driven by both motivational and cognitive factors that work together to create a distorted perception of one’s own abilities and responsibility for outcomes. It is worth noting that people seem to engage in self-serving bias as a sincere attempt to understand the reasons for events or outcomes in their lives, rather than as a deliberate attempt to artificially boost their self-esteem or manipulate the perceptions of others. ## Impact of Self-Serving Bias ### Individuals Self-serving bias can distort one’s perception of their actual knowledge and abilities, leading to overconfidence and potentially to poor decision making. By taking personal credit for successes and blaming others for failures, one’s ego can become inflated and morph into arrogance or hubris. This inflated sense of self-worth and expertise can impede personal growth, learning, and the ability to adapt to new situations. Moreover, this bias can put strain on one’s interpersonal relationships and limit collaboration, as others may think of that individual as conceited and unwilling to accept responsibility. If left unchecked, self-serving bias could result in a stagnation of personal and professional development. ### Systemic When self-serving bias becomes widespread within organizations or in society, it can contribute to a broader culture of self-interestedness and blame that hinders accountability and impedes productivity and progress. When self-serving bias permeates society at large, it can contribute to social fragmentation, increased polarization, and a weakening of social bonds and shared values. ## What is the opposite of self-serving bias? The opposite of self-serving bias is self-effacing or self-deprecating bias, where individuals attribute their successes to external factors and their failures to their own shortcomings. Someone with this mindset will tend to downplay their successes and internalize their failures. Those who are depressed or suffer from chronically low self-esteem tend to take the blame for their failures but deny responsibility for their successes. ## What is the difference between self-serving bias and fundamental attribution error? Both of these are classified as attribution biases in psychology, but the two differ somewhat. Fundamental attribution error is the tendency to overemphasize internal factors, such as personality traits or abilities, when explaining others’ behaviors, while underestimating the influence of external factors, such as situational constraints or circumstances. This bias leads to an imbalance in the way people judge the actions of others compared to their own actions. Self-serving bias, on the other hand, considers how one attributes their own successes and failures to either their own skills or external factors, respectively. ## What is the difference between self-serving bias and confirmation bias? Confirmation bias is the psychological tendency to seek out or prioritize information that conforms to one’s already-held beliefs while dismissing or discounting information that contradicts it. Self-serving bias, on the other hand, is more about attributing successes to one’s own skills and failures to external factors. However, self-serving bias can create resistance against information that contradicts one’s beliefs, which can feed into confirmation bias. ## The Bottom Line Self-serving bias is a psychological tendency in which individuals attribute their achievements or successes to their own abilities or wherewithal, and at the same time blame others or external factors for their missteps or failures. This bias helps protect one’s self-esteem and maintain a positive self-image, but it can also lead to a distorted perception of the world and one’s actual abilities. Self-serving bias can be a significant obstacle to making optimal financial decisions in the world of investing. By understanding how this cognitive bias affects our judgments and employing strategies to overcome it, investors can improve their decision-making processes and increase their chances of achieving financial success. Remember that no one is completely immune to self-serving bias, but with conscious effort and a willingness to learn from mistakes, it is possible to minimize its negative impact on your investment choices.

What Is Self-Serving Bias? Self-serving bias is a cognitive bias in behavioral economics whereby individuals attribute their successes and achievements solely to their own abilities and efforts while blaming others or external factors for their failures. In this way, it is a form of attribution bias. This psychological phenomenon is thought to stem from the human tendency to make sense of the world with the resulting by-products of a positive self-image and protection of one’s self-esteem. By attributing positive developments and outcomes to one’s own personal attributes and negative outcomes to external circumstances, people come to create a self-enhancing pattern of thought that can, however, distort their perception of reality and their own abilities, leading to poor decision-making. Key Takeaways Self-serving bias is a cognitive bias where individuals attribute successes to themselves but failures to external factors.In investing, self-serving bias can cause investors to overestimate their skills, leading to suboptimal investment decisions.At the same time, investment losses are chalked up to external factors or bad luck rather than to one’s own poor choices.Investors can avoid self-serving bias by implementing strategies that promote objective analysis and self-awareness.This bias can manifest in various other areas of life, including the workplace, the classroom, and interpersonal relationships. Self-Serving Bias in Investing Self-serving bias is a cognitive bias where people attribute successes to their own abilities and efforts while blaming external factors or others for failures—and discounting the role of luck. This tendency can have a significant negative impact on investors and their financial decisions. Self-serving bias can lead investors to attribute the positive performance of their investments to their knowledge and skills while attributing negative returns to broader market forces and factors beyond their control. This biased perspective can lead to overconfidence and what behavioral finance calls the “superiority trap.” For instance, investors may become overly confident in their ability to pick stocks or time the market, leading them to take on excessive risk. They might also hold onto underperforming investments for too long, hoping that they will eventually rebound, rather than accepting that their initial decision was incorrect. Furthermore, self-serving bias can lead investors to ignore or dismiss valuable information and advice that contradicts their beliefs, because they come to believe that their own ideas are superior. This resistance to new information can result in a failure to adapt to changing market conditions or an inability to recognize mistakes and learn from them, a form of what is known as confirmation bias. Instead, when things don’t go according to plan, investors can explain away losses by blaming market conditions, government policies, or other factors rather than acknowledging the role of one’s own decision making. Many investors have lost fortunes by being convinced that they were better and smarter than the rest. But this bias often only fuels losses. Moreover, these people can become easy prey for more skilled and sophisticated market participants who feed off of the mistakes of arrogant and stubborn investors. How Investors Can Avoid Self-Serving Bias Investors can take steps to avoid falling victim to self-serving bias and becoming overconfident in their trading ability. The first step is to recognize its existence and understand how it affects your decision-making process. Once you are aware, these steps can also help: Maintain a written record of investment decisions and the rationale behind them to facilitate objective analysis. Seek feedback from others, including peers, mentors, or professional advisors. Alternative viewpoints and expert opinions can help investors remain open to new information and counteract self-serving bias. Regularly review and evaluate investment performance and decisions objectively. Evaluating investment performance using objective metrics, such as benchmark comparisons or risk-adjusted returns, can help investors to assess their decisions more accurately and identify areas for improvement. Implement a disciplined investment process with well-defined rules and criteria. Set stop-losses and take-profit levels ahead of time, so that if you do turn out to be wrong, you will be stopped out. Periodically assess your investment decisions to identify patterns of success and failure. Practice humility and recognize the role of both good and bad luck in investment outcomes. Luck is often dismissed or misattributed for one’s own doing—respect the role of randomness in investment outcomes. A recent study found that providing traders with feedback on their past performance and the accuracy of their price predictions was helpful in reducing investors’ self-serving bias. This was found to be more effective than presenting investors with contradictory information from others prior to their trading decisions. Recent research also shows that the degree of self-serving bias differs among investors. The results show that both sociodemographic and investor sophistication significantly impact the self-serving bias of equity market investors. All else equal, men were found to be more sensitive to this bias than women, as well as those who traded more frequently. Other Examples of Self-Serving Bias Self-serving bias, or one’s tendency to take credit for successes while blaming others for failures, is ubiquitous and can manifest in many contexts beyond investing. Below, we list just some examples where self-serving bias can often present itself. People are usually optimistic when predicting their outcomes and experiences. They expect to pass tests, get good jobs, and have long-lasting relationships rather than fail, get fired, or divorce. In the Workplace Employees might attribute their promotions or successful projects to their hard work and skills, while blaming unfavorable work conditions or difficult teammates for failed projects. Likewise, managers and executives may credit themselves for the positive performance of a company’s stock but blame things like the broader economy (e.g., rising interest rates or recessionary pressures) on a stock’s poor performance. In the Classroom Students may come to believe that they earned high grades due to their intelligence and effort, while attributing low grades to unfair exams, distractions from classmates, or poor instruction from teachers. Teachers may also attribute the success of their students to themselves but find excuses for their failures in things like insufficient school funding, inadequate classroom tools, or students’ parents who don’t prioritize their kids’ education. In Athletics Athletes may attribute their victories, personal records, or outstanding performances to their hard work, talent, dedication, or effective training regimens, but negative outcomes to factors such as unfavorable weather conditions, biased referees, or inadequate coaching. In team sports, those exhibiting this bias may take credit for a team’s victories, emphasizing their pivotal role as a star player in achieving positive outcomes, while attributing losses or poor team performance to the shortcomings of their teammates. Factors That Affect Self-Serving Bias Self-serving bias appears to be a psychological tendency that is deeply seated in many of us. It is a natural desire to present a positive self-image and avoid embarrassing mistakes. That said, self-serving bias seems to be more prevalent in individualistic cultures (such as the United States) than in collectivist cultures (such as China). This means that there is likely an interplay between one’s individual cognitive dispositions and social and cultural forces that act on individuals in a certain society. Indeed, research suggests that self-serving bias is driven by both motivational and cognitive factors that work together to create a distorted perception of one’s own abilities and responsibility for outcomes. It is worth noting that people seem to engage in self-serving bias as a sincere attempt to understand the reasons for events or outcomes in their lives, rather than as a deliberate attempt to artificially boost their self-esteem or manipulate the perceptions of others. Impact of Self-Serving Bias Individuals Self-serving bias can distort one’s perception of their actual knowledge and abilities, leading to overconfidence and potentially to poor decision making. By taking personal credit for successes and blaming others for failures, one’s ego can become inflated and morph into arrogance or hubris. This inflated sense of self-worth and expertise can impede personal growth, learning, and the ability to adapt to new situations. Moreover, this bias can put strain on one’s interpersonal relationships and limit collaboration, as others may think of that individual as conceited and unwilling to accept responsibility. If left unchecked, self-serving bias could result in a stagnation of personal and professional development. Systemic When self-serving bias becomes widespread within organizations or in society, it can contribute to a broader culture of self-interestedness and blame that hinders accountability and impedes productivity and progress. When self-serving bias permeates society at large, it can contribute to social fragmentation, increased polarization, and a weakening of social bonds and shared values. What is the opposite of self-serving bias? The opposite of self-serving bias is self-effacing or self-deprecating bias, where individuals attribute their successes to external factors and their failures to their own shortcomings. Someone with this mindset will tend to downplay their successes and internalize their failures. Those who are depressed or suffer from chronically low self-esteem tend to take the blame for their failures but deny responsibility for their successes. What is the difference between self-serving bias and fundamental attribution error? Both of these are classified as attribution biases in psychology, but the two differ somewhat.Fundamental attribution error is the tendency to overemphasize internal factors, such as personality traits or abilities, when explaining others’ behaviors, while underestimating the influence of external factors, such as situational constraints or circumstances. This bias leads to an imbalance in the way people judge the actions of others compared to their own actions.Self-serving bias, on the other hand, considers how one attributes their own successes and failures to either their own skills or external factors, respectively. What is the difference between self-serving bias and confirmation bias? Confirmation bias is the psychological tendency to seek out or prioritize information that conforms to one’s already-held beliefs while dismissing or discounting information that contradicts it.Self-serving bias, on the other hand, is more about attributing successes to one’s own skills and failures to external factors. However, self-serving bias can create resistance against information that contradicts one’s beliefs, which can feed into confirmation bias. The Bottom Line Self-serving bias is a psychological tendency in which individuals attribute their achievements or successes to their own abilities or wherewithal, and at the same time blame others or external factors for their missteps or failures. This bias helps protect one’s self-esteem and maintain a positive self-image, but it can also lead to a distorted perception of the world and one’s actual abilities. Self-serving bias can be a significant obstacle to making optimal financial decisions in the world of investing. By understanding how this cognitive bias affects our judgments and employing strategies to overcome it, investors can improve their decision-making processes and increase their chances of achieving financial success. Remember that no one is completely immune to self-serving bias, but with conscious effort and a willingness to learn from mistakes, it is possible to minimize its negative impact on your investment choices.

https://www.investopedia.com/macy-s-stock-rises-as-q1-results-fall-less-than-expected-8651605

Macy's Stock Rises as Q1 Results Fall Less Than Expected

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>Macy's shares rose Tuesday as the retailer reported first-quarter results that declined from last year's levels, but not as much as analysts had expected.</li><li>In the quarter, Macy's ended a proxy battle by appointing two new board members, and also announced a restructuring plan to close 150 locations as it looks to return to higher levels of profitability.</li><li>The retailer also updated its guidance for the full fiscal year, lifting the bottom levels of the projected ranges for revenue and comparable sales.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Shares of the iconic retailer Macy's (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=M">M</a>) rose in intraday trading Tuesday after the release of a first-quarter earnings report that indicated the company's turnaround plan including store closures and cutting jobs is proving to be beneficial so far. </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"> Macy's had a busy quarter, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/macy-s-appoints-activist-investor-board-picks-ending-proxy-fight-8629529">ending a proxy battle</a> in April by appointing board members from an activist investor, while also announcing a new turnaround plan that included closing 150 locations as the company has looked for ways to cut costs. </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 company, which operates its namesake Macy's brand along with Bloomingdale's and Bluemercury, reported first-quarter fiscal 2024 profit and revenue above analyst expectations. </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"> Total revenue came in at $5 billion, just above the $4.97 billion analysts had projected, per estimates compiled by Visible Alpha, but slightly below the $5.17 billion Macy's generated in the first quarter of 2023.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The retailer made just $62 million, or 22 cents per share, in profit for the quarter, less than half of the $155 million, or 56 cents per share, it made in the year-ago quarter but above the $47.59 million and 16 cents per share analysts had estimated. </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"> Macy's also updated its guidance for the full fiscal year, narrowing its projected net sales range to $22.3 billion to $22.9 billion, lifting the lower end from its February outlook of $22.2 billion. Comparable sales for the full year are expected to range from a 1% decline to a 1.5% increase from last year's levels, slightly more optimistic than the 1.5% potential decline Macy's had previously used as the low end of the range. </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-turnaround-plan-progressing-proxy-fight-over"></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"> Turnaround Plan Progressing, Proxy Fight Over </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Macy's has closed hundreds of stores in recent years as retail sales have continued to shift online, and the retailer announced an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/macys-plans-150-store-closures-in-new-strategy-as-chain-faces-proxy-fight-8600871">official turnaround plan</a> earlier this year that included plans to shutter 150 “underproductive” stores. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> While closing Macy's locations, the retailer said it planned to expand the footprint of the higher-end Bloomingdale's and Bluemercury brands while also opening more smaller-format Macy's locations that would cost less to operate. </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"> "Although early days, our investments in product, presentation and experience are gaining traction and reinforce our belief that longer-term, Macy’s, Inc. can return to sustainable, profitable growth,” Macy's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/ceo.asp">Chief Executive Officer (CEO</a>) Tony Spring said. </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 retailer also ended a proxy fight in the quarter, appointing a pair of board members from <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/activist-investor.asp">activist investor</a> Arkhouse Management, which has also been bidding to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/activist-investor-launches-proxy-fight-for-macys-8594596">take the company private</a> with partner Brigade Capital Management. Macy's has rejected offers, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/macys-shares-soar-on-reports-of-an-offer-to-take-the-retailer-private-8414058">including one in December</a> that would have valued the company at $21 per share, but has also said it is "continuing to engage" with offers.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Macy's shares rose 2.2% to $19.51 by 9:52 a.m. ET Tuesday but are down more than 2% in 2024. </p></div>

### Key Takeaways * Macy's shares rose Tuesday as the retailer reported first-quarter results that declined from last year's levels, but not as much as analysts had expected. * In the quarter, Macy's ended a proxy battle by appointing two new board members, and also announced a restructuring plan to close 150 locations as it looks to return to higher levels of profitability. * The retailer also updated its guidance for the full fiscal year, lifting the bottom levels of the projected ranges for revenue and comparable sales. Shares of the iconic retailer Macy's ([M](https://www.investopedia.com/markets/quote?tvwidgetsymbol=M)) rose in intraday trading Tuesday after the release of a first-quarter earnings report that indicated the company's turnaround plan including store closures and cutting jobs is proving to be beneficial so far. Macy's had a busy quarter, [ending a proxy battle](https://www.investopedia.com/macy-s-appoints-activist-investor-board-picks-ending-proxy-fight-8629529) in April by appointing board members from an activist investor, while also announcing a new turnaround plan that included closing 150 locations as the company has looked for ways to cut costs. The company, which operates its namesake Macy's brand along with Bloomingdale's and Bluemercury, reported first-quarter fiscal 2024 profit and revenue above analyst expectations. Total revenue came in at $5 billion, just above the $4.97 billion analysts had projected, per estimates compiled by Visible Alpha, but slightly below the $5.17 billion Macy's generated in the first quarter of 2023. The retailer made just $62 million, or 22 cents per share, in profit for the quarter, less than half of the $155 million, or 56 cents per share, it made in the year-ago quarter but above the $47.59 million and 16 cents per share analysts had estimated. Macy's also updated its guidance for the full fiscal year, narrowing its projected net sales range to $22.3 billion to $22.9 billion, lifting the lower end from its February outlook of $22.2 billion. Comparable sales for the full year are expected to range from a 1% decline to a 1.5% increase from last year's levels, slightly more optimistic than the 1.5% potential decline Macy's had previously used as the low end of the range. ## Turnaround Plan Progressing, Proxy Fight Over Macy's has closed hundreds of stores in recent years as retail sales have continued to shift online, and the retailer announced an [official turnaround plan](https://www.investopedia.com/macys-plans-150-store-closures-in-new-strategy-as-chain-faces-proxy-fight-8600871) earlier this year that included plans to shutter 150 “underproductive” stores. While closing Macy's locations, the retailer said it planned to expand the footprint of the higher-end Bloomingdale's and Bluemercury brands while also opening more smaller-format Macy's locations that would cost less to operate. "Although early days, our investments in product, presentation and experience are gaining traction and reinforce our belief that longer-term, Macy’s, Inc. can return to sustainable, profitable growth,” Macy's [Chief Executive Officer (CEO](https://www.investopedia.com/terms/c/ceo.asp)) Tony Spring said. The retailer also ended a proxy fight in the quarter, appointing a pair of board members from [activist investor](https://www.investopedia.com/terms/a/activist-investor.asp) Arkhouse Management, which has also been bidding to [take the company private](https://www.investopedia.com/activist-investor-launches-proxy-fight-for-macys-8594596) with partner Brigade Capital Management. Macy's has rejected offers, [including one in December](https://www.investopedia.com/macys-shares-soar-on-reports-of-an-offer-to-take-the-retailer-private-8414058) that would have valued the company at $21 per share, but has also said it is "continuing to engage" with offers. Macy's shares rose 2.2% to $19.51 by 9:52 a.m. ET Tuesday but are down more than 2% in 2024.

Key Takeaways Macy's shares rose Tuesday as the retailer reported first-quarter results that declined from last year's levels, but not as much as analysts had expected.In the quarter, Macy's ended a proxy battle by appointing two new board members, and also announced a restructuring plan to close 150 locations as it looks to return to higher levels of profitability.The retailer also updated its guidance for the full fiscal year, lifting the bottom levels of the projected ranges for revenue and comparable sales. Shares of the iconic retailer Macy's (M) rose in intraday trading Tuesday after the release of a first-quarter earnings report that indicated the company's turnaround plan including store closures and cutting jobs is proving to be beneficial so far. Macy's had a busy quarter, ending a proxy battle in April by appointing board members from an activist investor, while also announcing a new turnaround plan that included closing 150 locations as the company has looked for ways to cut costs. The company, which operates its namesake Macy's brand along with Bloomingdale's and Bluemercury, reported first-quarter fiscal 2024 profit and revenue above analyst expectations. Total revenue came in at $5 billion, just above the $4.97 billion analysts had projected, per estimates compiled by Visible Alpha, but slightly below the $5.17 billion Macy's generated in the first quarter of 2023. The retailer made just $62 million, or 22 cents per share, in profit for the quarter, less than half of the $155 million, or 56 cents per share, it made in the year-ago quarter but above the $47.59 million and 16 cents per share analysts had estimated. Macy's also updated its guidance for the full fiscal year, narrowing its projected net sales range to $22.3 billion to $22.9 billion, lifting the lower end from its February outlook of $22.2 billion. Comparable sales for the full year are expected to range from a 1% decline to a 1.5% increase from last year's levels, slightly more optimistic than the 1.5% potential decline Macy's had previously used as the low end of the range. Turnaround Plan Progressing, Proxy Fight Over Macy's has closed hundreds of stores in recent years as retail sales have continued to shift online, and the retailer announced an official turnaround plan earlier this year that included plans to shutter 150 “underproductive” stores. While closing Macy's locations, the retailer said it planned to expand the footprint of the higher-end Bloomingdale's and Bluemercury brands while also opening more smaller-format Macy's locations that would cost less to operate. "Although early days, our investments in product, presentation and experience are gaining traction and reinforce our belief that longer-term, Macy’s, Inc. can return to sustainable, profitable growth,” Macy's Chief Executive Officer (CEO) Tony Spring said. The retailer also ended a proxy fight in the quarter, appointing a pair of board members from activist investor Arkhouse Management, which has also been bidding to take the company private with partner Brigade Capital Management. Macy's has rejected offers, including one in December that would have valued the company at $21 per share, but has also said it is "continuing to engage" with offers. Macy's shares rose 2.2% to $19.51 by 9:52 a.m. ET Tuesday but are down more than 2% in 2024.

https://www.investopedia.com/terms/b/bid-askspread.asp

What Is a Bid-Ask Spread, and How Does It Work in Trading?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-bid-ask-spread"></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 Bid-Ask Spread? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A bid-ask spread is the amount by which the ask price exceeds the bid price for an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp">asset</a> in the market. The bid-ask spread is essentially the difference between the highest price that a buyer is willing to pay for an asset and the lowest price that a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/seller.asp">seller</a> is willing to accept. </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"> An individual looking to sell will receive the bid price while one looking to buy will pay the ask price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A bid-ask spread is the difference between the highest price that a buyer is willing to pay for an asset and the lowest price that a seller is willing to accept.</li><li>The spread is the transaction cost. Price takers buy at the ask price and sell at the bid price, but the market maker buys at the bid price and sells at the ask price.</li><li>The bid represents demand and the ask represents supply for an asset.</li><li>The bid-ask spread is the de facto measure of market liquidity.</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="Bid-Ask Spread" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/FUZwosm4IZWhd8sY9lfxydMN4q0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/bid-askspread-v4-dc6919600c5b4c5084b21e24fd3c7e5e.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/FUZwosm4IZWhd8sY9lfxydMN4q0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/bid-askspread-v4-dc6919600c5b4c5084b21e24fd3c7e5e.jpg" data-srcset="https://www.investopedia.com/thmb/vq26lGwrcOB4O2JZ4ffhgxPoAPs=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/bid-askspread-v4-dc6919600c5b4c5084b21e24fd3c7e5e.jpg 750w" data-tracking-container="true" height="1000" id="mntl-sc-block-image_1-0" width="1500"/> <noscript> <img alt="Bid-Ask Spread" class="img--noscript universal-image__image" height="1000" sizes="750px" src="https://www.investopedia.com/thmb/FUZwosm4IZWhd8sY9lfxydMN4q0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/bid-askspread-v4-dc6919600c5b4c5084b21e24fd3c7e5e.jpg" srcset="https://www.investopedia.com/thmb/vq26lGwrcOB4O2JZ4ffhgxPoAPs=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/bid-askspread-v4-dc6919600c5b4c5084b21e24fd3c7e5e.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 / Zoe Hansen</p></span> </figcaption></figure> <span class="heading-toc" id="toc-understanding-bid-ask-spreads"></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 Bid-Ask Spreads </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> A security's price is the market's perception of its value at any given point in time and is unique. To understand why there is a "bid" and an "ask," one must factor in the two major players in any market transaction, namely the<strong> </strong>price taker<strong> </strong>(trader) and the market maker (counterparty). </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"> Market makers, many of which may be employed by brokerages, offer to sell securities at a given price (the ask price) and will also bid to purchase securities at a given price (the bid price). When an investor initiates a trade, they will accept one of these two prices depending on whether they wish to buy the security (ask price) or sell the security (bid price). </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 difference between these two, the spread, is the principal transaction cost of trading (outside commissions), and it is collected by the market maker through the natural flow of processing orders at the bid and ask prices. This is what financial brokerages mean when they state that their revenues are derived from traders "crossing the spread." </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The bid-ask spread can be considered a measure of the supply and demand for a particular asset. The bid can be said to represent the demand for an asset, and the ask represents the supply, so when these two prices move apart, the price action reflects a change in supply and demand. </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 depth of the "bids" and the "asks" can have a significant impact on the bid-ask spread. The spread may widen significantly if fewer participants place limit orders to buy a security (thus generating fewer bid prices) or if fewer sellers place limit orders to sell. As such, it's critical to keep the bid-ask spread in mind when placing a buy-limit order to ensure it <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/050515/when-buy-limit-order-executed.asp">executes</a> successfully. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Market makers and professional traders who recognize imminent risk in the markets may also widen the difference between the best bid and the best ask they are willing to offer at a given moment. If all market makers do this on a given security, then the quoted bid-ask spread will reflect a larger than usual size. Some high-frequency traders and market makers attempt to make money by exploiting changes in the bid-ask spread. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <span class="heading-toc" id="toc-the-bid-ask-spreads-relation-to-liquidity"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-heading__text"> The Bid-Ask Spread's Relation to Liquidity </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The size of the bid-ask spread from one asset to another differs mainly because of the difference in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp">liquidity</a> of each asset. The bid-ask spread is the <em>de facto</em> measure of market liquidity. Certain markets are more liquid than others, and that should be reflected in their lower spreads. Essentially, transaction initiators (price takers) demand liquidity while counterparties (market makers) supply liquidity. </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, currency is considered the most <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidasset.asp">liquid asset</a> in the world, and the bid-ask spread in the currency market is one of the smallest (one-hundredth of a percent); in other words, the spread can be measured in fractions of pennies. On the other hand, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/042315/what-types-stocks-have-large-difference-between-bid-and-ask-prices.asp">less liquid assets</a>, such as small-cap stocks, may have spreads that are equivalent to 1% to 2% of the asset's lowest ask price. </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"> Bid-ask spreads can also reflect the market maker's perceived risk in offering a trade. For example, options or futures contracts may have bid-ask spreads that represent a much larger percentage of their price than a forex or equities trade. The width of the spread might be based not only on liquidity but also on how quickly the prices could change. </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-bid-ask-spread-example"></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"> Bid-Ask Spread Example </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> If the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bidprice.asp">bid price</a> for a stock is $19 and the ask price for the same stock is $20, then the bid-ask spread for the stock in question is $1. The bid-ask spread can also be stated in percentage terms; it is customarily calculated as a percentage of the lowest sell price or ask price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> For the stock in the example above, the bid-ask spread in percentage terms would be calculated as $1 divided by $20 (the bid-ask spread divided by the lowest ask price) to yield a bid-ask spread of 5% ($1 / $20 x 100). This spread would close if a potential buyer offered to purchase the stock at a higher price or if a potential seller offered to sell the stock at a lower price. </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-elements-of-the-bid-ask-spread"></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"> Elements of the Bid-Ask Spread </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/trading/basics-of-the-bid-ask-spread/">Bid-ask spread trades</a> can be done in most kinds of securities, as well as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/foreign-exchange.asp">foreign exchange</a> and commodities. </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"> Traders use the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/082213/how-calculate-bidask-spread.asp">bid-ask spread</a> as an indicator of market liquidity. High friction between the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/law-of-supply-demand.asp">supply and demand</a> for that security will create a wider spread. </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"> Most traders prefer to use <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/limitorder.asp">limit orders</a> instead of market orders; this allows them to choose their own entry points rather than <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aggressor.asp">accepting the current market price</a>. There is a cost involved with the bid-ask spread, as two trades are being conducted simultaneously. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_41-0"><span class="heading-toc" id="toc-how-does-bid-ask-spread-work"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Does Bid-Ask Spread Work?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In financial markets, a bid-ask spread is the difference between the asking price and the bidding price of a security or other asset. The bid-ask spread is the difference between the highest price a buyer will offer (the bid price) and the lowest price a seller will accept (the ask price). Typically, an asset with a narrow bid-ask spread will have high demand. By contrast, assets with a wide bid-ask spread may have a low volume of demand, therefore influencing wider discrepancies in its price.</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-what-causes-a-bid-ask-spread-to-be-high"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Causes a Bid-Ask Spread to Be High?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Bid-ask spread, also known as "spread", can be high due to a number of factors. First, liquidity plays a primary role. When there is a significant amount of liquidity in a given market for a security, the spread will be tighter. Stocks that are traded heavily, such as Google, Apple, and Microsoft will have a smaller bid-ask spread.</p><p>Conversely, a bid-ask spread may be high to unknown, or unpopular securities on a given day. These could include small-cap stocks, which may have lower trading volumes, and a lower level of demand among investors.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_45-0"><span class="heading-toc" id="toc-what-is-an-example-of-a-bid-ask-spread-in-stocks"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is an Example of a Bid-Ask Spread in Stocks?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Consider the following example where a trader is looking to purchase 100 shares of Apple for $50. The trader sees that 100 shares are being offered at $50.05 in the market. Here, the spread would be $50.00 - $50.05, or $0.05 wide. While this spread may seem small or insignificant, on large trades, it can create a meaningful difference, which is why narrow spreads are typically more ideal. The total value of the bid-ask spread, in this instance, would be equal to 100 shares x $0.05, or $5.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_47-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> The bid-ask spread serves as an effective measure of liqudity, as more liquid securities will have small spreads while illiquid ones will have larger ones. Investors should keep an eye on the spread of any security they wish to buy or sell to get a sense for how frequently it trades and to decide on the type of order to use when making a transaction.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> <em>Correction—Dec. 4, 2022:</em> This article’s question-and-answer segment was edited from a previous version that incorrectly defined bid-ask spread. <br/> </p></div>

## What Is a Bid-Ask Spread? A bid-ask spread is the amount by which the ask price exceeds the bid price for an [asset](https://www.investopedia.com/terms/a/asset.asp) in the market. The bid-ask spread is essentially the difference between the highest price that a buyer is willing to pay for an asset and the lowest price that a [seller](https://www.investopedia.com/terms/s/seller.asp) is willing to accept. An individual looking to sell will receive the bid price while one looking to buy will pay the ask price. ### Key Takeaways * A bid-ask spread is the difference between the highest price that a buyer is willing to pay for an asset and the lowest price that a seller is willing to accept. * The spread is the transaction cost. Price takers buy at the ask price and sell at the bid price, but the market maker buys at the bid price and sells at the ask price. * The bid represents demand and the ask represents supply for an asset. * The bid-ask spread is the de facto measure of market liquidity. ![Bid-Ask Spread]() :max_bytes(150000):strip_icc()/bid-askspread-v4-dc6919600c5b4c5084b21e24fd3c7e5e.jpg) Investopedia / Zoe Hansen ## Understanding Bid-Ask Spreads A security's price is the market's perception of its value at any given point in time and is unique. To understand why there is a "bid" and an "ask," one must factor in the two major players in any market transaction, namely theprice taker(trader) and the market maker (counterparty). Market makers, many of which may be employed by brokerages, offer to sell securities at a given price (the ask price) and will also bid to purchase securities at a given price (the bid price). When an investor initiates a trade, they will accept one of these two prices depending on whether they wish to buy the security (ask price) or sell the security (bid price). The difference between these two, the spread, is the principal transaction cost of trading (outside commissions), and it is collected by the market maker through the natural flow of processing orders at the bid and ask prices. This is what financial brokerages mean when they state that their revenues are derived from traders "crossing the spread." The bid-ask spread can be considered a measure of the supply and demand for a particular asset. The bid can be said to represent the demand for an asset, and the ask represents the supply, so when these two prices move apart, the price action reflects a change in supply and demand. The depth of the "bids" and the "asks" can have a significant impact on the bid-ask spread. The spread may widen significantly if fewer participants place limit orders to buy a security (thus generating fewer bid prices) or if fewer sellers place limit orders to sell. As such, it's critical to keep the bid-ask spread in mind when placing a buy-limit order to ensure it [executes](https://www.investopedia.com/ask/answers/050515/when-buy-limit-order-executed.asp) successfully. Market makers and professional traders who recognize imminent risk in the markets may also widen the difference between the best bid and the best ask they are willing to offer at a given moment. If all market makers do this on a given security, then the quoted bid-ask spread will reflect a larger than usual size. Some high-frequency traders and market makers attempt to make money by exploiting changes in the bid-ask spread. ## The Bid-Ask Spread's Relation to Liquidity The size of the bid-ask spread from one asset to another differs mainly because of the difference in [liquidity](https://www.investopedia.com/terms/l/liquidity.asp) of each asset. The bid-ask spread is the *de facto* measure of market liquidity. Certain markets are more liquid than others, and that should be reflected in their lower spreads. Essentially, transaction initiators (price takers) demand liquidity while counterparties (market makers) supply liquidity. For example, currency is considered the most [liquid asset](https://www.investopedia.com/terms/l/liquidasset.asp) in the world, and the bid-ask spread in the currency market is one of the smallest (one-hundredth of a percent); in other words, the spread can be measured in fractions of pennies. On the other hand, [less liquid assets](https://www.investopedia.com/ask/answers/042315/what-types-stocks-have-large-difference-between-bid-and-ask-prices.asp), such as small-cap stocks, may have spreads that are equivalent to 1% to 2% of the asset's lowest ask price. Bid-ask spreads can also reflect the market maker's perceived risk in offering a trade. For example, options or futures contracts may have bid-ask spreads that represent a much larger percentage of their price than a forex or equities trade. The width of the spread might be based not only on liquidity but also on how quickly the prices could change. ## Bid-Ask Spread Example If the [bid price](https://www.investopedia.com/terms/b/bidprice.asp) for a stock is $19 and the ask price for the same stock is $20, then the bid-ask spread for the stock in question is $1. The bid-ask spread can also be stated in percentage terms; it is customarily calculated as a percentage of the lowest sell price or ask price. For the stock in the example above, the bid-ask spread in percentage terms would be calculated as $1 divided by $20 (the bid-ask spread divided by the lowest ask price) to yield a bid-ask spread of 5% ($1 / $20 x 100). This spread would close if a potential buyer offered to purchase the stock at a higher price or if a potential seller offered to sell the stock at a lower price. ## Elements of the Bid-Ask Spread [Bid-ask spread trades](https://www.investopedia.com/trading/basics-of-the-bid-ask-spread/) can be done in most kinds of securities, as well as [foreign exchange](https://www.investopedia.com/terms/f/foreign-exchange.asp) and commodities. Traders use the [bid-ask spread](https://www.investopedia.com/articles/investing/082213/how-calculate-bidask-spread.asp) as an indicator of market liquidity. High friction between the [supply and demand](https://www.investopedia.com/terms/l/law-of-supply-demand.asp) for that security will create a wider spread. Most traders prefer to use [limit orders](https://www.investopedia.com/terms/l/limitorder.asp) instead of market orders; this allows them to choose their own entry points rather than [accepting the current market price](https://www.investopedia.com/terms/a/aggressor.asp). There is a cost involved with the bid-ask spread, as two trades are being conducted simultaneously. ## How Does Bid-Ask Spread Work? In financial markets, a bid-ask spread is the difference between the asking price and the bidding price of a security or other asset. The bid-ask spread is the difference between the highest price a buyer will offer (the bid price) and the lowest price a seller will accept (the ask price). Typically, an asset with a narrow bid-ask spread will have high demand. By contrast, assets with a wide bid-ask spread may have a low volume of demand, therefore influencing wider discrepancies in its price. ## What Causes a Bid-Ask Spread to Be High? Bid-ask spread, also known as "spread", can be high due to a number of factors. First, liquidity plays a primary role. When there is a significant amount of liquidity in a given market for a security, the spread will be tighter. Stocks that are traded heavily, such as Google, Apple, and Microsoft will have a smaller bid-ask spread. Conversely, a bid-ask spread may be high to unknown, or unpopular securities on a given day. These could include small-cap stocks, which may have lower trading volumes, and a lower level of demand among investors. ## What Is an Example of a Bid-Ask Spread in Stocks? Consider the following example where a trader is looking to purchase 100 shares of Apple for $50. The trader sees that 100 shares are being offered at $50.05 in the market. Here, the spread would be $50.00 - $50.05, or $0.05 wide. While this spread may seem small or insignificant, on large trades, it can create a meaningful difference, which is why narrow spreads are typically more ideal. The total value of the bid-ask spread, in this instance, would be equal to 100 shares x $0.05, or $5. ## The Bottom Line The bid-ask spread serves as an effective measure of liqudity, as more liquid securities will have small spreads while illiquid ones will have larger ones. Investors should keep an eye on the spread of any security they wish to buy or sell to get a sense for how frequently it trades and to decide on the type of order to use when making a transaction. *Correction—Dec. 4, 2022:* This article’s question-and-answer segment was edited from a previous version that incorrectly defined bid-ask spread. 

What Is a Bid-Ask Spread? A bid-ask spread is the amount by which the ask price exceeds the bid price for an asset in the market. The bid-ask spread is essentially the difference between the highest price that a buyer is willing to pay for an asset and the lowest price that a seller is willing to accept. An individual looking to sell will receive the bid price while one looking to buy will pay the ask price. Key Takeaways A bid-ask spread is the difference between the highest price that a buyer is willing to pay for an asset and the lowest price that a seller is willing to accept.The spread is the transaction cost. Price takers buy at the ask price and sell at the bid price, but the market maker buys at the bid price and sells at the ask price.The bid represents demand and the ask represents supply for an asset.The bid-ask spread is the de facto measure of market liquidity. Investopedia / Zoe Hansen Understanding Bid-Ask Spreads A security's price is the market's perception of its value at any given point in time and is unique. To understand why there is a "bid" and an "ask," one must factor in the two major players in any market transaction, namely the price taker (trader) and the market maker (counterparty). Market makers, many of which may be employed by brokerages, offer to sell securities at a given price (the ask price) and will also bid to purchase securities at a given price (the bid price). When an investor initiates a trade, they will accept one of these two prices depending on whether they wish to buy the security (ask price) or sell the security (bid price). The difference between these two, the spread, is the principal transaction cost of trading (outside commissions), and it is collected by the market maker through the natural flow of processing orders at the bid and ask prices. This is what financial brokerages mean when they state that their revenues are derived from traders "crossing the spread." The bid-ask spread can be considered a measure of the supply and demand for a particular asset. The bid can be said to represent the demand for an asset, and the ask represents the supply, so when these two prices move apart, the price action reflects a change in supply and demand. The depth of the "bids" and the "asks" can have a significant impact on the bid-ask spread. The spread may widen significantly if fewer participants place limit orders to buy a security (thus generating fewer bid prices) or if fewer sellers place limit orders to sell. As such, it's critical to keep the bid-ask spread in mind when placing a buy-limit order to ensure it executes successfully. Market makers and professional traders who recognize imminent risk in the markets may also widen the difference between the best bid and the best ask they are willing to offer at a given moment. If all market makers do this on a given security, then the quoted bid-ask spread will reflect a larger than usual size. Some high-frequency traders and market makers attempt to make money by exploiting changes in the bid-ask spread. The Bid-Ask Spread's Relation to Liquidity The size of the bid-ask spread from one asset to another differs mainly because of the difference in liquidity of each asset. The bid-ask spread is the de facto measure of market liquidity. Certain markets are more liquid than others, and that should be reflected in their lower spreads. Essentially, transaction initiators (price takers) demand liquidity while counterparties (market makers) supply liquidity. For example, currency is considered the most liquid asset in the world, and the bid-ask spread in the currency market is one of the smallest (one-hundredth of a percent); in other words, the spread can be measured in fractions of pennies. On the other hand, less liquid assets, such as small-cap stocks, may have spreads that are equivalent to 1% to 2% of the asset's lowest ask price. Bid-ask spreads can also reflect the market maker's perceived risk in offering a trade. For example, options or futures contracts may have bid-ask spreads that represent a much larger percentage of their price than a forex or equities trade. The width of the spread might be based not only on liquidity but also on how quickly the prices could change. Bid-Ask Spread Example If the bid price for a stock is $19 and the ask price for the same stock is $20, then the bid-ask spread for the stock in question is $1. The bid-ask spread can also be stated in percentage terms; it is customarily calculated as a percentage of the lowest sell price or ask price. For the stock in the example above, the bid-ask spread in percentage terms would be calculated as $1 divided by $20 (the bid-ask spread divided by the lowest ask price) to yield a bid-ask spread of 5% ($1 / $20 x 100). This spread would close if a potential buyer offered to purchase the stock at a higher price or if a potential seller offered to sell the stock at a lower price. Elements of the Bid-Ask Spread Bid-ask spread trades can be done in most kinds of securities, as well as foreign exchange and commodities. Traders use the bid-ask spread as an indicator of market liquidity. High friction between the supply and demand for that security will create a wider spread. Most traders prefer to use limit orders instead of market orders; this allows them to choose their own entry points rather than accepting the current market price. There is a cost involved with the bid-ask spread, as two trades are being conducted simultaneously. How Does Bid-Ask Spread Work? In financial markets, a bid-ask spread is the difference between the asking price and the bidding price of a security or other asset. The bid-ask spread is the difference between the highest price a buyer will offer (the bid price) and the lowest price a seller will accept (the ask price). Typically, an asset with a narrow bid-ask spread will have high demand. By contrast, assets with a wide bid-ask spread may have a low volume of demand, therefore influencing wider discrepancies in its price. What Causes a Bid-Ask Spread to Be High? Bid-ask spread, also known as "spread", can be high due to a number of factors. First, liquidity plays a primary role. When there is a significant amount of liquidity in a given market for a security, the spread will be tighter. Stocks that are traded heavily, such as Google, Apple, and Microsoft will have a smaller bid-ask spread.Conversely, a bid-ask spread may be high to unknown, or unpopular securities on a given day. These could include small-cap stocks, which may have lower trading volumes, and a lower level of demand among investors. What Is an Example of a Bid-Ask Spread in Stocks? Consider the following example where a trader is looking to purchase 100 shares of Apple for $50. The trader sees that 100 shares are being offered at $50.05 in the market. Here, the spread would be $50.00 - $50.05, or $0.05 wide. While this spread may seem small or insignificant, on large trades, it can create a meaningful difference, which is why narrow spreads are typically more ideal. The total value of the bid-ask spread, in this instance, would be equal to 100 shares x $0.05, or $5. The Bottom Line The bid-ask spread serves as an effective measure of liqudity, as more liquid securities will have small spreads while illiquid ones will have larger ones. Investors should keep an eye on the spread of any security they wish to buy or sell to get a sense for how frequently it trades and to decide on the type of order to use when making a transaction. Correction—Dec. 4, 2022: This article’s question-and-answer segment was edited from a previous version that incorrectly defined bid-ask spread. 

https://www.investopedia.com/what-is-a-regional-bank-7479637

What Is a Regional Bank? How It Differs from a National Bank

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Regional banks, as defined by the Federal Reserve, are banks with $10 billion to $100 billion in assets. They’re referred to as regional <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank.asp">banks</a> because they’ve historically operated within a specific region of the country, but today, that’s not always the case. They differ from community banks and national banks in their size in terms of assets, not in the area they serve or the services they offer. </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"> Regional banks, as we define them in this article, shouldn’t be confused with the 12 regional banks that are a part 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>. Those banks, each of which is named after the city in which it’s located, serve and monitor commercial banks in those regions.<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_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>Regional banks are defined by their size in terms of assets, not the geographic area they serve. </li><li>The Federal Reserve defines a regional bank as one with $10 billion to $100 billion in assets.</li><li>Regional banks typically provide products like checking accounts, loans, and credit cards.</li><li>A regional bank may provide business banking services, especially for small businesses.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-types-of-services-do-regional-banks-offer"></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 Types of Services Do Regional Banks Offer? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Regional banks offer most of the services that consumers expect of a financial institution. In fact, they often offer the same services as national banks but with the more personal relationships of community banks. Here are a few services and products that you can expect many regional banks to offer:<span class="ql-inline-citation" data-cite="5"></span><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_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>Deposit accounts</strong>:<strong> </strong>Deposit accounts include checking accounts, savings accounts, money market accounts, and certificates of deposit (CDs).</li><li><strong>Loan products</strong>: The types of loan products that regional banks may offer include mortgages, auto loans, personal loans, and home equity loans.</li><li><strong>Business banking</strong>: In addition to personal banking services, many regional banks offer business banking services, especially for small businesses.</li><li><strong>Credit cards</strong>: Many regional banks offer credit cards and, depending on the bank, credit cards with rewards.</li><li><strong>ATMs</strong>: Regional banks typically offer ATMs at their branches, and they may offer access to a nationwide network of ATMs.</li><li><strong>Investments</strong>: Investment services may include tax-advantaged accounts, such as individual retirement accounts (IRAs). Some regional banks may offer taxable accounts.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-examples-of-regional-banks-in-the-us"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> Examples of Regional Banks in the U.S. </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The term “regional” may give the impression that regional banks are small or only serve certain areas. But many of these banks serve a large number of states and have online access nationwide. Here are some examples of some of the largest regional banks: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <li><strong>Associated Bank</strong>: Headquartered in Green Bay, Wis., Associated Bank has assets of roughly $39 billion and branches in Wisconsin, Illinois, and Minnesota.<span class="ql-inline-citation" data-cite="6"></span></li><li><strong>First National Bank of Omaha (FNBO)</strong>: FNBO has been serving customers in Nebraska for more than 165 years. Today, the company has more than $26 billion in assets and serves customers in eight states: Colorado, Illinois, Iowa, Kansas, Nebraska, South Dakota, Texas, and Wyoming.<span class="ql-inline-citation" data-cite="7"></span></li><li><strong>Flagstar Bank</strong>:<strong> </strong>Flagstar Bank, held by New York Community Bancorp, is one of the largest regional banks, with assets of $90.1 billion. It serves nine states across the Northeast and Midwest.<span class="ql-inline-citation" data-cite="8"></span></li><li><strong>Prosperity Bank</strong>:<strong> </strong>Prosperity Bank is headquartered in Houston and serves customers in two states: Texas and Oklahoma. It has $37.69 billion in assets.<span class="ql-inline-citation" data-cite="9"></span></li><li><strong>Zions Bank</strong>:<strong> </strong>Headquartered in Salt Lake City, Zions Bank has more than $90 billion in assets. It serves 11 states: Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah, Washington, and Wyoming.<span class="ql-inline-citation" data-cite="10"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <span class="heading-toc" id="toc-regional-banks-vs-community-banks-vs-national-banks"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Regional Banks vs. Community Banks vs. National Banks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Regional banks are essentially midsize banks. They’re too large to be considered community banks, but too small to be considered national banks.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_20-0"> <span class="mntl-sc-block-subheading__text"> Regional Banks vs. Community Banks </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> The Federal Reserve clearly distinguishes between community and regional banks. A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-a-community-bank-5069678">community bank</a> is defined as one with less than $10 billion in assets, while a regional bank is one with $10 billion to $100 billion in assets.<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_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> But regional banks and community banks are likely to have other differences that may be more noticeable to customers. First, community banks may have fewer services than regional banks. They might offer many of the same deposit and lending products as regional banks, but they may not have investments or insurance. </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"> Another difference often seen between community and regional banks is the size of the area they serve. Although they are not defined by this, regional banks do tend to serve larger geographic areas than community banks. </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"> Regional Banks vs. National Banks </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Unlike regional banks, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/national-bank.asp">national banks</a> aren’t necessarily defined by their asset size. According to the federal government, a national bank is one whose charter is approved by the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/office-comptroller-currency-occ.asp">Office of the Comptroller of the Currency (OCC)</a>, is a member of the Federal Reserve System, and belongs to the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp">Federal Deposit Insurance Corp. (FDIC)</a>.<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Because of this definition, a regional bank could technically also be a national bank. But many people also refer to national banks as those that operate nationwide rather than in just one part of the country, as regional banks do. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> If we consider national banks to be those that operate nationwide, then they are typically much larger banks with hundreds of billions or trillions of dollars in assets compared to the less than $100 billion in assets that regional banks have. </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"> National banks may have a wider variety of personal and commercial products, including deposit accounts, and they may even offer corporate and investment banking services. These banks are more likely to be large household names like JPMorgan Chase, Bank of America, Citibank, and Wells Fargo.<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_35-0"></div> <span class="heading-toc" id="toc-is-it-better-to-bank-at-a-regional-bank-or-a-national-bank"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> Is It Better to Bank at a Regional Bank or a National Bank? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> If you’re trying to choose between a regional or a national bank, you may find yourself wondering which is better for you. To answer that question, you’ll have to consider what you need from a bank. </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"> Maybe it’s important to you that you can get all of your financial services at one bank and that you’ll be able to find a branch even when you’re on vacation. In that case, a national bank is probably better for you. On the other hand, if you prefer a bank that’s more community-oriented, with lower fees and local branches, then you might prefer a regional bank. </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-is-a-regional-bank-safe"></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"> Is a Regional Bank Safe? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> You also might wonder if a regional bank is safer or riskier than a national bank or a community bank. </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 March 2023, the failures of Silicon Valley Bank and Signature Bank—both of which were major national banks—left customers wondering what would happen if a similar issue happened at a regional bank. The federal government quickly stepped in to respond to the failure of those, but would it do the same with a regional bank that may not be considered “too big to fail?” </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> If you have less than 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">FDIC insurance limits</a>, which is $250,000 per depositor per account category at each bank, then you don’t have to worry about losing your money if your bank fails. That’s the case for both a major national bank and a regional bank. </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-important" 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_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p><br/></p><p>The FDIC supervises banks to ensure that they aren’t taking on too many risks, and this includes regional banks. While it’s clear that the FDIC can’t always prevent a bank failure, it helps ensure banks are taking on an appropriate amount of risk so as to not put depositors’ money at risk.<span class="ql-inline-citation" data-cite="13"></span><br/></p></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_50-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">Pros and Cons of Regional Banks</th> </tr> </thead> <tbody data-check="-1"> <tr> <td><b>Pros</b></td> <td><b>Cons</b></td> </tr> <tr> <td>Typically wider range of services than community banks</td> <td>Fewer branches than national banks</td> </tr> <tr> <td>Larger number of branches than community banks</td> <td>Often have fewer services than national banks</td> </tr> <tr> <td>May have lower fees than national banks</td> <td></td> </tr> <tr> <td>More community involvement than national banks</td> <td></td> </tr> </tbody> </table> </div></figure> <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-big-are-regional-banks"></span> <h2 class="mntl-sc-block-questionandanswer__question">How big are regional banks?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A regional bank is one that has more than $10 billion but less than $100 billion in assets. Regional banks can come in different forms, as some may serve just one or two states, while others serve many.<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_53-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_54-0"><span class="heading-toc" id="toc-how-do-regional-banks-make-money"></span> <h2 class="mntl-sc-block-questionandanswer__question">How do regional banks make money?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Regional banks make money in the same way as any other bank. First, they make money on the interest from the loans they offer. While they also pay interest on savings and other deposit accounts, there’s generally a spread that serves as the bank’s cut.<span class="ql-inline-citation" data-cite="14"></span> </p><p>Regional banks also make money on fees they charge. Regional banks often don’t charge as many (or as high of) fees as national banks, but they still are likely to charge some fees, including account fees, loan fees, overdraft fees, and more. Finally, banks make money from the interest earned on the securities they hold.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_56-0"><span class="heading-toc" id="toc-what-are-super-regional-banks"></span> <h2 class="mntl-sc-block-questionandanswer__question">What are super regional banks?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/super-regional-bank.asp">super regional bank</a> is a type of regional bank, generally one with more than $50 billion in assets, that serves a large geographic area. Super regional banks aren’t necessarily defined in the same way as regional banks, and some banks that may not be considered regional banks under the Federal Reserve’s definition may be considered super regional banks.<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_57-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_58-0"><span class="heading-toc" id="toc-why-do-we-need-regional-banks"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why do we need regional banks?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Regional banks serve an important role in the U.S. economy. Regional and other small banks provide important financial services that families and small businesses need, Treasury Secretary Janet Yellen said in a March 2023 statement. They have also helped with the economic recovery during the pandemic and have created competition in the banking sector.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_60-0"><span class="heading-toc" id="toc-how-much-of-regional-bank-deposits-are-not-insured"></span> <h2 class="mntl-sc-block-questionandanswer__question">How much of regional bank deposits are not insured?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The Federal Deposit Insurance Corp. (FDIC) insures up to $250,000 per deposit per account category at each bank. But many depositors have larger balances that aren’t fully insured. In fact, Wedbush Securities data reviewed by Investopedia shows that some regional banks have more than half of their total deposits as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/regional-insured-deposits-7255798">uninsured deposits</a>. That shortfall could represent a significant amount of money that may not be recovered after a bank failure.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_62-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> Regional banks serve an important role for consumers. For many people, their local regional bank provides all of the services they need. And these banks usually have more branches and services than community banks, while being more community-oriented than major national banks. </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"> When opening an account with a regional bank, as with any other bank, try to make sure your deposits are below the $250,000 threshold for FDIC insurance so that your funds will be fully protected. If you have more money to deposit, consider opening another account at another bank. </p></div>

Regional banks, as defined by the Federal Reserve, are banks with $10 billion to $100 billion in assets. They’re referred to as regional [banks](https://www.investopedia.com/terms/b/bank.asp) because they’ve historically operated within a specific region of the country, but today, that’s not always the case. They differ from community banks and national banks in their size in terms of assets, not in the area they serve or the services they offer. Regional banks, as we define them in this article, shouldn’t be confused with the 12 regional banks that are a part of the [Federal Reserve System](https://www.investopedia.com/terms/f/federalreservebank.asp). Those banks, each of which is named after the city in which it’s located, serve and monitor commercial banks in those regions. ### Key Takeaways * Regional banks are defined by their size in terms of assets, not the geographic area they serve. * The Federal Reserve defines a regional bank as one with $10 billion to $100 billion in assets. * Regional banks typically provide products like checking accounts, loans, and credit cards. * A regional bank may provide business banking services, especially for small businesses. ## What Types of Services Do Regional Banks Offer? Regional banks offer most of the services that consumers expect of a financial institution. In fact, they often offer the same services as national banks but with the more personal relationships of community banks. Here are a few services and products that you can expect many regional banks to offer: * **Deposit accounts**:Deposit accounts include checking accounts, savings accounts, money market accounts, and certificates of deposit (CDs). * **Loan products**: The types of loan products that regional banks may offer include mortgages, auto loans, personal loans, and home equity loans. * **Business banking**: In addition to personal banking services, many regional banks offer business banking services, especially for small businesses. * **Credit cards**: Many regional banks offer credit cards and, depending on the bank, credit cards with rewards. * **ATMs**: Regional banks typically offer ATMs at their branches, and they may offer access to a nationwide network of ATMs. * **Investments**: Investment services may include tax-advantaged accounts, such as individual retirement accounts (IRAs). Some regional banks may offer taxable accounts. ## Examples of Regional Banks in the U.S. The term “regional” may give the impression that regional banks are small or only serve certain areas. But many of these banks serve a large number of states and have online access nationwide. Here are some examples of some of the largest regional banks: * **Associated Bank**: Headquartered in Green Bay, Wis., Associated Bank has assets of roughly $39 billion and branches in Wisconsin, Illinois, and Minnesota. * **First National Bank of Omaha (FNBO)**: FNBO has been serving customers in Nebraska for more than 165 years. Today, the company has more than $26 billion in assets and serves customers in eight states: Colorado, Illinois, Iowa, Kansas, Nebraska, South Dakota, Texas, and Wyoming. * **Flagstar Bank**:Flagstar Bank, held by New York Community Bancorp, is one of the largest regional banks, with assets of $90.1 billion. It serves nine states across the Northeast and Midwest. * **Prosperity Bank**:Prosperity Bank is headquartered in Houston and serves customers in two states: Texas and Oklahoma. It has $37.69 billion in assets. * **Zions Bank**:Headquartered in Salt Lake City, Zions Bank has more than $90 billion in assets. It serves 11 states: Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah, Washington, and Wyoming. ## Regional Banks vs. Community Banks vs. National Banks Regional banks are essentially midsize banks. They’re too large to be considered community banks, but too small to be considered national banks.  ### Regional Banks vs. Community Banks The Federal Reserve clearly distinguishes between community and regional banks. A [community bank](https://www.investopedia.com/what-is-a-community-bank-5069678) is defined as one with less than $10 billion in assets, while a regional bank is one with $10 billion to $100 billion in assets. But regional banks and community banks are likely to have other differences that may be more noticeable to customers. First, community banks may have fewer services than regional banks. They might offer many of the same deposit and lending products as regional banks, but they may not have investments or insurance. Another difference often seen between community and regional banks is the size of the area they serve. Although they are not defined by this, regional banks do tend to serve larger geographic areas than community banks. ### Regional Banks vs. National Banks Unlike regional banks, [national banks](https://www.investopedia.com/terms/n/national-bank.asp) aren’t necessarily defined by their asset size. According to the federal government, a national bank is one whose charter is approved by the [Office of the Comptroller of the Currency (OCC)](https://www.investopedia.com/terms/o/office-comptroller-currency-occ.asp), is a member of the Federal Reserve System, and belongs to the [Federal Deposit Insurance Corp. (FDIC)](https://www.investopedia.com/terms/f/fdic.asp). Because of this definition, a regional bank could technically also be a national bank. But many people also refer to national banks as those that operate nationwide rather than in just one part of the country, as regional banks do. If we consider national banks to be those that operate nationwide, then they are typically much larger banks with hundreds of billions or trillions of dollars in assets compared to the less than $100 billion in assets that regional banks have. National banks may have a wider variety of personal and commercial products, including deposit accounts, and they may even offer corporate and investment banking services. These banks are more likely to be large household names like JPMorgan Chase, Bank of America, Citibank, and Wells Fargo. ## Is It Better to Bank at a Regional Bank or a National Bank? If you’re trying to choose between a regional or a national bank, you may find yourself wondering which is better for you. To answer that question, you’ll have to consider what you need from a bank. Maybe it’s important to you that you can get all of your financial services at one bank and that you’ll be able to find a branch even when you’re on vacation. In that case, a national bank is probably better for you. On the other hand, if you prefer a bank that’s more community-oriented, with lower fees and local branches, then you might prefer a regional bank. ## Is a Regional Bank Safe? You also might wonder if a regional bank is safer or riskier than a national bank or a community bank. In March 2023, the failures of Silicon Valley Bank and Signature Bank—both of which were major national banks—left customers wondering what would happen if a similar issue happened at a regional bank. The federal government quickly stepped in to respond to the failure of those, but would it do the same with a regional bank that may not be considered “too big to fail?” If you have less than the [FDIC insurance limits](https://www.investopedia.com/terms/f/fdic-insured-account.asp), which is $250,000 per depositor per account category at each bank, then you don’t have to worry about losing your money if your bank fails. That’s the case for both a major national bank and a regional bank. ### The FDIC supervises banks to ensure that they aren’t taking on too many risks, and this includes regional banks. While it’s clear that the FDIC can’t always prevent a bank failure, it helps ensure banks are taking on an appropriate amount of risk so as to not put depositors’ money at risk. | Pros and Cons of Regional Banks | | | --- | --- | | **Pros** | **Cons** | | Typically wider range of services than community banks | Fewer branches than national banks | | Larger number of branches than community banks | Often have fewer services than national banks | | May have lower fees than national banks | | | More community involvement than national banks | | ## How big are regional banks? A regional bank is one that has more than $10 billion but less than $100 billion in assets. Regional banks can come in different forms, as some may serve just one or two states, while others serve many. ## How do regional banks make money? Regional banks make money in the same way as any other bank. First, they make money on the interest from the loans they offer. While they also pay interest on savings and other deposit accounts, there’s generally a spread that serves as the bank’s cut.  Regional banks also make money on fees they charge. Regional banks often don’t charge as many (or as high of) fees as national banks, but they still are likely to charge some fees, including account fees, loan fees, overdraft fees, and more. Finally, banks make money from the interest earned on the securities they hold. ## What are super regional banks? A [super regional bank](https://www.investopedia.com/terms/s/super-regional-bank.asp) is a type of regional bank, generally one with more than $50 billion in assets, that serves a large geographic area. Super regional banks aren’t necessarily defined in the same way as regional banks, and some banks that may not be considered regional banks under the Federal Reserve’s definition may be considered super regional banks. ## Why do we need regional banks? Regional banks serve an important role in the U.S. economy. Regional and other small banks provide important financial services that families and small businesses need, Treasury Secretary Janet Yellen said in a March 2023 statement. They have also helped with the economic recovery during the pandemic and have created competition in the banking sector. ## How much of regional bank deposits are not insured? The Federal Deposit Insurance Corp. (FDIC) insures up to $250,000 per deposit per account category at each bank. But many depositors have larger balances that aren’t fully insured. In fact, Wedbush Securities data reviewed by Investopedia shows that some regional banks have more than half of their total deposits as [uninsured deposits](https://www.investopedia.com/regional-insured-deposits-7255798). That shortfall could represent a significant amount of money that may not be recovered after a bank failure. ## The Bottom Line Regional banks serve an important role for consumers. For many people, their local regional bank provides all of the services they need. And these banks usually have more branches and services than community banks, while being more community-oriented than major national banks. When opening an account with a regional bank, as with any other bank, try to make sure your deposits are below the $250,000 threshold for FDIC insurance so that your funds will be fully protected. If you have more money to deposit, consider opening another account at another bank.

Regional banks, as defined by the Federal Reserve, are banks with $10 billion to $100 billion in assets. They’re referred to as regional banks because they’ve historically operated within a specific region of the country, but today, that’s not always the case. They differ from community banks and national banks in their size in terms of assets, not in the area they serve or the services they offer. Regional banks, as we define them in this article, shouldn’t be confused with the 12 regional banks that are a part of the Federal Reserve System. Those banks, each of which is named after the city in which it’s located, serve and monitor commercial banks in those regions. Key Takeaways Regional banks are defined by their size in terms of assets, not the geographic area they serve. The Federal Reserve defines a regional bank as one with $10 billion to $100 billion in assets.Regional banks typically provide products like checking accounts, loans, and credit cards.A regional bank may provide business banking services, especially for small businesses. What Types of Services Do Regional Banks Offer? Regional banks offer most of the services that consumers expect of a financial institution. In fact, they often offer the same services as national banks but with the more personal relationships of community banks. Here are a few services and products that you can expect many regional banks to offer: Deposit accounts: Deposit accounts include checking accounts, savings accounts, money market accounts, and certificates of deposit (CDs).Loan products: The types of loan products that regional banks may offer include mortgages, auto loans, personal loans, and home equity loans.Business banking: In addition to personal banking services, many regional banks offer business banking services, especially for small businesses.Credit cards: Many regional banks offer credit cards and, depending on the bank, credit cards with rewards.ATMs: Regional banks typically offer ATMs at their branches, and they may offer access to a nationwide network of ATMs.Investments: Investment services may include tax-advantaged accounts, such as individual retirement accounts (IRAs). Some regional banks may offer taxable accounts. Examples of Regional Banks in the U.S. The term “regional” may give the impression that regional banks are small or only serve certain areas. But many of these banks serve a large number of states and have online access nationwide. Here are some examples of some of the largest regional banks: Associated Bank: Headquartered in Green Bay, Wis., Associated Bank has assets of roughly $39 billion and branches in Wisconsin, Illinois, and Minnesota.First National Bank of Omaha (FNBO): FNBO has been serving customers in Nebraska for more than 165 years. Today, the company has more than $26 billion in assets and serves customers in eight states: Colorado, Illinois, Iowa, Kansas, Nebraska, South Dakota, Texas, and Wyoming.Flagstar Bank: Flagstar Bank, held by New York Community Bancorp, is one of the largest regional banks, with assets of $90.1 billion. It serves nine states across the Northeast and Midwest.Prosperity Bank: Prosperity Bank is headquartered in Houston and serves customers in two states: Texas and Oklahoma. It has $37.69 billion in assets.Zions Bank: Headquartered in Salt Lake City, Zions Bank has more than $90 billion in assets. It serves 11 states: Arizona, California, Colorado, Idaho, Nevada, New Mexico, Oregon, Texas, Utah, Washington, and Wyoming. Regional Banks vs. Community Banks vs. National Banks Regional banks are essentially midsize banks. They’re too large to be considered community banks, but too small to be considered national banks.  Regional Banks vs. Community Banks The Federal Reserve clearly distinguishes between community and regional banks. A community bank is defined as one with less than $10 billion in assets, while a regional bank is one with $10 billion to $100 billion in assets. But regional banks and community banks are likely to have other differences that may be more noticeable to customers. First, community banks may have fewer services than regional banks. They might offer many of the same deposit and lending products as regional banks, but they may not have investments or insurance. Another difference often seen between community and regional banks is the size of the area they serve. Although they are not defined by this, regional banks do tend to serve larger geographic areas than community banks. Regional Banks vs. National Banks Unlike regional banks, national banks aren’t necessarily defined by their asset size. According to the federal government, a national bank is one whose charter is approved by the Office of the Comptroller of the Currency (OCC), is a member of the Federal Reserve System, and belongs to the Federal Deposit Insurance Corp. (FDIC). Because of this definition, a regional bank could technically also be a national bank. But many people also refer to national banks as those that operate nationwide rather than in just one part of the country, as regional banks do. If we consider national banks to be those that operate nationwide, then they are typically much larger banks with hundreds of billions or trillions of dollars in assets compared to the less than $100 billion in assets that regional banks have. National banks may have a wider variety of personal and commercial products, including deposit accounts, and they may even offer corporate and investment banking services. These banks are more likely to be large household names like JPMorgan Chase, Bank of America, Citibank, and Wells Fargo. Is It Better to Bank at a Regional Bank or a National Bank? If you’re trying to choose between a regional or a national bank, you may find yourself wondering which is better for you. To answer that question, you’ll have to consider what you need from a bank. Maybe it’s important to you that you can get all of your financial services at one bank and that you’ll be able to find a branch even when you’re on vacation. In that case, a national bank is probably better for you. On the other hand, if you prefer a bank that’s more community-oriented, with lower fees and local branches, then you might prefer a regional bank. Is a Regional Bank Safe? You also might wonder if a regional bank is safer or riskier than a national bank or a community bank. In March 2023, the failures of Silicon Valley Bank and Signature Bank—both of which were major national banks—left customers wondering what would happen if a similar issue happened at a regional bank. The federal government quickly stepped in to respond to the failure of those, but would it do the same with a regional bank that may not be considered “too big to fail?” If you have less than the FDIC insurance limits, which is $250,000 per depositor per account category at each bank, then you don’t have to worry about losing your money if your bank fails. That’s the case for both a major national bank and a regional bank. The FDIC supervises banks to ensure that they aren’t taking on too many risks, and this includes regional banks. While it’s clear that the FDIC can’t always prevent a bank failure, it helps ensure banks are taking on an appropriate amount of risk so as to not put depositors’ money at risk. Pros and Cons of Regional Banks Pros Cons Typically wider range of services than community banks Fewer branches than national banks Larger number of branches than community banks Often have fewer services than national banks May have lower fees than national banks More community involvement than national banks How big are regional banks? A regional bank is one that has more than $10 billion but less than $100 billion in assets. Regional banks can come in different forms, as some may serve just one or two states, while others serve many. How do regional banks make money? Regional banks make money in the same way as any other bank. First, they make money on the interest from the loans they offer. While they also pay interest on savings and other deposit accounts, there’s generally a spread that serves as the bank’s cut. Regional banks also make money on fees they charge. Regional banks often don’t charge as many (or as high of) fees as national banks, but they still are likely to charge some fees, including account fees, loan fees, overdraft fees, and more. Finally, banks make money from the interest earned on the securities they hold. What are super regional banks? A super regional bank is a type of regional bank, generally one with more than $50 billion in assets, that serves a large geographic area. Super regional banks aren’t necessarily defined in the same way as regional banks, and some banks that may not be considered regional banks under the Federal Reserve’s definition may be considered super regional banks. Why do we need regional banks? Regional banks serve an important role in the U.S. economy. Regional and other small banks provide important financial services that families and small businesses need, Treasury Secretary Janet Yellen said in a March 2023 statement. They have also helped with the economic recovery during the pandemic and have created competition in the banking sector. How much of regional bank deposits are not insured? The Federal Deposit Insurance Corp. (FDIC) insures up to $250,000 per deposit per account category at each bank. But many depositors have larger balances that aren’t fully insured. In fact, Wedbush Securities data reviewed by Investopedia shows that some regional banks have more than half of their total deposits as uninsured deposits. That shortfall could represent a significant amount of money that may not be recovered after a bank failure. The Bottom Line Regional banks serve an important role for consumers. For many people, their local regional bank provides all of the services they need. And these banks usually have more branches and services than community banks, while being more community-oriented than major national banks. When opening an account with a regional bank, as with any other bank, try to make sure your deposits are below the $250,000 threshold for FDIC insurance so that your funds will be fully protected. If you have more money to deposit, consider opening another account at another bank.

https://www.investopedia.com/google-considering-putting-some-ai-search-features-behind-paywall-8624618

Google Reportedly Considering Putting Some AI Search Features Behind Paywall

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Google is reportedly considering putting some of its AI-powered search features behind a paywall, while keeping its normal search engine free.</li><li>The possible changes reflect Google's efforts to counter the problem of AI chatbots cutting into the advertising revenue it makes on search.</li><li>The move would represent Google's first time putting its core search product behind a paywall.<br/></li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Alphabet's (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOGL">GOOGL</a>) Google is reportedly considering charging for some <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-powered (AI)</a> search features, in what would mark the first time the tech giant has moved its core search product behind a paywall. </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"> Some of Google's products have premium features like increased cloud storage or <a data-component="link" data-ordinal="1" 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">more advanced models</a> of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/google-unveils-gemini-8411373">Gemini AI chatbot</a>, but selling ads has long been the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/020515/business-google.asp">primary revenue draw</a> for its search engine. Now, the tech giant is considering trying to take advantage of its search dominance by adding certain AI search features to its existing premium subscription programs, according to a <em>Financial Times </em>report.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The potential changes come after more than a year of Google's work to understand what impact AI chatbots like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-chatgpt-7094342">OpenAI's ChatGPT</a> could have on Google's search revenue, as chatbot usage could lead some people to limit or stop using Google Search, diminishing their likelihood of seeing or clicking on the ads that generate billions of dollars every year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Some AI features have been tested with certain groups of users, like adding an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/google-ai-push-new-features-search-maps-7496370">AI-generated summary</a> for a search while also displaying the same page of links and advertising underneath, but that could create a similar problem. </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 AI-generated summary is more expensive to create for users, as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/economic-impact-of-generative-ai-7976252">AI models</a> need more computing power than the normal search engine, and getting a sufficient answer from the AI summary could still mean users don't click through to sponsored links, meaning Google could be cutting into its own revenue while providing a free service that is more expensive to operate. </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"> Citing people familiar with the company's thinking, the <em>FT </em>reported that no final decisions have been made on which tiers of the existing subscription models features will be added to, or which AI features could be added.<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"> Google told Investopedia that the company is "not working on or considering" creating an ad-free search experience, but that it will “continue to build new premium capabilities and services to enhance our subscription offerings across Google."<br/><br/>“For years, we’ve been reinventing Search to help people access information in the way that’s most natural to them,” Google said. “With our generative AI experiments in Search, we’ve already served billions of queries, and we’re seeing positive Search query growth in all of our major markets. We’re continuing to rapidly improve the product to serve new user needs.” </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"> Google parent Alphabet's stock price fell 2.8% to $151.94 Thursday. Shares have gained close to 9% so far this year, and nearly 45% in the last 12 months as it has benefitted from the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-to-expect-from-magnificent-7-in-2024-more-gains-from-ai-8418549">AI boom</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> <em>UPDATE—April 4, 2024: This article has been updated to reflect a statement by Google and more recent share price information.</em> </p></div>

### Key Takeaways * Google is reportedly considering putting some of its AI-powered search features behind a paywall, while keeping its normal search engine free. * The possible changes reflect Google's efforts to counter the problem of AI chatbots cutting into the advertising revenue it makes on search. * The move would represent Google's first time putting its core search product behind a paywall. Alphabet's ([GOOGL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOGL)) Google is reportedly considering charging for some [artificial intelligence-powered (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) search features, in what would mark the first time the tech giant has moved its core search product behind a paywall. Some of Google's products have premium features like increased cloud storage or [more advanced models](https://www.investopedia.com/why-google-is-rebranding-its-bard-ai-chatbot-as-gemini-with-a-new-app-and-subscription-8572209) of the [Gemini AI chatbot](https://www.investopedia.com/google-unveils-gemini-8411373), but selling ads has long been the [primary revenue draw](https://www.investopedia.com/articles/investing/020515/business-google.asp) for its search engine. Now, the tech giant is considering trying to take advantage of its search dominance by adding certain AI search features to its existing premium subscription programs, according to a *Financial Times* report. The potential changes come after more than a year of Google's work to understand what impact AI chatbots like [OpenAI's ChatGPT](https://www.investopedia.com/what-is-chatgpt-7094342) could have on Google's search revenue, as chatbot usage could lead some people to limit or stop using Google Search, diminishing their likelihood of seeing or clicking on the ads that generate billions of dollars every year. Some AI features have been tested with certain groups of users, like adding an [AI-generated summary](https://www.investopedia.com/google-ai-push-new-features-search-maps-7496370) for a search while also displaying the same page of links and advertising underneath, but that could create a similar problem. The AI-generated summary is more expensive to create for users, as [AI models](https://www.investopedia.com/economic-impact-of-generative-ai-7976252) need more computing power than the normal search engine, and getting a sufficient answer from the AI summary could still mean users don't click through to sponsored links, meaning Google could be cutting into its own revenue while providing a free service that is more expensive to operate. Citing people familiar with the company's thinking, the *FT* reported that no final decisions have been made on which tiers of the existing subscription models features will be added to, or which AI features could be added. Google told Investopedia that the company is "not working on or considering" creating an ad-free search experience, but that it will “continue to build new premium capabilities and services to enhance our subscription offerings across Google." “For years, we’ve been reinventing Search to help people access information in the way that’s most natural to them,” Google said. “With our generative AI experiments in Search, we’ve already served billions of queries, and we’re seeing positive Search query growth in all of our major markets. We’re continuing to rapidly improve the product to serve new user needs.” Google parent Alphabet's stock price fell 2.8% to $151.94 Thursday. Shares have gained close to 9% so far this year, and nearly 45% in the last 12 months as it has benefitted from the [AI boom](https://www.investopedia.com/what-to-expect-from-magnificent-7-in-2024-more-gains-from-ai-8418549). *UPDATE—April 4, 2024: This article has been updated to reflect a statement by Google and more recent share price information.*

Key Takeaways Google is reportedly considering putting some of its AI-powered search features behind a paywall, while keeping its normal search engine free.The possible changes reflect Google's efforts to counter the problem of AI chatbots cutting into the advertising revenue it makes on search.The move would represent Google's first time putting its core search product behind a paywall. Alphabet's (GOOGL) Google is reportedly considering charging for some artificial intelligence-powered (AI) search features, in what would mark the first time the tech giant has moved its core search product behind a paywall. Some of Google's products have premium features like increased cloud storage or more advanced models of the Gemini AI chatbot, but selling ads has long been the primary revenue draw for its search engine. Now, the tech giant is considering trying to take advantage of its search dominance by adding certain AI search features to its existing premium subscription programs, according to a Financial Times report. The potential changes come after more than a year of Google's work to understand what impact AI chatbots like OpenAI's ChatGPT could have on Google's search revenue, as chatbot usage could lead some people to limit or stop using Google Search, diminishing their likelihood of seeing or clicking on the ads that generate billions of dollars every year. Some AI features have been tested with certain groups of users, like adding an AI-generated summary for a search while also displaying the same page of links and advertising underneath, but that could create a similar problem. The AI-generated summary is more expensive to create for users, as AI models need more computing power than the normal search engine, and getting a sufficient answer from the AI summary could still mean users don't click through to sponsored links, meaning Google could be cutting into its own revenue while providing a free service that is more expensive to operate. Citing people familiar with the company's thinking, the FT reported that no final decisions have been made on which tiers of the existing subscription models features will be added to, or which AI features could be added. Google told Investopedia that the company is "not working on or considering" creating an ad-free search experience, but that it will “continue to build new premium capabilities and services to enhance our subscription offerings across Google."“For years, we’ve been reinventing Search to help people access information in the way that’s most natural to them,” Google said. “With our generative AI experiments in Search, we’ve already served billions of queries, and we’re seeing positive Search query growth in all of our major markets. We’re continuing to rapidly improve the product to serve new user needs.” Google parent Alphabet's stock price fell 2.8% to $151.94 Thursday. Shares have gained close to 9% so far this year, and nearly 45% in the last 12 months as it has benefitted from the AI boom. UPDATE—April 4, 2024: This article has been updated to reflect a statement by Google and more recent share price information.

https://www.investopedia.com/ask/answers/102714/thrift-savings-plan-tsp-qualified-retirement-plan.asp

How Does a Thrift Savings Plan (TSP) Work?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-thrift-savings-plan"></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 Thrift Savings Plan? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The Federal Employees' Retirement Security Act of 1986 established the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/thrift_savings_plan.asp">Thrift Savings Plan</a>, or TSP. It is a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/qrp.asp">qualified retirement plan</a> for federal employees and members of the uniformed services. The Thrift Savings Plan is a defined contribution plan similar to a 401(k), which is a plan offered by companies in the private sector.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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>Thrift Savings Plans are retirement plans for federal employees and members of the uniformed services.<span class="ql-inline-citation" data-cite="1"></span></li> <li>They are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/thrift-savings-plan-vs-401-k-5212330">similar to 401(k) plans</a> in that contributions are pre-tax and may receive matching contributions.<span class="ql-inline-citation" data-cite="11"></span><span class="ql-inline-citation" data-cite="10"></span></li> <li>Government employees can contribute up to $22,500 to a TSP in 2023 (increasing to $23,000 in 2024). If they are 50 or older, they can contribute an additional $7,500 each in both 2023 and 2024.<span class="ql-inline-citation" data-cite="7"></span></li> <li>Savers have the option of choosing among five core funds or a target-date fund that combines percentages of the five core funds.<span class="ql-inline-citation" data-cite="8"></span></li> <li>As with other retirement plans, the most important thing is to start early.</li> </ul></div></div></div> <span class="heading-toc" id="toc-understanding-a-thrift-savings-plan"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding a Thrift Savings Plan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The Thrift Savings Plan was introduced in 1986 through the Federal Employees Retirement System Act. A TSP allows federal workers to invest in a tax-advantaged retirement account. Much like an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ira.asp">IRA</a>, there are traditional TSPs, in which money is taxed when you withdraw it, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/roth-tsp-vs-roth-ira-how-do-they-compare-4770656">Roth TSPs</a>, where you pay taxes on contributions but the earnings are tax-free.<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"> Unlike IRAs, the contribution limits are quite a bit higher. In 2023, you can deposit $22,500 to a TSP (increasing to $23,000 in 2024), unless you're 50 and over, in which case the limit is $30,000 in 2023 (increasing to $30,500 in 2024).<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_11-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_12-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>After two years, most employees are eligible for a full match of up to 5% of their salary. That's free money.<span class="ql-inline-citation" data-cite="12"></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"> If you are part of the Federal Employee Retirement System (FERS) or the Blended Retirement System (BRS), your agency may match your contributions. Most agencies automatically contribute 1% of your salary to a TSP and an additional 4% after two years of service.<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_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:67.5%;"> <img alt="What to Know About Thrift Savings Plans" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/XT392Dm32gcQpv3g3y5MzhFW9jQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/thrift-savings-plan-tsp-qualified-retirement-plan.asp-final-08f6180377a54a26938e3efc76da5624.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/XT392Dm32gcQpv3g3y5MzhFW9jQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/thrift-savings-plan-tsp-qualified-retirement-plan.asp-final-08f6180377a54a26938e3efc76da5624.jpg" data-srcset="https://www.investopedia.com/thmb/Eu_o1TFS8j1IXacViwVl5Hsbarw=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/thrift-savings-plan-tsp-qualified-retirement-plan.asp-final-08f6180377a54a26938e3efc76da5624.jpg 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="What to Know About Thrift Savings Plans" class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/XT392Dm32gcQpv3g3y5MzhFW9jQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/thrift-savings-plan-tsp-qualified-retirement-plan.asp-final-08f6180377a54a26938e3efc76da5624.jpg" srcset="https://www.investopedia.com/thmb/Eu_o1TFS8j1IXacViwVl5Hsbarw=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/thrift-savings-plan-tsp-qualified-retirement-plan.asp-final-08f6180377a54a26938e3efc76da5624.jpg 750w" width="4000"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Jake Shi</p></span> </figcaption></figure> <span class="heading-toc" id="toc-investing-in-a-tsp"></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"> Investing in a TSP </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The Thrift Savings Plan accepts <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rollover.asp">rollovers</a> from previous retirement plans such as an old 401(k) or IRA. Likewise, if a participant terminates employment and goes to work in the private sector, the Thrift Savings Plan account can either remain intact or be rolled over into the new employer's plan or to a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/traditionalira.asp">traditional IRA</a>.<span class="ql-inline-citation" data-cite="13"></span><span class="ql-inline-citation" data-cite="14"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Although the Thrift Savings Plan is limited in its available investment options, it does offer a low-cost way for government workers to save efficiently for retirement. As with other qualified retirement plans, the participant can choose and allocate any percentage of their assets into any desired funds.<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_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> The available funds are below.<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_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"> Individual Funds </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> <li>The G fund, which invests in government securities, such as Treasuries</li> <li>The F fund, which invests in corporate and government bonds</li> <li>The C fund, an index fund representing the S&amp;P 500</li> <li>The S fund, a small-cap stock index fund—riskier than the C fund, with higher potential gains</li> <li>The I fund, an international stock index fund that mirrors the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/eafe_index.asp">MSCI EAFE Index</a>—the riskiest individual fund, with the highest potential assets</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"> Lifecycle Fund </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> A sixth choice is to invest in the Lifecycle Fund, containing a percentage of all five individual funds. As the Lifecycle Fund approaches maturity, the funds in the portfolio are rebalanced towards less risky assets.<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> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_29-0"><span class="heading-toc" id="toc-what-is-the-contribution-limit-for-the-thrift-savings-plan"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Contribution Limit for the Thrift Savings Plan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The annual contribution limit for the Thrift Savings Plan is $22,500 in 2023 and $23,000 in 2024. If you are 50 and older, you can contribute an additional $7,500 each in both 2023 and 2024.<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_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-difference-between-a-thrift-savings-plan-and-a-401k"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between a Thrift Savings Plan and a 401(k)?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The Thrift Savings Plan is a qualified retirement plan for federal employees and members of the uniformed service. A 401(k) plan is a qualified retirement plan for the private sector. Both plans have the same contribution limits and are structured similarly but there are some differences.<span class="ql-inline-citation" data-cite="7"></span><span class="ql-inline-citation" data-cite="1"></span><span class="ql-inline-citation" data-cite="10"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-happens-to-my-thrift-savings-plan-if-i-quit-my-job"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Happens to My Thrift Savings Plan if I Quit My Job?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you quit your job, your Thrift Savings Plan will remain as is if the balance is $200 or more, and it will continue earning. You can control the account and make adjustments to your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/5-best-investments-for-military-families-5198722">investments</a> but you cannot make any more contributions.<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_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 Thrift Savings Plan is a major compensation for employees of the federal government and armed services. Not only does it provide a tax-advantaged form of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/retirement-saving-and-investing-for-military-personnel-5193117">retirement savings</a>, but the government will also match employees' contributions to help them save for retirement. As with other retirement plans, the most important thing is to start early. </p></div>

## What Is a Thrift Savings Plan? The Federal Employees' Retirement Security Act of 1986 established the [Thrift Savings Plan](https://www.investopedia.com/terms/t/thrift_savings_plan.asp), or TSP. It is a [qualified retirement plan](https://www.investopedia.com/terms/q/qrp.asp) for federal employees and members of the uniformed services. The Thrift Savings Plan is a defined contribution plan similar to a 401(k), which is a plan offered by companies in the private sector. ### Key Takeaways * Thrift Savings Plans are retirement plans for federal employees and members of the uniformed services. * They are [similar to 401(k) plans](https://www.investopedia.com/thrift-savings-plan-vs-401-k-5212330) in that contributions are pre-tax and may receive matching contributions. * Government employees can contribute up to $22,500 to a TSP in 2023 (increasing to $23,000 in 2024). If they are 50 or older, they can contribute an additional $7,500 each in both 2023 and 2024. * Savers have the option of choosing among five core funds or a target-date fund that combines percentages of the five core funds. * As with other retirement plans, the most important thing is to start early. ## Understanding a Thrift Savings Plan The Thrift Savings Plan was introduced in 1986 through the Federal Employees Retirement System Act. A TSP allows federal workers to invest in a tax-advantaged retirement account. Much like an [IRA](https://www.investopedia.com/terms/i/ira.asp), there are traditional TSPs, in which money is taxed when you withdraw it, and [Roth TSPs](https://www.investopedia.com/roth-tsp-vs-roth-ira-how-do-they-compare-4770656), where you pay taxes on contributions but the earnings are tax-free. Unlike IRAs, the contribution limits are quite a bit higher. In 2023, you can deposit $22,500 to a TSP (increasing to $23,000 in 2024), unless you're 50 and over, in which case the limit is $30,000 in 2023 (increasing to $30,500 in 2024). ### After two years, most employees are eligible for a full match of up to 5% of their salary. That's free money. If you are part of the Federal Employee Retirement System (FERS) or the Blended Retirement System (BRS), your agency may match your contributions. Most agencies automatically contribute 1% of your salary to a TSP and an additional 4% after two years of service. ![What to Know About Thrift Savings Plans]() :max_bytes(150000):strip_icc()/thrift-savings-plan-tsp-qualified-retirement-plan.asp-final-08f6180377a54a26938e3efc76da5624.jpg) Investopedia / Jake Shi ## Investing in a TSP The Thrift Savings Plan accepts [rollovers](https://www.investopedia.com/terms/r/rollover.asp) from previous retirement plans such as an old 401(k) or IRA. Likewise, if a participant terminates employment and goes to work in the private sector, the Thrift Savings Plan account can either remain intact or be rolled over into the new employer's plan or to a [traditional IRA](https://www.investopedia.com/terms/t/traditionalira.asp). Although the Thrift Savings Plan is limited in its available investment options, it does offer a low-cost way for government workers to save efficiently for retirement. As with other qualified retirement plans, the participant can choose and allocate any percentage of their assets into any desired funds. The available funds are below. ### Individual Funds * The G fund, which invests in government securities, such as Treasuries * The F fund, which invests in corporate and government bonds * The C fund, an index fund representing the S&P 500 * The S fund, a small-cap stock index fund—riskier than the C fund, with higher potential gains * The I fund, an international stock index fund that mirrors the [MSCI EAFE Index](https://www.investopedia.com/terms/e/eafe_index.asp)—the riskiest individual fund, with the highest potential assets ### Lifecycle Fund A sixth choice is to invest in the Lifecycle Fund, containing a percentage of all five individual funds. As the Lifecycle Fund approaches maturity, the funds in the portfolio are rebalanced towards less risky assets. ## What Is the Contribution Limit for the Thrift Savings Plan? The annual contribution limit for the Thrift Savings Plan is $22,500 in 2023 and $23,000 in 2024. If you are 50 and older, you can contribute an additional $7,500 each in both 2023 and 2024. ## What Is the Difference Between a Thrift Savings Plan and a 401(k)? The Thrift Savings Plan is a qualified retirement plan for federal employees and members of the uniformed service. A 401(k) plan is a qualified retirement plan for the private sector. Both plans have the same contribution limits and are structured similarly but there are some differences. ## What Happens to My Thrift Savings Plan if I Quit My Job? If you quit your job, your Thrift Savings Plan will remain as is if the balance is $200 or more, and it will continue earning. You can control the account and make adjustments to your [investments](https://www.investopedia.com/5-best-investments-for-military-families-5198722) but you cannot make any more contributions. ## The Bottom Line A Thrift Savings Plan is a major compensation for employees of the federal government and armed services. Not only does it provide a tax-advantaged form of [retirement savings](https://www.investopedia.com/retirement-saving-and-investing-for-military-personnel-5193117), but the government will also match employees' contributions to help them save for retirement. As with other retirement plans, the most important thing is to start early.

What Is a Thrift Savings Plan? The Federal Employees' Retirement Security Act of 1986 established the Thrift Savings Plan, or TSP. It is a qualified retirement plan for federal employees and members of the uniformed services. The Thrift Savings Plan is a defined contribution plan similar to a 401(k), which is a plan offered by companies in the private sector. Key Takeaways Thrift Savings Plans are retirement plans for federal employees and members of the uniformed services. They are similar to 401(k) plans in that contributions are pre-tax and may receive matching contributions. Government employees can contribute up to $22,500 to a TSP in 2023 (increasing to $23,000 in 2024). If they are 50 or older, they can contribute an additional $7,500 each in both 2023 and 2024. Savers have the option of choosing among five core funds or a target-date fund that combines percentages of the five core funds. As with other retirement plans, the most important thing is to start early. Understanding a Thrift Savings Plan The Thrift Savings Plan was introduced in 1986 through the Federal Employees Retirement System Act. A TSP allows federal workers to invest in a tax-advantaged retirement account. Much like an IRA, there are traditional TSPs, in which money is taxed when you withdraw it, and Roth TSPs, where you pay taxes on contributions but the earnings are tax-free. Unlike IRAs, the contribution limits are quite a bit higher. In 2023, you can deposit $22,500 to a TSP (increasing to $23,000 in 2024), unless you're 50 and over, in which case the limit is $30,000 in 2023 (increasing to $30,500 in 2024). After two years, most employees are eligible for a full match of up to 5% of their salary. That's free money. If you are part of the Federal Employee Retirement System (FERS) or the Blended Retirement System (BRS), your agency may match your contributions. Most agencies automatically contribute 1% of your salary to a TSP and an additional 4% after two years of service. Investopedia / Jake Shi Investing in a TSP The Thrift Savings Plan accepts rollovers from previous retirement plans such as an old 401(k) or IRA. Likewise, if a participant terminates employment and goes to work in the private sector, the Thrift Savings Plan account can either remain intact or be rolled over into the new employer's plan or to a traditional IRA. Although the Thrift Savings Plan is limited in its available investment options, it does offer a low-cost way for government workers to save efficiently for retirement. As with other qualified retirement plans, the participant can choose and allocate any percentage of their assets into any desired funds. The available funds are below. Individual Funds The G fund, which invests in government securities, such as Treasuries The F fund, which invests in corporate and government bonds The C fund, an index fund representing the S&P 500 The S fund, a small-cap stock index fund—riskier than the C fund, with higher potential gains The I fund, an international stock index fund that mirrors the MSCI EAFE Index—the riskiest individual fund, with the highest potential assets Lifecycle Fund A sixth choice is to invest in the Lifecycle Fund, containing a percentage of all five individual funds. As the Lifecycle Fund approaches maturity, the funds in the portfolio are rebalanced towards less risky assets. What Is the Contribution Limit for the Thrift Savings Plan? The annual contribution limit for the Thrift Savings Plan is $22,500 in 2023 and $23,000 in 2024. If you are 50 and older, you can contribute an additional $7,500 each in both 2023 and 2024. What Is the Difference Between a Thrift Savings Plan and a 401(k)? The Thrift Savings Plan is a qualified retirement plan for federal employees and members of the uniformed service. A 401(k) plan is a qualified retirement plan for the private sector. Both plans have the same contribution limits and are structured similarly but there are some differences. What Happens to My Thrift Savings Plan if I Quit My Job? If you quit your job, your Thrift Savings Plan will remain as is if the balance is $200 or more, and it will continue earning. You can control the account and make adjustments to your investments but you cannot make any more contributions. The Bottom Line A Thrift Savings Plan is a major compensation for employees of the federal government and armed services. Not only does it provide a tax-advantaged form of retirement savings, but the government will also match employees' contributions to help them save for retirement. As with other retirement plans, the most important thing is to start early.

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Best No-Medical-Exam Life Insurance Companies

<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="bio-icon--finance"><svg viewbox="0 0 34.4 34.4" xmlns="http://www.w3.org/2000/svg"><path d="M17.2 0a17.2 17.2 0 1 0 17.2 17.2A17.2 17.2 0 0 0 17.2 0zm-2.39 28a1.55 1.55 0 0 1-1.59-1.66 10.87 10.87 0 0 1 .43-2.56l1.83-7.41a4.39 4.39 0 0 0 .18-1.05c0-.66-.47-.64-1.57.15l-.64.44-.45-.56c1.69-1.74 3.52-3 5.15-3 1.07 0 1.45.73 1.45 1.66a14.56 14.56 0 0 1-.52 3.11l-1.78 7a4.45 4.45 0 0 0-.14 1c0 .7.52.7 1.54.06l.81-.5.44.56C18.48 26.63 16.7 28 14.81 28zm3.58-17.47a2 2 0 0 1-2.06-2 2.11 2.11 0 0 1 2.18-2.13 2 2 0 0 1 2.09 2 2.14 2.14 0 0 1-2.21 2.13z"></path></svg></symbol> <symbol id="star-icon"><svg viewbox="0 0 12.5 12.1" xmlns="http://www.w3.org/2000/svg"><path d="M6.2 0 8.2 4 12.5 4.6 9.4 7.7 10.1 12.1 6.2 10 2.4 12.1 3.1 7.7 0 4.6 4.3 4z"></path></svg></symbol> <symbol id="litho-comparison-table__arrow-icon"><svg fill="none" height="48" width="48" xmlns="http://www.w3.org/2000/svg"><circle cx="24" cy="24" fill="var(--color-1, white)" opacity=".72" r="24"></circle><path d="M30.284 8.697c-.396-.385-1.038-.385-1.434 0L13.927 23.21c-.396.385-.396 1.009 0 1.394s1.038.385 1.434 0l14.923-14.512c.396-.385.396-1.009 0-1.394z" fill="var(--color-2, #333333)"></path><path d="M30.283 39.303c-.396.385-1.038.385-1.434 0L13.926 24.791c-.396-.385-.396-1.009 0-1.394s1.038-.385 1.434 0l14.924 14.512c.396.385.396 1.009 0 1.394z" fill="var(--color-3, #333333)"></path></svg></symbol> </defs> </svg> <span class="comp external-content mntl-external-component" id="external-content_1-0"><div class="u-font-carbon--dd112"> <div class="comp product-roundup-content--finance product-roundup--base product-roundup--base" data-tracking-container="true" data-tracking-id="PRM Roundup | PRM Template" id="product-roundup-content--finance_1-0"> <div class="article-content"> <div class="article-intro article-content__description article-container expert-content structured-content text-passage"> <div class="comp intro-content prm-sc-page mntl-sc-page mntl-block" id="intro-content_1-0"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0"> No-medical-exam life insurance refers to any life insurance policy you can apply for without taking a medical exam. Instead of an exam, you answer health questions and the insurance company checks your medical and other records. You may also have a phone interview in some cases. It's best suited for the healthiest applicants. But if you qualify, you can get a policy within a few days, or sometimes instantly online. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0-1"> To select the best no-medical-exam life insurance companies, we analyzed more than 50 data points across 91 companies and calculated scores based on the following categories: no-med-exam availability and features (28% of score), policy types and features (20%), financial stability (15%), customer satisfaction (15%), ease of application (13%), and online resources. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp intro-content prm-sc-page mntl-sc-page mntl-block --> <div class="comp js-toc-appear 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 No-Medical-Exam Life Insurance </h2> <ul class="summary-list__content"> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Best Overall:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://dotdash.covrtech.com?utm_carrier=Nationwide&amp;utm_journey=term" rel="nofollow noopener nocaes" target="_blank">Nationwide</a><!-- end: summary-list__item-top-pick --> </span> </li> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Best for Financial Stability:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="http://dotdash.covrtech.com/?utm_carrier=Guardian&amp;utm_journey=bridge" rel="nofollow noopener nocaes" target="_blank">Guardian</a><!-- end: summary-list__item-top-pick --> </span> </li> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Best for High Coverage:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="http://dotdash.covrtech.com/?utm_carrier=PennMutual&amp;utm_journey=bridge" rel="nofollow noopener nocaes" target="_blank">Penn Mutual</a><!-- end: summary-list__item-top-pick --> </span> </li> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Fewest Complaints :</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="http://dotdash.covrtech.com/?utm_carrier=PacificLife&amp;utm_journey=term" rel="nofollow noopener nocaes" target="_blank">Pacific Life Insurance</a><!-- end: summary-list__item-top-pick --> </span> </li> </ul> </div><!-- end: comp js-toc-appear product-roundup-content__summary-list summary-list--finance summary-list--roundup summary-list --> <div class="comp product-roundup-expertise-block expertise-block" id="product-roundup-expertise-block_1-0"> <div class="expertise-block__header"> <span class="expertise-block__heading"> Why Trust Us </span> <div class="expertise-block__chevron"></div> </div> <div class="expertise-block__data-points"> <div class="expertise-block__data-point"> <span class="expertise-block__data-point-heading icon-companies-reviewed"> 91 </span> <div class="expertise-block__data-point-content"> Companies reviewed </div> </div> <div class="expertise-block__data-point"> <span class="expertise-block__data-point-heading icon-eat-features-considered"> 55 </span> <div class="expertise-block__data-point-content"> Features considered </div> </div> <div class="expertise-block__data-point"> <span class="expertise-block__data-point-heading icon-eat-analyzed"> 5,005 </span> <div class="expertise-block__data-point-content"> Data points analyzed </div> </div> </div> <span class="expertise-block__content"> We collected over 5,000 data points from 91 life insurance companies to measure financial stability, customer satisfaction, product and feature variety, and the overall buying experience. We then evaluated each company based on 55 metrics to develop unbiased, comprehensive reviews. <div class="expertise-block__section-link"> <a href="https://www.investopedia.com/life-insurance-review-methodology-5071427">Read our Full Methodology</a> </div> </span> </div><!-- end: comp product-roundup-expertise-block expertise-block --> <div class="comp post-intro prm-sc-page mntl-sc-page mntl-block" id="post-intro_1-0"> <div class="comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p><a data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://dotdash.covrtech.com/" rel="nofollow">Compare life insurance quotes</a> with our partner Covr Financial from multiple providers before buying.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> </div><!-- end: comp post-intro prm-sc-page mntl-sc-page mntl-block --> </div> <div class="article-body"> <div class="loc article-left-nav article-body__left-nav product-roundup__left-nav js-sticky-container"> <div class="comp sticky-toc-widget sticky-toc--finance product-roundup__toc sticky-toc--finance-roundup sticky-toc--roundup sticky-toc--base mntl-sticky-toc mntl-block" data-chop-desktop="false" data-chop-mobile="false" data-desktop-bp="54em" data-tracking-container="true" id="product-roundup__toc_1-0"> <div class="comp toc-wrapper mntl-toc mntl-block" data-chop-mobile="true" data-offset="60" data-tracking-container="true" id="toc-wrapper_1-0"> <div class="comp mntl-toc__inner mntl-block" id="mntl-toc__inner_1-0"> <div class="comp js-toc-toggle mntl-toc__heading mntl-block" data-click-tracked="true" id="mntl-toc__heading_1-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_1-0"> Best No-Medical-Exam Life Insurance Companies</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> <div class="comp mntl-toc-toggle mntl-block" id="mntl-toc-toggle_1-0"> <button class="comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block" data-collapsed-text="Expand" data-expanded-text="Expand" id="mntl-toc-toggle__btn_1-0"> Expand</button><!-- end: comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block --> </div><!-- end: comp mntl-toc-toggle mntl-block --> </div><!-- end: comp js-toc-toggle mntl-toc__heading mntl-block --> <div class="comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block" data-click-action="OnPageClick-Best No-Medical-Exam Life Insurance Companies" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__mobile-toggle_1-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_2-0"> Best No-Medical-Exam Life Insurance Companies</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> </div><!-- end: comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block --> <ul class="comp mntl-toc__list-heading expert-content mntl-toc__list" id="mntl-toc__list_1-0"> <li class="comp toc__listsc-item mntl-toc-list-item mntl-toc__list-item" id="toc__listsc-item_1-0"> <a class="mntl-toc__list-item-link js-mntl-toc-link" href="#summary-list" rel="nocaes"> <span class="link__wrapper">Our Top Picks</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp toc__listsc-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Nationwide" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_1-0"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Nationwide" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-nationwide" rel="nocaes"> <span class="link__wrapper">Nationwide</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Guardian" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_1-0-1"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Guardian" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-guardian" rel="nocaes"> <span class="link__wrapper">Guardian</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Penn Mutual" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_1-0-2"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Penn Mutual" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-penn-mutual" rel="nocaes"> <span class="link__wrapper">Penn Mutual</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item nested-toc-item--additional mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Pacific Life Insurance" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_1-0-3"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Pacific Life Insurance" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-pacific-life-insurance" rel="nocaes"> <span class="link__wrapper">Pacific Life Insurance</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item nested-toc-item--additional mntl-toc-list-item mntl-toc__list-item --> <li class="comp toc-items__chop mntl-text-block" data-click-action="OnPageClick-See More" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="toc-items__chop_1-0"> See More (1)</li><!-- end: comp toc-items__chop mntl-text-block --> <li class="comp mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Compare Providers" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_2-0"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Compare Providers" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#comparison-table" rel="nocaes"> <span class="link__wrapper">Compare Providers</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp mntl-toc-list-item mntl-toc__list-item --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Final Verdict" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-final-verdict" id="mntl-toc__list-item-link_1-0" rel="nocaes"><span class="link__wrapper">Final Verdict</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-1"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-1"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-How To Choose a No-Medical-Exam Life Insurance Policy" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-to-choose-a-no-medical-exam-life-insurance-policy" id="mntl-toc__list-item-link_1-0-1" rel="nocaes"><span class="link__wrapper">How To Choose a No-Medical-Exam Life Insurance Policy</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-More Ratings of Top Life Insurance Companies" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-more-ratings-of-top-life-insurance-companies" id="mntl-toc__list-item-link_1-0-2" rel="nocaes"><span class="link__wrapper">More Ratings of Top Life Insurance Companies</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-3"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-3"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Frequently Asked Questions" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-frequently-asked-questions-d9e7dfa5-b102-4780-9dd9-1839b29c9480" id="mntl-toc__list-item-link_1-0-3" rel="nocaes"><span class="link__wrapper">Frequently Asked Questions</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-4"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-4"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Methodology" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-methodology" id="mntl-toc__list-item-link_1-0-4" rel="nocaes"><span class="link__wrapper">Methodology</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> </ul><!-- end: comp mntl-toc__list-heading expert-content mntl-toc__list --> </div><!-- end: comp mntl-toc__inner mntl-block --> </div><!-- end: comp toc-wrapper mntl-toc mntl-block --> </div><!-- end: comp sticky-toc-widget sticky-toc--finance product-roundup__toc sticky-toc--finance-roundup sticky-toc--roundup sticky-toc--base mntl-sticky-toc mntl-block --> </div> <div class="loc article-body__inner article-body__inner"> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0"> <span class="heading-toc" id="toc-nationwide"></span> <h3 class="comp list-sc-item__heading split-text--roundup-title split-text" data-click-action="Null" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Header" id="list-sc-item__heading_1-0"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best Overall</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Nationwide</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"> <!-- basically identifies commerce, but "isRetailer" is more generic --> <!-- Leave support for 3x2 ratio, default to 2x1 aspect ratio--> <!-- Update the SASS variable used to scale up images smaller than 1500px--> <div class="prm-sc-block-productrecord__imageHolder" style="--imgWidth: 435px"> <figure class="loc productrecord__logo figure-media figure-2x1 figure-landscape mntl-sc-block mntl-sc-block-image figure-high-res upscaleImg"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Nationwide" class="lazyload figure-2x1 universal-image__image" data-expand="1500" data-src="https://www.investopedia.com/thmb/vK0LcsEiU7jmBkXsKOGzwRvSiPQ=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/nationwide-c7e044965321488fa128e15ecace9bea.png" height="750" width="1500"/> <noscript> <img alt="Nationwide" class="img--noscript figure-2x1 universal-image__image" height="750" src="https://www.investopedia.com/thmb/vK0LcsEiU7jmBkXsKOGzwRvSiPQ=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/nationwide-c7e044965321488fa128e15ecace9bea.png" width="1500"/> </noscript> </div> </figure> </div> <div class="prm-sc-block-productrecord__specs"> <!-- Product Attribute List --> <ul class="comp mntl-sc-block mntl-sc-block-html prm-sc-block-productrecord__attributes"> <li class="key-spec infocat-prop__aMBestRating"> <span class="key-spec__title has-tooltip"> <strong>AM Best Rating:</strong> <span class="key-spec__tooltip tooltip-trigger"> <svg class="icon bio-icon--finance"> <use xlink:href="#bio-icon--finance" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </span> <span class="key-spec__tooltip-bubble tooltip-bubble">AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations.</span> </span> A+ </li> <li class="key-spec infocat-prop__acceptsCreditCards"> <span class="key-spec__title"> <strong>Accepts Credit Cards:</strong> </span> Yes </li> </ul> <!-- CTA Button (commerce button) --> <div class="loc cta productrecord__cta-button" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock - Button"> <a class="mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Covr" data-tracking-container="false" href="https://dotdash.covrtech.com?utm_carrier=Nationwide&amp;utm_journey=term" id="mntl-commerce-btn_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Get A Quote</span></a><!-- end: mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button --> </div> </div> </div> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-1"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>No-medical-exam life insurance with up to $5 million in coverage</p></li> <li><p>Excellent customer satisfaction</p></li> <li><p>A wide range of policy types</p></li> <li><p>Three living benefits included in most policies</p></li> <li><p>Allows credit card payments</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-med-exam coverage limit less impressive if you’re 50+</p></li> <li><p>Burial insurance only available to existing policyholders</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-2"> Nationwide is a well-rounded, financially stable life insurer that delivers across categories. That’s why it’s also our top pick for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-life-insurance-companies-4845858">best life insurance companies</a>. The company offers up to $5 million of coverage without requiring eligible applicants to undergo a medical exam. This is the second-highest amount among our top picks, and no-exam underwriting is available for most policy types.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-3"> Nationwide offers a wide range of policy types, and most include three free <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/insurance/10/living-and-death-benefit-riders.asp">living benefit riders</a>. They may let you access part of your death benefit while you’re still alive if you’re diagnosed with a chronic, critical, or terminal illness. Of the 91 life insurance companies we reviewed, Nationwide is one of only a handful to offer such a benefit.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-4"> Nationwide is also one of the few life insurance companies to accept credit card payments. And customers take notice—the company ranked second in a J.D. Power customer satisfaction survey and has received very few customer complaints over the past three years, according to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nainsurancec.asp">National Association of Insurance Commissioners (NAIC)</a>.<span class="ql-inline-citation" data-cite="11"></span>  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-5"> However, if you’re over 50, Nationwide’s no-med-exam options are less generous, only allowing you up to $1 million if you’re 51 to 60 years old. While that may be sufficient for many applicants, it’s far less than what some competitors offer for this age group. The company also offers <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/final-expense-insurance-4801018">burial insurance</a> with up to $50,000 in coverage that doesn’t require a medical exam. But it’s only available to existing Nationwide policyholders. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="loc post-content tabbed-sc-block__content tabbed-sc-block__post-content"> <div class="comp tabbed-sc-block--review-link infocat-review-link link" data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock" id="tabbed-sc-block--review-link_1-0-5"> Read the Full <a data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="false" data-tracking-id="PRM Roundup | ProductRecordBlock" href="https://www.investopedia.com/nationwide-life-insurance-review-5112884" id="tabbed-sc-block--review-link_1-0-5" rel="noopener nocaes" target="_blank"><span class="">Nationwide Life Insurance Review</span></a><!-- end: --></div><!-- end: comp tabbed-sc-block--review-link infocat-review-link link --> </div> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0-1"> <span class="heading-toc" id="toc-guardian"></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 Financial Stability</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Guardian</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"> <!-- basically identifies commerce, but "isRetailer" is more generic --> <!-- Leave support for 3x2 ratio, default to 2x1 aspect ratio--> <!-- Update the SASS variable used to scale up images smaller than 1500px--> <div class="prm-sc-block-productrecord__imageHolder" style="--imgWidth: 0px"> <figure class="loc productrecord__logo figure-media figure-2x1 figure-landscape mntl-sc-block mntl-sc-block-image figure-high-res"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Guardian Life Insurance" class="lazyload figure-2x1 universal-image__image" data-expand="1500" data-src="https://www.investopedia.com/thmb/4EfG8a3dCuRY3XJxDPel1YR0inY=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/guardian-direct-0e2cba3724c6431b8596de415fd325ad.jpg" height="750" width="1500"/> <noscript> <img alt="Guardian Life Insurance" class="img--noscript figure-2x1 universal-image__image" height="750" src="https://www.investopedia.com/thmb/4EfG8a3dCuRY3XJxDPel1YR0inY=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/guardian-direct-0e2cba3724c6431b8596de415fd325ad.jpg" width="1500"/> </noscript> </div> </figure> </div> <div class="prm-sc-block-productrecord__specs"> <!-- Product Attribute List --> <ul class="comp mntl-sc-block mntl-sc-block-html prm-sc-block-productrecord__attributes"> <li class="key-spec infocat-prop__aMBestRating"> <span class="key-spec__title has-tooltip"> <strong>AM Best Rating:</strong> <span class="key-spec__tooltip tooltip-trigger"> <svg class="icon bio-icon--finance"> <use xlink:href="#bio-icon--finance" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </span> <span class="key-spec__tooltip-bubble tooltip-bubble">AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations.</span> </span> A++ </li> <li class="key-spec infocat-prop__acceptsCreditCards"> <span class="key-spec__title"> <strong>Accepts Credit Cards:</strong> </span> Yes </li> </ul> <!-- CTA Button (commerce button) --> <div class="loc cta productrecord__cta-button" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock - Button"> <a class="mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Covr" data-tracking-container="false" href="http://dotdash.covrtech.com/?utm_carrier=Guardian&amp;utm_journey=bridge" id="mntl-commerce-btn_1-0-1" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Get A Quote</span></a><!-- end: mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button --> </div> </div> </div> <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>No-med-exam life insurance with up to $3 million in coverage</p></li> <li><p>Highest financial stability rating</p></li> <li><p>Very few customer complaints relative to its size</p></li> <li><p>Policies are eligible for dividends</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 website information</p></li> <li><p>No online application</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-8"> Guardian offers up to $3 million in coverage without a medical exam to applicants up to 50 years old. Though not as substantial a sum as either Penn Mutual or Nationwide, it’s sufficient for many applicants. But aside from its no-medical-exam coverage, Guardian is a standout company. For starters, it’s the only one on this list to have secured an A++ rating from AM Best for financial strength. An A++ is the ratings agency’s highest grade and indicates that Guardian has a “superior” ability to pay its claims.<span class="ql-inline-citation" data-cite="12"></span> In fact, only nine of the 91 insurers we reviewed were rated so highly.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-9"> On top of this, Guardian has received very few customer complaints over the past few years and pays dividends to eligible policyholders. However, the company did not do so well in the J.D. Power customer customer survey—out of 21 of the largest life insurers, it came in 11th, with a score that was just below average.<span class="ql-inline-citation" data-cite="11"></span> There is also very little policy-specific information on Guardian’s website, which could be problematic if you prefer to research a company’s offerings without contacting an agent. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="loc post-content tabbed-sc-block__content tabbed-sc-block__post-content"> <div class="comp tabbed-sc-block--review-link infocat-review-link link" data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock" id="tabbed-sc-block--review-link_1-0-9"> Read the Full <a data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="false" data-tracking-id="PRM Roundup | ProductRecordBlock" href="https://www.investopedia.com/guardian-life-insurance-review-5078357" id="tabbed-sc-block--review-link_1-0-9" rel="noopener nocaes" target="_blank"><span class="">Guardian Life Insurance Review</span></a><!-- end: --></div><!-- end: comp tabbed-sc-block--review-link infocat-review-link link --> </div> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0-2"> <span class="heading-toc" id="toc-penn-mutual"></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 High Coverage</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Penn Mutual</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"> <!-- basically identifies commerce, but "isRetailer" is more generic --> <!-- Leave support for 3x2 ratio, default to 2x1 aspect ratio--> <!-- Update the SASS variable used to scale up images smaller than 1500px--> <div class="prm-sc-block-productrecord__imageHolder" style="--imgWidth: 0px"> <figure class="loc productrecord__logo figure-media figure-3x2 figure-landscape mntl-sc-block mntl-sc-block-image figure-high-res"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Penn Mutual" class="lazyload figure-3x2 universal-image__image" data-expand="1500" data-src="https://www.investopedia.com/thmb/OIAwGmSNfQBGZYEElBCvuV7myg0=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Penn_Mutual-70902c2bb7a04b4087d9cc4970c53f87.jpg" height="1000" width="1500"/> <noscript> <img alt="Penn Mutual" class="img--noscript figure-3x2 universal-image__image" height="1000" src="https://www.investopedia.com/thmb/OIAwGmSNfQBGZYEElBCvuV7myg0=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Penn_Mutual-70902c2bb7a04b4087d9cc4970c53f87.jpg" width="1500"/> </noscript> </div> </figure> </div> <div class="prm-sc-block-productrecord__specs"> <!-- Product Attribute List --> <ul class="comp mntl-sc-block mntl-sc-block-html prm-sc-block-productrecord__attributes"> <li class="key-spec infocat-prop__aMBestRating"> <span class="key-spec__title has-tooltip"> <strong>AM Best Rating:</strong> <span class="key-spec__tooltip tooltip-trigger"> <svg class="icon bio-icon--finance"> <use xlink:href="#bio-icon--finance" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </span> <span class="key-spec__tooltip-bubble tooltip-bubble">AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations.</span> </span> A+ </li> <li class="key-spec infocat-prop__acceptsCreditCards"> <span class="key-spec__title"> <strong>Accepts Credit Cards:</strong> </span> Yes </li> </ul> <!-- CTA Button (commerce button) --> <div class="loc cta productrecord__cta-button" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock - Button"> <a class="mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Covr" data-tracking-container="false" href="http://dotdash.covrtech.com/?utm_carrier=PennMutual&amp;utm_journey=bridge" id="mntl-commerce-btn_1-0-2" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Get A Quote</span></a><!-- end: mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button --> </div> </div> </div> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-11"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>No-med-exam life insurance with up to $7.5 million in coverage</p></li> <li><p>No-med-exam life insurance available to 64-year-olds</p></li> <li><p>Strong dividend-paying history</p></li> <li><p>Well-priced term policies</p></li> <li><p>Very few customer complaints relative to its size</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 website information</p></li> <li><p>Online applications not available</p></li> <li><p>Quotes not available on website</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-12"> Penn Mutual takes the cake when it comes to high-coverage and high-issue-age no-medical-exam life insurance. The company offers up to $7.5 million in coverage to applicants as old as 64. Of the 91 life insurance carriers we reviewed, no other offered this much coverage without an exam. Nor did any other company offer no-medical-exam life insurance over $1 million to 64 year olds without receipt of recent lab work and an attending physician’s statement (APS).  </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"> Penn Mutual pays dividends on eligible policies and has done every year so for the past 174 years, which is one reason it made our list of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-whole-life-insurance-4845955">best whole life insurance companies</a>. Plus, the company offers very well-priced term policies for a range of age groups and has a very low incidence of customer complaints, given its size, according to the NAIC. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-14"> But Penn Mutual’s website leaves a lot to be desired. Not only are quotes unavailable, but there’s little information on what the company actually offers. To better understand your options and policy-specific features, you’ll need to reach out to an agent. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="loc post-content tabbed-sc-block__content tabbed-sc-block__post-content"> <div class="comp tabbed-sc-block--review-link infocat-review-link link" data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock" id="tabbed-sc-block--review-link_1-0-14"> Read the Full <a data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="false" data-tracking-id="PRM Roundup | ProductRecordBlock" href="https://www.investopedia.com/penn-mutual-life-insurance-review-5181706" id="tabbed-sc-block--review-link_1-0-14" rel="noopener nocaes" target="_blank"><span class="">Penn Mutual Life Insurance Review</span></a><!-- end: --></div><!-- end: comp tabbed-sc-block--review-link infocat-review-link link --> </div> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0-3"> <span class="heading-toc" id="toc-pacific-life-insurance"></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">Fewest Complaints </span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Pacific Life Insurance</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <div class="comp list-sc-item__rating product-rating" id="list-sc-item__rating_1-0"> <span class="product-rating__rating-label noskim"> Investopedia's Rating </span> <div alt="4.1 out of 5 stars" class="comp star-rating" id="star-rating_5-0"> <span class="star-rating__label">4.1</span> <div class="star-rating__stars" data-rating-caption=""> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-1 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-2 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-3 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-4 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <svg height="0" style="position: absolute;" width="0"> <defs> <lineargradient id="linear-star-rating_5-0" x1="0%" x2="100%" y1="0%" y2="0%"> <stop offset="20%" stop-color="#333e8b"></stop> <stop offset="20%" stop-color="#d5d5d5"></stop> </lineargradient> </defs> </svg> <div class="star-rating__quarter-full star-rating__icon star-rating__star-5 star-rating_star-icon" style="fill: url(#linear-star-rating_5-0);"> <svg viewbox="0 0 12.5 12.1" xmlns="http://www.w3.org/2000/svg"><path d="M6.2 0 8.2 4 12.5 4.6 9.4 7.7 10.1 12.1 6.2 10 2.4 12.1 3.1 7.7 0 4.6 4.3 4z"></path></svg> </div> </div> </div></div><!-- end: comp star-rating --> </div><!-- end: comp list-sc-item__rating product-rating --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0-3"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-3"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-3"> <div class="tabbed-sc-block-intro"> <!-- basically identifies commerce, but "isRetailer" is more generic --> <!-- Leave support for 3x2 ratio, default to 2x1 aspect ratio--> <!-- Update the SASS variable used to scale up images smaller than 1500px--> <div class="prm-sc-block-productrecord__imageHolder" style="--imgWidth: 0px"> <figure class="loc productrecord__logo figure-media figure-3x2 figure-landscape mntl-sc-block mntl-sc-block-image figure-high-res"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Pacific Life" class="lazyload figure-3x2 universal-image__image" data-expand="1500" data-src="https://www.investopedia.com/thmb/-qc0pVNtJBqmCCH3mOzrEBpD5Rg=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Pacific_Life-2bf5a1184e4c410b98703ba637bf8b24.jpg" height="1000" width="1500"/> <noscript> <img alt="Pacific Life" class="img--noscript figure-3x2 universal-image__image" height="1000" src="https://www.investopedia.com/thmb/-qc0pVNtJBqmCCH3mOzrEBpD5Rg=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Pacific_Life-2bf5a1184e4c410b98703ba637bf8b24.jpg" width="1500"/> </noscript> </div> </figure> </div> <div class="prm-sc-block-productrecord__specs"> <!-- Product Attribute List --> <ul class="comp mntl-sc-block mntl-sc-block-html prm-sc-block-productrecord__attributes"> <li class="key-spec infocat-prop__aMBestRating"> <span class="key-spec__title has-tooltip"> <strong>AM Best Rating:</strong> <span class="key-spec__tooltip tooltip-trigger"> <svg class="icon bio-icon--finance"> <use xlink:href="#bio-icon--finance" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </span> <span class="key-spec__tooltip-bubble tooltip-bubble">AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations.</span> </span> A+ </li> <li class="key-spec infocat-prop__acceptsCreditCards"> <span class="key-spec__title"> <strong>Accepts Credit Cards:</strong> </span> No </li> </ul> <!-- CTA Button (commerce button) --> <div class="loc cta productrecord__cta-button" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock - Button"> <a class="mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Covr" data-tracking-container="false" href="http://dotdash.covrtech.com/?utm_carrier=PacificLife&amp;utm_journey=term" id="mntl-commerce-btn_1-0-3" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Get A Quote</span></a><!-- end: mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button --> </div> </div> </div> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-16"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>No-med-exam life insurance with up to $5 million in coverage</p></li> <li><p>High issue ages for no-med-exam coverage</p></li> <li><p>Outstanding customer satisfaction</p></li> <li><p>Affordable term coverage</p></li> <li><p>Policy details are online</p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Quotes unavailable on the website</p></li> <li><p>Can’t apply without an agent</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-17"> Pacific Life leads the pack when it comes to the fewest complaints received relative to company size over a three year period. In fact, of the 91 insurers we reviewed, only two other companies received fewer (they each got zero complaints). Pacific Life also comes in fourth out of 21 companies in J.D. Power’s customer satisfaction survey.<span class="ql-inline-citation" data-cite="11"></span>  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-18"> The company offers coverage up to $5 million without a medical exam to applicants up to 50 years old, and $3 million to applicants up to 60. Many companies that offer no-med-exam coverage to 60 year olds do not offer as much as $3 million. And aside from Penn Mutual’s $7.5 million coverage cap, $5 million is the highest amount we’ve seen for any age group.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-19"> We also like that you can find a wealth of policy-specific information on Pacific Life’s website. You’ll see policy names, coverage details, and whether they’re available in your state. This level of transparency is uncommon in the life insurance industry. Pacific Life also has affordable term insurance, especially for applicants in their 40s and younger.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-20"> However, you won’t find quotes on the company’s website and you will need to apply for any type of coverage with an agent. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="loc post-content tabbed-sc-block__content tabbed-sc-block__post-content"> <div class="comp tabbed-sc-block--review-link infocat-review-link link" data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock" id="tabbed-sc-block--review-link_1-0-20"> Read the Full <a data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="false" data-tracking-id="PRM Roundup | ProductRecordBlock" href="https://www.investopedia.com/pacific-life-insurance-review-5184560" id="tabbed-sc-block--review-link_1-0-20" rel="noopener nocaes" target="_blank"><span class="">Pacific Life Insurance Review</span></a><!-- end: --></div><!-- end: comp tabbed-sc-block--review-link infocat-review-link link --> </div> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> </div> <div class="article-outro article-container"> <div class="comp js-table-scroll structured-content comparison-table prm-comparison-table--finance prm-comparison-table litho-comparison-table" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table" id="comparison-table_1-0"> <span class="heading-toc" id="comparison-table"></span> <h2 class="litho-comparison-table__header">Compare the Best No-Medical-Exam Life Insurance</h2> <table class="litho-comparison-table__table litho-comparison-table__table--pivot"> <thead class="loc tableHead"> <tr class="comp litho-comparison-table__header-row mntl-block" id="litho-comparison-table__header-row_1-0"> <th class="comp mntl-block" id="mntl-block_1-0"> <div class="comp js-table-action prm-comparison-table__collapse-btn mntl-text-block" data-action="toggle" data-class="litho-comparison-table__header-row--collapsed" data-click-action="Collapse" data-click-tracked="true" data-target=".litho-comparison-table__header-row" id="prm-comparison-table__collapse-btn_1-0"></div><!-- end: comp js-table-action prm-comparison-table__collapse-btn mntl-text-block --> </th><!-- end: comp mntl-block --> <th class="comp litho-comparison-table__head-text mntl-text-block" id="litho-comparison-table__head-text_1-0"> Best For</th><!-- end: comp litho-comparison-table__head-text mntl-text-block --> <th class="comp dynamic-properties-header litho-comparison-table__cell-block mntl-block" id="dynamic-properties-header_1-0"> <div class="comp comparison-table__heading-wrapper mntl-block" id="comparison-table__heading-wrapper_1-0"> <span class="comp comparison-table__heading-label mntl-text-block" id="comparison-table__heading-label_1-0"> AM Best Rating</span><!-- end: comp comparison-table__heading-label mntl-text-block --> <span class="comp tooltip-trigger comparison-table__tooltip mntl-block" id="comparison-table__tooltip_1-0"> <svg class="icon bio-icon--finance"> <use xlink:href="#bio-icon--finance" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </span><!-- end: comp tooltip-trigger comparison-table__tooltip mntl-block --> <div class="comp tooltip-bubble comparison-table__tooltip-bubble mntl-text-block" id="comparison-table__tooltip-bubble_1-0"> AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations.</div><!-- end: comp tooltip-bubble comparison-table__tooltip-bubble mntl-text-block --> </div><!-- end: comp comparison-table__heading-wrapper mntl-block --> </th><!-- end: comp dynamic-properties-header litho-comparison-table__cell-block mntl-block --> <th class="comp dynamic-properties-header litho-comparison-table__cell-block mntl-block" id="dynamic-properties-header_1-0-1"> <div class="comp comparison-table__heading-wrapper mntl-block" id="comparison-table__heading-wrapper_1-0-1"> <span class="comp comparison-table__heading-label mntl-text-block" id="comparison-table__heading-label_1-0-1"> Term Life Sample Cost</span><!-- end: comp comparison-table__heading-label mntl-text-block --> </div><!-- end: comp comparison-table__heading-wrapper mntl-block --> </th><!-- end: comp dynamic-properties-header litho-comparison-table__cell-block mntl-block --> <th class="comp dynamic-properties-header litho-comparison-table__cell-block mntl-block" id="dynamic-properties-header_1-0-2"> <div class="comp comparison-table__heading-wrapper mntl-block" id="comparison-table__heading-wrapper_1-0-2"> <span class="comp comparison-table__heading-label mntl-text-block" id="comparison-table__heading-label_1-0-2"> Policy Types</span><!-- end: comp comparison-table__heading-label mntl-text-block --> </div><!-- end: comp comparison-table__heading-wrapper mntl-block --> </th><!-- end: comp dynamic-properties-header litho-comparison-table__cell-block mntl-block --> <th class="comp dynamic-properties-header litho-comparison-table__cell-block mntl-block" id="dynamic-properties-header_1-0-3"> <div class="comp comparison-table__heading-wrapper mntl-block" id="comparison-table__heading-wrapper_1-0-3"> <span class="comp comparison-table__heading-label mntl-text-block" id="comparison-table__heading-label_1-0-3"> Accepts Credit Cards</span><!-- end: comp comparison-table__heading-label mntl-text-block --> </div><!-- end: comp comparison-table__heading-wrapper mntl-block --> </th><!-- end: comp dynamic-properties-header litho-comparison-table__cell-block mntl-block --> <th class="comp litho-comparison-table__head-text mntl-text-block" id="litho-comparison-table__head-text_2-0"></th><!-- end: comp litho-comparison-table__head-text mntl-text-block --> <th class="comp mntl-block" id="mntl-block_2-0"> <div class="comp js-table-action prm-comparison-table__reset-btn mntl-text-block" data-action="remove" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Reset All" data-click-tracked="true" data-target=".litho-comparison-table__product-row--hidden" id="prm-comparison-table__reset-btn_1-0"> Reset All</div><!-- end: comp js-table-action prm-comparison-table__reset-btn mntl-text-block --> </th><!-- end: comp mntl-block --> </tr><!-- end: comp litho-comparison-table__header-row mntl-block --> </thead> <tbody class="loc tableBody"> <tr class="comp js-table-hide-col litho-comparison-table__product-row--0 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_1-0"> <td class="comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block" id="prm-comparison-table__header_1-0"> Nationwide</td><!-- end: comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-text mntl-text-block" id="litho-comparison-table__cell-text_1-0"> Best Overall</td><!-- end: comp litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0"> A+</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-1"> $26.25/month</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-2"> Final Expense, Indexed Universal (IUL), Term, Universal (UL), Variable Universal (VUL), Whole</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-3"> Yes</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_1-0"> <a class="mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Covr" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table - Button" href="https://dotdash.covrtech.com?utm_carrier=Nationwide&amp;utm_journey=term" id="mntl-sc-block-commerce__button_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Get A Quote</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_2-0"> <div class="comp js-table-action prm-comparison-table__hide-btn mntl-text-block" data-action="add" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Hide Record | Nationwide" data-click-tracked="true" data-target=".litho-comparison-table__product-row--0" id="prm-comparison-table__hide-btn_1-0"> Hide, not for me</div><!-- end: comp js-table-action prm-comparison-table__hide-btn mntl-text-block --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp js-table-hide-col litho-comparison-table__product-row--0 litho-comparison-table__product-row mntl-block --> <tr class="comp js-table-hide-col litho-comparison-table__product-row--1 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_1-0-1"> <td class="comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block" id="prm-comparison-table__header_1-0-1"> Guardian</td><!-- end: comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-text mntl-text-block" id="litho-comparison-table__cell-text_1-0-1"> Best for Financial Stability</td><!-- end: comp litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-4"> A++</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-5"> $27.47/month</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-6"> Term, Universal (UL), Whole</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-7"> Yes</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_1-0-1"> <a class="mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Covr" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table - Button" href="http://dotdash.covrtech.com/?utm_carrier=Guardian&amp;utm_journey=bridge" id="mntl-sc-block-commerce__button_1-0-1" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Get A Quote</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_2-0-1"> <div class="comp js-table-action prm-comparison-table__hide-btn mntl-text-block" data-action="add" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Hide Record | Guardian" data-click-tracked="true" data-target=".litho-comparison-table__product-row--1" id="prm-comparison-table__hide-btn_1-0-1"> Hide, not for me</div><!-- end: comp js-table-action prm-comparison-table__hide-btn mntl-text-block --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp js-table-hide-col litho-comparison-table__product-row--1 litho-comparison-table__product-row mntl-block --> <tr class="comp js-table-hide-col litho-comparison-table__product-row--2 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_1-0-2"> <td class="comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block" id="prm-comparison-table__header_1-0-2"> Penn Mutual</td><!-- end: comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-text mntl-text-block" id="litho-comparison-table__cell-text_1-0-2"> Best for High Coverage</td><!-- end: comp litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-8"> A+</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-9"> $23.92/month</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-10"> Term, Universal (UL), Variable Universal (VUL), Whole</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-11"> Yes</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_1-0-2"> <a class="mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Covr" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table - Button" href="http://dotdash.covrtech.com/?utm_carrier=PennMutual&amp;utm_journey=bridge" id="mntl-sc-block-commerce__button_1-0-2" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Get A Quote</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_2-0-2"> <div class="comp js-table-action prm-comparison-table__hide-btn mntl-text-block" data-action="add" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Hide Record | Penn Mutual" data-click-tracked="true" data-target=".litho-comparison-table__product-row--2" id="prm-comparison-table__hide-btn_1-0-2"> Hide, not for me</div><!-- end: comp js-table-action prm-comparison-table__hide-btn mntl-text-block --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp js-table-hide-col litho-comparison-table__product-row--2 litho-comparison-table__product-row mntl-block --> <tr class="comp js-table-hide-col litho-comparison-table__product-row--3 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_1-0-3"> <td class="comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block" id="prm-comparison-table__header_1-0-3"> Pacific Life Insurance</td><!-- end: comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-text mntl-text-block" id="litho-comparison-table__cell-text_1-0-3"> Fewest Complaints </td><!-- end: comp litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-12"> A+</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-13"> $23.64/month</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-14"> Indexed Universal (IUL), Term, Universal (UL), Variable Universal (VUL), Whole</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-15"> No</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_1-0-3"> <a class="mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Covr" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table - Button" href="http://dotdash.covrtech.com/?utm_carrier=PacificLife&amp;utm_journey=term" id="mntl-sc-block-commerce__button_1-0-3" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Get A Quote</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_2-0-3"> <div class="comp js-table-action prm-comparison-table__hide-btn mntl-text-block" data-action="add" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Hide Record | Pacific Life Insurance" data-click-tracked="true" data-target=".litho-comparison-table__product-row--3" id="prm-comparison-table__hide-btn_1-0-3"> Hide, not for me</div><!-- end: comp js-table-action prm-comparison-table__hide-btn mntl-text-block --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp js-table-hide-col litho-comparison-table__product-row--3 litho-comparison-table__product-row mntl-block --> </tbody> </table> </div><!-- end: comp js-table-scroll structured-content comparison-table prm-comparison-table--finance prm-comparison-table litho-comparison-table --> <div class="comp structured-content article-outro__content prm-sc-page mntl-sc-page mntl-block" id="article-outro__content_1-0"> <span class="heading-toc" id="toc-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"> All of the companies on this list represent good options for getting life insurance without a medical exam. All are A+ rated or better for financial strength and have received fewer complaints than expected when averaged over a three-year period. If you don’t need more than $3 million in coverage and are 50 or younger, any company on this list could be a good fit. But if you’re over 50 and looking for a death benefit of more than $1 million, you can rule out Nationwide. If you’re over 60, your only option for high-coverage no-medical-exam life insurance is Penn Mutual. And regardless of your age, Penn Mutual is your only option if you need a death benefit greater than $5 million and don’t want to take an exam. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-2"> If you’re looking for term coverage, try Penn Mutual or Pacific Life; for dividends, Penn Mutual or Guardian. If you want free living benefits, look to Nationwide. And if you’d like a wellness plan with your life insurance, John Hancock delivers. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-how-to-choose-a-no-medical-exam-life-insurance-policy"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-3"> <span class="mntl-sc-block-heading__text"> How To Choose a No-Medical-Exam Life Insurance Policy<br/> </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-4"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/termlife.asp">Term life insurance</a> is designed to last for a specific number of years, such as 30, and then expire. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/permanentlife.asp">Permanent life insurance</a> is designed to last your entire lifetime, and is therefore more expensive than term. You may also want to combine term and permanent policies to have a higher-coverage term policy during your working years or while you’re raising a family, and then a lower-coverage permanent policy that will kick in once the term coverage expires. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-advisorinsight mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0-5"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-1"> <p>Term policies let you choose the length of the term (a 40-year term is the longest we’ve seen), and often provide the option to convert your term coverage to permanent. Permanent policies have a cash value, which may be accessed via withdrawals and loans.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-advisorinsight mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-6"> Once you’ve figured out your budget and the general type of coverage you need, you should begin to get quotes from financially stable companies with track records of good customer satisfaction.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-7"> If you want a no-exam life insurance policy, it may be helpful to know that most of the 91 companies we reviewed offer some sort of policy that doesn’t require an exam. You’re best off first finding a good company (or a few you like), and then seeing what kind of policy you can get without an exam. This list and our rankings of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-life-insurance-companies-4845858">best life insurance companies</a> are both good places to start. And be sure to compare multiple quotes for no-exam life insurance because some policies are cheaper than others (depending on the type of no-exam underwriting used). </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0-8"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-2"> <p>A number of companies offer life insurance policies without requiring a medical exam, but you’ll generally be eligible for the lowest premiums with those that ask thorough health questions on the application. </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-more-ratings-of-top-life-insurance-companies"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-9"> <span class="mntl-sc-block-heading__text"> More Ratings of Top Life Insurance Companies<br/> </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-10"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-life-insurance-companies-4845858">Best Life Insurance Companies</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-life-insurance-for-seniors-4845439">Best Life Insurance for Seniors</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-life-insurance-for-people-over-50-4846582">Best Life Insurance Companies for People Over 50</a> </li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-whole-life-insurance-4845955">Best Whole Life Insurance Companies</a></li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-universal-life-insurance-4845846">Best Universal Life Insurance Companies</a> </li> <li><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-life-insurance-for-children-5088586">Best Children’s Life Insurance Companies</a></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-faq--finance prm-sc-block-faq mntl-sc-block-faq mntl-block" data-click-action="OnPageClick - FAQ Header" data-tracking-container="true" data-tracking-id="PRM Roundup | FAQ" id="mntl-sc-block_4-0-11"> <span class="heading-toc" id="toc-frequently-asked-questions-d9e7dfa5-b102-4780-9dd9-1839b29c9480"></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 Type of Life Insurance Does Not Require a Medical Exam?</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>Most any type of policy is eligible for no-exam underwriting. It used to be that if you wanted to skip the exam, only low-coverage insurance policies were available to you. These are still available and sold as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-burial-insurance-4843161">burial or funeral insurance</a>, or guaranteed-issue policies. But now, insurers have a number of sophisticated means by which to collect health and other information, so they don’t need to rely on your exam. Plus, it costs them money to administer it and time to receive and review the results. No-exam underwriting allows insurance carriers to issue life policies faster, which is often good for both the customer and the insurer.</p><p>So whether you’re looking for term or permanent coverage, a whole life policy or an indexed universal life policy, it’s available somewhere without a medical exam. But not all companies offer no-exam life insurance on all or even any of their policies, so you’ll need to do some research to find one that does. (The companies in the list above are an excellent start.) The one caveat is that not everyone is eligible for no-exam underwriting. If you have health issues that raise red flags for the insurance company, you may be required to undergo a medical screening to complete your application.<br/></p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-1" tabindex="-1"> <h3 class="accordion__title">Can You Borrow Money From a No-exam Life Insurance Policy?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$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>Yes, if it's a policy with a cash value. No-exam life insurance policies are just like regular life insurance policies. The only difference is that a medical screening is not required during the application process. Once approved, the policy functions just as it would had you taken an exam. So if you’ve purchased a permanent life insurance policy that builds a cash value, that cash value will be available to you, subject to any surrender period or other standard policy conditions.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-2" tabindex="-1"> <h3 class="accordion__title">How Do I Choose the Best Life Insurance Policy?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$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>Choosing the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-life-insurance-companies-4845858">best life insurance policy</a> for you depends on your life insurance needs. How much coverage do you need? (Ideally, you’ll get enough to pay off your debts and replace your income, at the very least.) How long do you need it for? Your needs may change once your kids are grown and your home is paid off, for instance. The next question to ask is, how much premium can you afford?</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_4-0-12"> <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_4-0-13"> In order to compile our list of the best no-medical-exam life insurance companies, we developed a comprehensive life insurance methodology. We started off by researching what consumers want from life insurance companies, and for that, we looked to third-party consumer studies, including J.D. Power’s 2021 U.S. Life Insurance New Business Study and the 2021 Insurance Barometer Study, by Life Happens and LIMRA.<span class="ql-inline-citation" data-cite="14"></span><span class="ql-inline-citation" data-cite="13"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-14"> With those findings in mind, we gathered more than 50 data points on 91 life insurance companies, including ratings for financial strength, customer satisfaction, and customer complaints, as well as information about years in business, online tools, no-exam options, dividends, maximum issue ages, and available riders.  </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"> Our review process gave preference to companies with solid financials, few customer complaints, high no-exam coverage amounts available, high-issue ages for no-exam coverage, and a broad product portfolio. Companies received ratings boosts for online resources, including online quotes and live chat, and included living benefit riders. We ranked each company according to the following categories and weights. </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>28%: No-med-exam availability and features</li><li>20% Policy types and features</li><li>15%: Financial stability </li><li>15%: Customer satisfaction</li><li>13%: Ease of application</li><li>9%: Online resources</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_4-0-17"> To finalize our list, we compared individual offerings between top companies by considering ratings from third parties such as AM Best and J.D. Power, and delving deeper into product specifics—including cost and the availability of dividends. We used this research to determine the best no-medical-exam life insurance companies.<br/> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp structured-content article-outro__content prm-sc-page mntl-sc-page mntl-block --> </div> <figure class="comp figure-landscape primary-image--roundup primary-image mntl-universal-primary-image primary-image" id="primary-image--roundup_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:68.3%;"> <img alt="No Medical Exam Life Insurance" class="primary-image__image mntl-primary-image--blurry" height="4490" onload="(function(e){e.classList.add('loaded')})(this)" sizes="750px" src="https://www.investopedia.com/thmb/NG6rlYO1l_DHBjNmYj2fBilP-5I=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1367898695-e0b839856ce64b5a942aaed9b482383d.jpg" srcset="https://www.investopedia.com/thmb/MnS0fgr18fHavNavB0xbrFii7G0=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1367898695-e0b839856ce64b5a942aaed9b482383d.jpg 750w" style="--blurry: url('data:image/gif;charset=utf-8;base64,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')" width="6571"/> <noscript> <img alt="No Medical Exam Life Insurance" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="4490" sizes="750px" src="https://www.investopedia.com/thmb/NG6rlYO1l_DHBjNmYj2fBilP-5I=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1367898695-e0b839856ce64b5a942aaed9b482383d.jpg" srcset="https://www.investopedia.com/thmb/MnS0fgr18fHavNavB0xbrFii7G0=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1367898695-e0b839856ce64b5a942aaed9b482383d.jpg 750w" width="6571"/> </noscript> </div> </div> </figure><!-- end: comp figure-landscape primary-image--roundup primary-image mntl-universal-primary-image primary-image --> </div> </div> </div><!-- end: comp product-roundup-content--finance product-roundup--base product-roundup--base --> </div> </span> </div><div class="loc content-bottom"><div class="comp prm-article-sources article-sources mntl-article-sources mntl-expandable-block" data-scroll-offset="100" id="prm-article-sources_1-0"><div class="loc toggle-content"><div class="comp mntl-article-sources__wrapper mntl-block article-sources__wrapper" data-click-tracked="true" id="mntl-article-sources__wrapper_1-0"><div class="comp mntl-article-sources__heading mntl-text-block article-sources__heading" id="mntl-article-sources__heading_1-0">Article Sources</div> <div class="comp mntl-article-sources__icon-wrapper mntl-block article-sources__icon-wrapper" id="mntl-article-sources__icon-wrapper_1-0"><div class="comp article-sources__show-icon mntl-block" id="article-sources__show-icon_1-0"></div> <div class="comp article-sources__hide-icon mntl-block" id="article-sources__hide-icon_1-0"></div></div></div> </div><div class="loc expandable-content"> <div class="comp article-sources__disclaimer mntl-block" id="article-sources__disclaimer_1-0">Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our <a class="article-sources__disclaimer-text-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/legal-4768893#EditorialPolicy" id="article-sources__disclaimer-text-link_1-0" rel="nocaes"><span class="link__wrapper">editorial policy.</span></a></div> <div class="comp mntl-article-sources__citation-sources-1 mntl-citation-sources mntl-sources" data-tracking-container="true" id="mntl-article-sources__citation-sources-1_1-0"> <ol class="mntl-sources__content"> <li class="mntl-sources__source" id="citation-11"><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/2021-us-individual-life-insurance-study">Pandemic and Tax Code Change Spur Interest in Life Insurance, J.D. Power Finds</a>.”</p></li> <li class="mntl-sources__source" id="citation-12"><p>AM Best. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.ambest.com/ratings/guide.pdf" rel="nofollow sponsored">Guide to Best’s Financial Strength Ratings - (FSRs)</a>.”</p></li> <li class="mntl-sources__source" id="citation-14"><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/2021-us-life-insurance-new-business-study">2021 US Life Insurance New Business Study | JD Power</a>."</p></li> <li class="mntl-sources__source" id="citation-13"><p>Life Happens. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://lifehappens.org/research/life-insurance-is-on-peoples-minds/">Life Insurance Is on People's Minds</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="4845955" data-ordinal="1" data-tax-levels="" href="https://www.investopedia.com/best-whole-life-insurance-4845955" id="mntl-card-list-items_1-0"> <div class="card__media" data-tag="Best Companies"> <img alt="Whole Life Insurance Companies" class="lazyload card__img" data-dim-ratio="1.498" data-src="https://www.investopedia.com/thmb/OqGJPD6CJE81AYV9JwdkReZjPKM=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1333695712-7b7a11f13ba8430baca0e19dd369d331.jpg" height="300" width="400"/> <noscript> <img alt="Whole Life Insurance Companies" class="img--noscript card__img" height="300" src="https://www.investopedia.com/thmb/OqGJPD6CJE81AYV9JwdkReZjPKM=/400x300/filters:no_upscale():max_bytes(150000):strip_icc()/GettyImages-1333695712-7b7a11f13ba8430baca0e19dd369d331.jpg" width="400"/> </noscript> </div> <div class="card__content" data-tag="Best Companies"> <div class="card__header"></div> <span class="card__title"><span class="card__title-text">Best Whole Life Insurance Companies of 2024</span></span> <div class="card__byline mntl-card__byline" data-byline="By Meredith Mangan"></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="4845439" data-ordinal="2" data-tax-levels="" href="https://www.investopedia.com/best-life-insurance-for-seniors-4845439" id="mntl-card-list-items_2-0"> <div class="card__media" data-tag="Best Companies"> <img alt="Two people sit and talk. 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No-medical-exam life insurance refers to any life insurance policy you can apply for without taking a medical exam. Instead of an exam, you answer health questions and the insurance company checks your medical and other records. You may also have a phone interview in some cases. It's best suited for the healthiest applicants. But if you qualify, you can get a policy within a few days, or sometimes instantly online. To select the best no-medical-exam life insurance companies, we analyzed more than 50 data points across 91 companies and calculated scores based on the following categories: no-med-exam availability and features (28% of score), policy types and features (20%), financial stability (15%), customer satisfaction (15%), ease of application (13%), and online resources. ## Best No-Medical-Exam Life Insurance * **Best Overall:** [Nationwide](https://dotdash.covrtech.com?utm_carrier=Nationwide&utm_journey=term) * **Best for Financial Stability:** [Guardian](http://dotdash.covrtech.com/?utm_carrier=Guardian&utm_journey=bridge) * **Best for High Coverage:** [Penn Mutual](http://dotdash.covrtech.com/?utm_carrier=PennMutual&utm_journey=bridge) * **Fewest Complaints :** [Pacific Life Insurance](http://dotdash.covrtech.com/?utm_carrier=PacificLife&utm_journey=term) Why Trust Us 91 Companies reviewed 55 Features considered 5,005 Data points analyzed We collected over 5,000 data points from 91 life insurance companies to measure financial stability, customer satisfaction, product and feature variety, and the overall buying experience. We then evaluated each company based on 55 metrics to develop unbiased, comprehensive reviews. [Read our Full Methodology](https://www.investopedia.com/life-insurance-review-methodology-5071427) [Compare life insurance quotes](https://dotdash.covrtech.com/) with our partner Covr Financial from multiple providers before buying. Best No-Medical-Exam Life Insurance Companies Expand Best No-Medical-Exam Life Insurance Companies * [Our Top Picks](#summary-list) * [Nationwide](#toc-nationwide) * [Guardian](#toc-guardian) * [Penn Mutual](#toc-penn-mutual) * [Pacific Life Insurance](#toc-pacific-life-insurance) * See More (1) * [Compare Providers](#comparison-table) * [Final Verdict](#toc-final-verdict) * [How To Choose a No-Medical-Exam Life Insurance Policy](#toc-how-to-choose-a-no-medical-exam-life-insurance-policy) * [More Ratings of Top Life Insurance Companies](#toc-more-ratings-of-top-life-insurance-companies) * [Frequently Asked Questions](#toc-frequently-asked-questions-d9e7dfa5-b102-4780-9dd9-1839b29c9480) * [Methodology](#toc-methodology) ### Best Overall : Nationwide --- ![Nationwide]() :fill(white):max_bytes(150000):strip_icc()/nationwide-c7e044965321488fa128e15ecace9bea.png) * **AM Best Rating:** AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations. A+ * **Accepts Credit Cards:** Yes [Get A Quote](https://dotdash.covrtech.com?utm_carrier=Nationwide&utm_journey=term) Pros * No-medical-exam life insurance with up to $5 million in coverage * Excellent customer satisfaction * A wide range of policy types * Three living benefits included in most policies * Allows credit card payments Cons * No-med-exam coverage limit less impressive if you’re 50+ * Burial insurance only available to existing policyholders Nationwide is a well-rounded, financially stable life insurer that delivers across categories. That’s why it’s also our top pick for [best life insurance companies](https://www.investopedia.com/best-life-insurance-companies-4845858). The company offers up to $5 million of coverage without requiring eligible applicants to undergo a medical exam. This is the second-highest amount among our top picks, and no-exam underwriting is available for most policy types.  Nationwide offers a wide range of policy types, and most include three free [living benefit riders](https://www.investopedia.com/articles/insurance/10/living-and-death-benefit-riders.asp). They may let you access part of your death benefit while you’re still alive if you’re diagnosed with a chronic, critical, or terminal illness. Of the 91 life insurance companies we reviewed, Nationwide is one of only a handful to offer such a benefit.  Nationwide is also one of the few life insurance companies to accept credit card payments. And customers take notice—the company ranked second in a J.D. Power customer satisfaction survey and has received very few customer complaints over the past three years, according to the [National Association of Insurance Commissioners (NAIC)](https://www.investopedia.com/terms/n/nainsurancec.asp).  However, if you’re over 50, Nationwide’s no-med-exam options are less generous, only allowing you up to $1 million if you’re 51 to 60 years old. While that may be sufficient for many applicants, it’s far less than what some competitors offer for this age group. The company also offers [burial insurance](https://www.investopedia.com/final-expense-insurance-4801018) with up to $50,000 in coverage that doesn’t require a medical exam. But it’s only available to existing Nationwide policyholders. Read the Full [Nationwide Life Insurance Review](https://www.investopedia.com/nationwide-life-insurance-review-5112884) ### Best for Financial Stability : Guardian --- ![Guardian Life Insurance]() :fill(white):max_bytes(150000):strip_icc()/guardian-direct-0e2cba3724c6431b8596de415fd325ad.jpg) * **AM Best Rating:** AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations. A++ * **Accepts Credit Cards:** Yes [Get A Quote](http://dotdash.covrtech.com/?utm_carrier=Guardian&utm_journey=bridge) Pros * No-med-exam life insurance with up to $3 million in coverage * Highest financial stability rating * Very few customer complaints relative to its size * Policies are eligible for dividends Cons * Limited website information * No online application Guardian offers up to $3 million in coverage without a medical exam to applicants up to 50 years old. Though not as substantial a sum as either Penn Mutual or Nationwide, it’s sufficient for many applicants. But aside from its no-medical-exam coverage, Guardian is a standout company. For starters, it’s the only one on this list to have secured an A++ rating from AM Best for financial strength. An A++ is the ratings agency’s highest grade and indicates that Guardian has a “superior” ability to pay its claims. In fact, only nine of the 91 insurers we reviewed were rated so highly.  On top of this, Guardian has received very few customer complaints over the past few years and pays dividends to eligible policyholders. However, the company did not do so well in the J.D. Power customer customer survey—out of 21 of the largest life insurers, it came in 11th, with a score that was just below average. There is also very little policy-specific information on Guardian’s website, which could be problematic if you prefer to research a company’s offerings without contacting an agent. Read the Full [Guardian Life Insurance Review](https://www.investopedia.com/guardian-life-insurance-review-5078357) ### Best for High Coverage : Penn Mutual --- ![Penn Mutual]() :fill(white):max_bytes(150000):strip_icc()/Penn_Mutual-70902c2bb7a04b4087d9cc4970c53f87.jpg) * **AM Best Rating:** AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations. A+ * **Accepts Credit Cards:** Yes [Get A Quote](http://dotdash.covrtech.com/?utm_carrier=PennMutual&utm_journey=bridge) Pros * No-med-exam life insurance with up to $7.5 million in coverage * No-med-exam life insurance available to 64-year-olds * Strong dividend-paying history * Well-priced term policies * Very few customer complaints relative to its size Cons * Limited website information * Online applications not available * Quotes not available on website Penn Mutual takes the cake when it comes to high-coverage and high-issue-age no-medical-exam life insurance. The company offers up to $7.5 million in coverage to applicants as old as 64. Of the 91 life insurance carriers we reviewed, no other offered this much coverage without an exam. Nor did any other company offer no-medical-exam life insurance over $1 million to 64 year olds without receipt of recent lab work and an attending physician’s statement (APS).  Penn Mutual pays dividends on eligible policies and has done every year so for the past 174 years, which is one reason it made our list of [best whole life insurance companies](https://www.investopedia.com/best-whole-life-insurance-4845955). Plus, the company offers very well-priced term policies for a range of age groups and has a very low incidence of customer complaints, given its size, according to the NAIC. But Penn Mutual’s website leaves a lot to be desired. Not only are quotes unavailable, but there’s little information on what the company actually offers. To better understand your options and policy-specific features, you’ll need to reach out to an agent. Read the Full [Penn Mutual Life Insurance Review](https://www.investopedia.com/penn-mutual-life-insurance-review-5181706) ### Fewest Complaints : Pacific Life Insurance Investopedia's Rating 4.1 --- ![Pacific Life]() :fill(white):max_bytes(150000):strip_icc()/Pacific_Life-2bf5a1184e4c410b98703ba637bf8b24.jpg) * **AM Best Rating:** AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations. A+ * **Accepts Credit Cards:** No [Get A Quote](http://dotdash.covrtech.com/?utm_carrier=PacificLife&utm_journey=term) Pros * No-med-exam life insurance with up to $5 million in coverage * High issue ages for no-med-exam coverage * Outstanding customer satisfaction * Affordable term coverage * Policy details are online Cons * Quotes unavailable on the website * Can’t apply without an agent Pacific Life leads the pack when it comes to the fewest complaints received relative to company size over a three year period. In fact, of the 91 insurers we reviewed, only two other companies received fewer (they each got zero complaints). Pacific Life also comes in fourth out of 21 companies in J.D. Power’s customer satisfaction survey.  The company offers coverage up to $5 million without a medical exam to applicants up to 50 years old, and $3 million to applicants up to 60. Many companies that offer no-med-exam coverage to 60 year olds do not offer as much as $3 million. And aside from Penn Mutual’s $7.5 million coverage cap, $5 million is the highest amount we’ve seen for any age group.  We also like that you can find a wealth of policy-specific information on Pacific Life’s website. You’ll see policy names, coverage details, and whether they’re available in your state. This level of transparency is uncommon in the life insurance industry. Pacific Life also has affordable term insurance, especially for applicants in their 40s and younger.  However, you won’t find quotes on the company’s website and you will need to apply for any type of coverage with an agent. Read the Full [Pacific Life Insurance Review](https://www.investopedia.com/pacific-life-insurance-review-5184560) ## Compare the Best No-Medical-Exam Life Insurance | | Best For | AM Best Rating AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations. | Term Life Sample Cost | Policy Types | Accepts Credit Cards | | Reset All | | --- | --- | --- | --- | --- | --- | --- | --- | | Nationwide | Best Overall | A+ | $26.25/month | Final Expense, Indexed Universal (IUL), Term, Universal (UL), Variable Universal (VUL), Whole | Yes | [Get A Quote](https://dotdash.covrtech.com?utm_carrier=Nationwide&utm_journey=term) | Hide, not for me | | Guardian | Best for Financial Stability | A++ | $27.47/month | Term, Universal (UL), Whole | Yes | [Get A Quote](http://dotdash.covrtech.com/?utm_carrier=Guardian&utm_journey=bridge) | Hide, not for me | | Penn Mutual | Best for High Coverage | A+ | $23.92/month | Term, Universal (UL), Variable Universal (VUL), Whole | Yes | [Get A Quote](http://dotdash.covrtech.com/?utm_carrier=PennMutual&utm_journey=bridge) | Hide, not for me | | Pacific Life Insurance | Fewest Complaints | A+ | $23.64/month | Indexed Universal (IUL), Term, Universal (UL), Variable Universal (VUL), Whole | No | [Get A Quote](http://dotdash.covrtech.com/?utm_carrier=PacificLife&utm_journey=term) | Hide, not for me | ## Final Verdict All of the companies on this list represent good options for getting life insurance without a medical exam. All are A+ rated or better for financial strength and have received fewer complaints than expected when averaged over a three-year period. If you don’t need more than $3 million in coverage and are 50 or younger, any company on this list could be a good fit. But if you’re over 50 and looking for a death benefit of more than $1 million, you can rule out Nationwide. If you’re over 60, your only option for high-coverage no-medical-exam life insurance is Penn Mutual. And regardless of your age, Penn Mutual is your only option if you need a death benefit greater than $5 million and don’t want to take an exam. If you’re looking for term coverage, try Penn Mutual or Pacific Life; for dividends, Penn Mutual or Guardian. If you want free living benefits, look to Nationwide. And if you’d like a wellness plan with your life insurance, John Hancock delivers. ## How To Choose a No-Medical-Exam Life Insurance Policy [Term life insurance](https://www.investopedia.com/terms/t/termlife.asp) is designed to last for a specific number of years, such as 30, and then expire. [Permanent life insurance](https://www.investopedia.com/terms/p/permanentlife.asp) is designed to last your entire lifetime, and is therefore more expensive than term. You may also want to combine term and permanent policies to have a higher-coverage term policy during your working years or while you’re raising a family, and then a lower-coverage permanent policy that will kick in once the term coverage expires. Term policies let you choose the length of the term (a 40-year term is the longest we’ve seen), and often provide the option to convert your term coverage to permanent. Permanent policies have a cash value, which may be accessed via withdrawals and loans. Once you’ve figured out your budget and the general type of coverage you need, you should begin to get quotes from financially stable companies with track records of good customer satisfaction.  If you want a no-exam life insurance policy, it may be helpful to know that most of the 91 companies we reviewed offer some sort of policy that doesn’t require an exam. You’re best off first finding a good company (or a few you like), and then seeing what kind of policy you can get without an exam. This list and our rankings of the [best life insurance companies](https://www.investopedia.com/best-life-insurance-companies-4845858) are both good places to start. And be sure to compare multiple quotes for no-exam life insurance because some policies are cheaper than others (depending on the type of no-exam underwriting used). A number of companies offer life insurance policies without requiring a medical exam, but you’ll generally be eligible for the lowest premiums with those that ask thorough health questions on the application.  ## More Ratings of Top Life Insurance Companies * [Best Life Insurance Companies](https://www.investopedia.com/best-life-insurance-companies-4845858) * [Best Life Insurance for Seniors](https://www.investopedia.com/best-life-insurance-for-seniors-4845439) * [Best Life Insurance Companies for People Over 50](https://www.investopedia.com/best-life-insurance-for-people-over-50-4846582) * [Best Whole Life Insurance Companies](https://www.investopedia.com/best-whole-life-insurance-4845955) * [Best Universal Life Insurance Companies](https://www.investopedia.com/best-universal-life-insurance-4845846) * [Best Children’s Life Insurance Companies](https://www.investopedia.com/best-life-insurance-for-children-5088586) ## Frequently Asked Questions * ### What Type of Life Insurance Does Not Require a Medical Exam? Most any type of policy is eligible for no-exam underwriting. It used to be that if you wanted to skip the exam, only low-coverage insurance policies were available to you. These are still available and sold as [burial or funeral insurance](https://www.investopedia.com/best-burial-insurance-4843161), or guaranteed-issue policies. But now, insurers have a number of sophisticated means by which to collect health and other information, so they don’t need to rely on your exam. Plus, it costs them money to administer it and time to receive and review the results. No-exam underwriting allows insurance carriers to issue life policies faster, which is often good for both the customer and the insurer. So whether you’re looking for term or permanent coverage, a whole life policy or an indexed universal life policy, it’s available somewhere without a medical exam. But not all companies offer no-exam life insurance on all or even any of their policies, so you’ll need to do some research to find one that does. (The companies in the list above are an excellent start.) The one caveat is that not everyone is eligible for no-exam underwriting. If you have health issues that raise red flags for the insurance company, you may be required to undergo a medical screening to complete your application. * ### Can You Borrow Money From a No-exam Life Insurance Policy? Yes, if it's a policy with a cash value. No-exam life insurance policies are just like regular life insurance policies. The only difference is that a medical screening is not required during the application process. Once approved, the policy functions just as it would had you taken an exam. So if you’ve purchased a permanent life insurance policy that builds a cash value, that cash value will be available to you, subject to any surrender period or other standard policy conditions. * ### How Do I Choose the Best Life Insurance Policy? Choosing the [best life insurance policy](https://www.investopedia.com/best-life-insurance-companies-4845858) for you depends on your life insurance needs. How much coverage do you need? (Ideally, you’ll get enough to pay off your debts and replace your income, at the very least.) How long do you need it for? Your needs may change once your kids are grown and your home is paid off, for instance. The next question to ask is, how much premium can you afford? ## Methodology In order to compile our list of the best no-medical-exam life insurance companies, we developed a comprehensive life insurance methodology. We started off by researching what consumers want from life insurance companies, and for that, we looked to third-party consumer studies, including J.D. Power’s 2021 U.S. Life Insurance New Business Study and the 2021 Insurance Barometer Study, by Life Happens and LIMRA. With those findings in mind, we gathered more than 50 data points on 91 life insurance companies, including ratings for financial strength, customer satisfaction, and customer complaints, as well as information about years in business, online tools, no-exam options, dividends, maximum issue ages, and available riders.  Our review process gave preference to companies with solid financials, few customer complaints, high no-exam coverage amounts available, high-issue ages for no-exam coverage, and a broad product portfolio. Companies received ratings boosts for online resources, including online quotes and live chat, and included living benefit riders. We ranked each company according to the following categories and weights. * 28%: No-med-exam availability and features * 20% Policy types and features * 15%: Financial stability * 15%: Customer satisfaction * 13%: Ease of application * 9%: Online resources To finalize our list, we compared individual offerings between top companies by considering ratings from third parties such as AM Best and J.D. Power, and delving deeper into product specifics—including cost and the availability of dividends. We used this research to determine the best no-medical-exam life insurance companies. :max_bytes(150000):strip_icc()/GettyImages-1367898695-e0b839856ce64b5a942aaed9b482383d.jpg) :max_bytes(150000):strip_icc()/GettyImages-1367898695-e0b839856ce64b5a942aaed9b482383d.jpg) 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. J.D. Power. “[Pandemic and Tax Code Change Spur Interest in Life Insurance, J.D. Power Finds](https://www.jdpower.com/business/press-releases/2021-us-individual-life-insurance-study).” 2. AM Best. “[Guide to Best’s Financial Strength Ratings - (FSRs)](https://www.ambest.com/ratings/guide.pdf).” 3. J.D. Power. "[2021 US Life Insurance New Business Study | JD Power](https://www.jdpower.com/business/press-releases/2021-us-life-insurance-new-business-study)." 4. Life Happens. "[Life Insurance Is on People's Minds](https://lifehappens.org/research/life-insurance-is-on-peoples-minds/)." 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No-medical-exam life insurance refers to any life insurance policy you can apply for without taking a medical exam. Instead of an exam, you answer health questions and the insurance company checks your medical and other records. You may also have a phone interview in some cases. It's best suited for the healthiest applicants. But if you qualify, you can get a policy within a few days, or sometimes instantly online. To select the best no-medical-exam life insurance companies, we analyzed more than 50 data points across 91 companies and calculated scores based on the following categories: no-med-exam availability and features (28% of score), policy types and features (20%), financial stability (15%), customer satisfaction (15%), ease of application (13%), and online resources. Best No-Medical-Exam Life Insurance Best Overall: Nationwide Best for Financial Stability: Guardian Best for High Coverage: Penn Mutual Fewest Complaints : Pacific Life Insurance Why Trust Us 91 Companies reviewed 55 Features considered 5,005 Data points analyzed We collected over 5,000 data points from 91 life insurance companies to measure financial stability, customer satisfaction, product and feature variety, and the overall buying experience. We then evaluated each company based on 55 metrics to develop unbiased, comprehensive reviews. Read our Full Methodology Compare life insurance quotes with our partner Covr Financial from multiple providers before buying. Best No-Medical-Exam Life Insurance Companies Expand Best No-Medical-Exam Life Insurance Companies Our Top Picks Nationwide Guardian Penn Mutual Pacific Life Insurance See More (1) Compare Providers Final Verdict How To Choose a No-Medical-Exam Life Insurance Policy More Ratings of Top Life Insurance Companies Frequently Asked Questions Methodology Best Overall : Nationwide AM Best Rating: AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations. A+ Accepts Credit Cards: Yes Get A Quote Pros No-medical-exam life insurance with up to $5 million in coverage Excellent customer satisfaction A wide range of policy types Three living benefits included in most policies Allows credit card payments Cons No-med-exam coverage limit less impressive if you’re 50+ Burial insurance only available to existing policyholders Nationwide is a well-rounded, financially stable life insurer that delivers across categories. That’s why it’s also our top pick for best life insurance companies. The company offers up to $5 million of coverage without requiring eligible applicants to undergo a medical exam. This is the second-highest amount among our top picks, and no-exam underwriting is available for most policy types.  Nationwide offers a wide range of policy types, and most include three free living benefit riders. They may let you access part of your death benefit while you’re still alive if you’re diagnosed with a chronic, critical, or terminal illness. Of the 91 life insurance companies we reviewed, Nationwide is one of only a handful to offer such a benefit.  Nationwide is also one of the few life insurance companies to accept credit card payments. And customers take notice—the company ranked second in a J.D. Power customer satisfaction survey and has received very few customer complaints over the past three years, according to the National Association of Insurance Commissioners (NAIC).  However, if you’re over 50, Nationwide’s no-med-exam options are less generous, only allowing you up to $1 million if you’re 51 to 60 years old. While that may be sufficient for many applicants, it’s far less than what some competitors offer for this age group. The company also offers burial insurance with up to $50,000 in coverage that doesn’t require a medical exam. But it’s only available to existing Nationwide policyholders. Read the Full Nationwide Life Insurance Review Best for Financial Stability : Guardian AM Best Rating: AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations. A++ Accepts Credit Cards: Yes Get A Quote Pros No-med-exam life insurance with up to $3 million in coverage Highest financial stability rating Very few customer complaints relative to its size Policies are eligible for dividends Cons Limited website information No online application Guardian offers up to $3 million in coverage without a medical exam to applicants up to 50 years old. Though not as substantial a sum as either Penn Mutual or Nationwide, it’s sufficient for many applicants. But aside from its no-medical-exam coverage, Guardian is a standout company. For starters, it’s the only one on this list to have secured an A++ rating from AM Best for financial strength. An A++ is the ratings agency’s highest grade and indicates that Guardian has a “superior” ability to pay its claims. In fact, only nine of the 91 insurers we reviewed were rated so highly.  On top of this, Guardian has received very few customer complaints over the past few years and pays dividends to eligible policyholders. However, the company did not do so well in the J.D. Power customer customer survey—out of 21 of the largest life insurers, it came in 11th, with a score that was just below average. There is also very little policy-specific information on Guardian’s website, which could be problematic if you prefer to research a company’s offerings without contacting an agent. Read the Full Guardian Life Insurance Review Best for High Coverage : Penn Mutual AM Best Rating: AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations. A+ Accepts Credit Cards: Yes Get A Quote Pros No-med-exam life insurance with up to $7.5 million in coverage No-med-exam life insurance available to 64-year-olds Strong dividend-paying history Well-priced term policies Very few customer complaints relative to its size Cons Limited website information Online applications not available Quotes not available on website Penn Mutual takes the cake when it comes to high-coverage and high-issue-age no-medical-exam life insurance. The company offers up to $7.5 million in coverage to applicants as old as 64. Of the 91 life insurance carriers we reviewed, no other offered this much coverage without an exam. Nor did any other company offer no-medical-exam life insurance over $1 million to 64 year olds without receipt of recent lab work and an attending physician’s statement (APS).  Penn Mutual pays dividends on eligible policies and has done every year so for the past 174 years, which is one reason it made our list of best whole life insurance companies. Plus, the company offers very well-priced term policies for a range of age groups and has a very low incidence of customer complaints, given its size, according to the NAIC. But Penn Mutual’s website leaves a lot to be desired. Not only are quotes unavailable, but there’s little information on what the company actually offers. To better understand your options and policy-specific features, you’ll need to reach out to an agent. Read the Full Penn Mutual Life Insurance Review Fewest Complaints : Pacific Life Insurance Investopedia's Rating 4.1 AM Best Rating: AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations. A+ Accepts Credit Cards: No Get A Quote Pros No-med-exam life insurance with up to $5 million in coverage High issue ages for no-med-exam coverage Outstanding customer satisfaction Affordable term coverage Policy details are online Cons Quotes unavailable on the website Can’t apply without an agent Pacific Life leads the pack when it comes to the fewest complaints received relative to company size over a three year period. In fact, of the 91 insurers we reviewed, only two other companies received fewer (they each got zero complaints). Pacific Life also comes in fourth out of 21 companies in J.D. Power’s customer satisfaction survey.  The company offers coverage up to $5 million without a medical exam to applicants up to 50 years old, and $3 million to applicants up to 60. Many companies that offer no-med-exam coverage to 60 year olds do not offer as much as $3 million. And aside from Penn Mutual’s $7.5 million coverage cap, $5 million is the highest amount we’ve seen for any age group.  We also like that you can find a wealth of policy-specific information on Pacific Life’s website. You’ll see policy names, coverage details, and whether they’re available in your state. This level of transparency is uncommon in the life insurance industry. Pacific Life also has affordable term insurance, especially for applicants in their 40s and younger.  However, you won’t find quotes on the company’s website and you will need to apply for any type of coverage with an agent. Read the Full Pacific Life Insurance Review Compare the Best No-Medical-Exam Life Insurance Best For AM Best Rating AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations. Term Life Sample Cost Policy Types Accepts Credit Cards Reset All Nationwide Best Overall A+ $26.25/month Final Expense, Indexed Universal (IUL), Term, Universal (UL), Variable Universal (VUL), Whole Yes Get A Quote Hide, not for me Guardian Best for Financial Stability A++ $27.47/month Term, Universal (UL), Whole Yes Get A Quote Hide, not for me Penn Mutual Best for High Coverage A+ $23.92/month Term, Universal (UL), Variable Universal (VUL), Whole Yes Get A Quote Hide, not for me Pacific Life Insurance Fewest Complaints A+ $23.64/month Indexed Universal (IUL), Term, Universal (UL), Variable Universal (VUL), Whole No Get A Quote Hide, not for me Final Verdict All of the companies on this list represent good options for getting life insurance without a medical exam. All are A+ rated or better for financial strength and have received fewer complaints than expected when averaged over a three-year period. If you don’t need more than $3 million in coverage and are 50 or younger, any company on this list could be a good fit. But if you’re over 50 and looking for a death benefit of more than $1 million, you can rule out Nationwide. If you’re over 60, your only option for high-coverage no-medical-exam life insurance is Penn Mutual. And regardless of your age, Penn Mutual is your only option if you need a death benefit greater than $5 million and don’t want to take an exam. If you’re looking for term coverage, try Penn Mutual or Pacific Life; for dividends, Penn Mutual or Guardian. If you want free living benefits, look to Nationwide. And if you’d like a wellness plan with your life insurance, John Hancock delivers. How To Choose a No-Medical-Exam Life Insurance Policy Term life insurance is designed to last for a specific number of years, such as 30, and then expire. Permanent life insurance is designed to last your entire lifetime, and is therefore more expensive than term. You may also want to combine term and permanent policies to have a higher-coverage term policy during your working years or while you’re raising a family, and then a lower-coverage permanent policy that will kick in once the term coverage expires. Term policies let you choose the length of the term (a 40-year term is the longest we’ve seen), and often provide the option to convert your term coverage to permanent. Permanent policies have a cash value, which may be accessed via withdrawals and loans. Once you’ve figured out your budget and the general type of coverage you need, you should begin to get quotes from financially stable companies with track records of good customer satisfaction.  If you want a no-exam life insurance policy, it may be helpful to know that most of the 91 companies we reviewed offer some sort of policy that doesn’t require an exam. You’re best off first finding a good company (or a few you like), and then seeing what kind of policy you can get without an exam. This list and our rankings of the best life insurance companies are both good places to start. And be sure to compare multiple quotes for no-exam life insurance because some policies are cheaper than others (depending on the type of no-exam underwriting used). A number of companies offer life insurance policies without requiring a medical exam, but you’ll generally be eligible for the lowest premiums with those that ask thorough health questions on the application.  More Ratings of Top Life Insurance Companies Best Life Insurance Companies Best Life Insurance for Seniors Best Life Insurance Companies for People Over 50  Best Whole Life Insurance Companies Best Universal Life Insurance Companies  Best Children’s Life Insurance Companies Frequently Asked Questions What Type of Life Insurance Does Not Require a Medical Exam? Most any type of policy is eligible for no-exam underwriting. It used to be that if you wanted to skip the exam, only low-coverage insurance policies were available to you. These are still available and sold as burial or funeral insurance, or guaranteed-issue policies. But now, insurers have a number of sophisticated means by which to collect health and other information, so they don’t need to rely on your exam. Plus, it costs them money to administer it and time to receive and review the results. No-exam underwriting allows insurance carriers to issue life policies faster, which is often good for both the customer and the insurer.So whether you’re looking for term or permanent coverage, a whole life policy or an indexed universal life policy, it’s available somewhere without a medical exam. But not all companies offer no-exam life insurance on all or even any of their policies, so you’ll need to do some research to find one that does. (The companies in the list above are an excellent start.) The one caveat is that not everyone is eligible for no-exam underwriting. If you have health issues that raise red flags for the insurance company, you may be required to undergo a medical screening to complete your application. Can You Borrow Money From a No-exam Life Insurance Policy? Yes, if it's a policy with a cash value. No-exam life insurance policies are just like regular life insurance policies. The only difference is that a medical screening is not required during the application process. Once approved, the policy functions just as it would had you taken an exam. So if you’ve purchased a permanent life insurance policy that builds a cash value, that cash value will be available to you, subject to any surrender period or other standard policy conditions. How Do I Choose the Best Life Insurance Policy? Choosing the best life insurance policy for you depends on your life insurance needs. How much coverage do you need? (Ideally, you’ll get enough to pay off your debts and replace your income, at the very least.) How long do you need it for? Your needs may change once your kids are grown and your home is paid off, for instance. The next question to ask is, how much premium can you afford? Methodology In order to compile our list of the best no-medical-exam life insurance companies, we developed a comprehensive life insurance methodology. We started off by researching what consumers want from life insurance companies, and for that, we looked to third-party consumer studies, including J.D. Power’s 2021 U.S. Life Insurance New Business Study and the 2021 Insurance Barometer Study, by Life Happens and LIMRA. With those findings in mind, we gathered more than 50 data points on 91 life insurance companies, including ratings for financial strength, customer satisfaction, and customer complaints, as well as information about years in business, online tools, no-exam options, dividends, maximum issue ages, and available riders.  Our review process gave preference to companies with solid financials, few customer complaints, high no-exam coverage amounts available, high-issue ages for no-exam coverage, and a broad product portfolio. Companies received ratings boosts for online resources, including online quotes and live chat, and included living benefit riders. We ranked each company according to the following categories and weights. 28%: No-med-exam availability and features20% Policy types and features15%: Financial stability 15%: Customer satisfaction13%: Ease of application9%: Online resources To finalize our list, we compared individual offerings between top companies by considering ratings from third parties such as AM Best and J.D. Power, and delving deeper into product specifics—including cost and the availability of dividends. We used this research to determine the best no-medical-exam life insurance companies. 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. J.D. Power. “Pandemic and Tax Code Change Spur Interest in Life Insurance, J.D. Power Finds.” AM Best. “Guide to Best’s Financial Strength Ratings - (FSRs).” J.D. Power. "2021 US Life Insurance New Business Study | JD Power." Life Happens. "Life Insurance Is on People's Minds." Related Articles Best Whole Life Insurance Companies of 2024 Best Life Insurance Companies for Seniors of 2024 Best Term Life Insurance Companies of 2024 11 Best Term, Whole, and No-Exam Life Insurance Companies for May 2024 Best Life Insurance Companies for Smokers Best Life Insurance for Parents of 2024 Related Terms Life Insurance: What It Is, How It Works, and How To Buy a Policy Life insurance is a contract in which an insurer, in exchange for a premium, guarantees payment to an insured’s beneficiaries when the insured dies. more What Is Life Insurance With Living Benefits? Life insurance living benefits can provide you with a financial lifeline throughout your life. Learn what they are and how they work. more What Is Travel Insurance, and What Does It Cover? Travel insurance helps cover financial losses associated with illness, injury, accidents, flight or other transportation delays, and other issues that happen during a trip. more What Is a Car Insurance Premium? A car insurance premium is the money you pay your insurer in exchange for the protections outlined in your policy. Learn how to get the best rates. more Re-Entry Term Insurance: What It Is, How It Works, Example Re-entry term insurance offers a low rate for a fixed period, after which you must pass a medical exam to keep the low rate. Here's how it works. more Guaranteed Issue Life Insurance: What it is, How it Works, Guaranteed issue life insurance is a small whole life insurance policy with no medical questions or exam. more

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

Semivariance: Meaning, Formulas, and Calculations

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-semivariance"></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 Semivariance? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Semivariance is a measurement of data that can be used to estimate the potential downside risk of an investment portfolio. Semivariance is calculated by measuring the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dispersion.asp">dispersion</a> of all observations that fall below the mean or target value of a set of data. Semivariance is an average of the squared deviations of values that are less than the mean. </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 semivariance formula can be used to measure a portfolio's downside risk.</li><li>Semivariance only considers observations that are below the mean of a data set.</li><li>Spreadsheet programs can be useful in calculating semivariance for your portfolio.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-semivariance"></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 Semivariance </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-subheading__text"> The Formula for Semivariance Is </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <span data-value="\begin{aligned} &amp;\text{Semivariance}=\frac1n\times\sum^n_{r_t&lt;\text{Average}}(\text{Average}-r_t)^2\\ &amp;\textbf{where:}\\ &amp;n = \text{The total number of observations below the mean}\\ &amp;r_t = \text{The observed value}\\ &amp;\text{Average} = \text{The mean or target value of the dataset} \end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mrow> <mtable> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> Semivariance </mtext> <mo> = </mo> <mfrac> <mn> 1 </mn> <mi> n </mi> </mfrac> <mo> × </mo> <munderover> <mo> ∑ </mo> <mrow> <msub> <mi> r </mi> <mi> t </mi> </msub> <mo> &lt; </mo> <mtext> Average </mtext> </mrow> <mi> n </mi> </munderover> <mo> ( </mo> <mtext> Average </mtext> <mo> − </mo> <msub> <mi> r </mi> <mi> t </mi> </msub> <msup> <mo> ) </mo> <mn> 2 </mn> </msup> </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> The total number of observations below the mean </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <msub> <mi> r </mi> <mi> t </mi> </msub> <mo> = </mo> <mtext> The observed value </mtext> </mrow> </mstyle> </mtd> </mtr> </mtable> </mrow> <annotation encoding="application/x-tex"> \begin{aligned} &amp;\text{Semivariance}=\frac1n\times\sum^n_{r_t&lt;\text{Average}}(\text{Average}-r_t)^2\\ &amp;\textbf{where:}\\ &amp;n = \text{The total number of observations below the mean}\\ &amp;r_t = \text{The observed value}\\ &amp;\text{Average} = \text{The mean or target value of the dataset} \end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="strut"></span><span class="strut bottom"></span><span class="base"><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span><span class="col-align-l"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord mathrm">Semivariance</span></span><span class="mrel">=</span><span class="mord"><span class="mopen nulldelimiter"></span><span class="mfrac"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord mathit">n</span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="mord mathrm">1</span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span><span class="mclose nulldelimiter"></span></span><span class="mbin">×</span><span class="mop op-limits"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mtight"><span class="mord mtight"><span class="mord mathit mtight">r</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size3 size1 mtight"><span class="mord mathit mtight">t</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span></span><span class="mrel mtight">&lt;</span><span class="mord text mtight"><span class="mord mathrm mtight">Average</span></span></span></span></span><span class=""><span class="pstrut"></span><span class=""><span class="mop op-symbol large-op">∑</span></span></span><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathit mtight">n</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span><span class="mopen">(</span><span class="mord text"><span class="mord mathrm">Average</span></span><span class="mbin">−</span><span class="mord"><span class="mord mathit">r</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathit mtight">t</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></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 mathrm mtight">2</span></span></span></span></span></span></span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord mathbf">where:</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathit">n</span><span class="mrel">=</span><span class="mord text"><span class="mord mathrm">The total number of observations below the mean</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="mord mathit">r</span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathit mtight">t</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span></span><span class="mrel">=</span><span class="mord text"><span class="mord mathrm">The observed value</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> What Does Semivariance Tell You? </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Semivariance is similar to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/variance.asp">variance</a>, but it only considers observations that are below the mean. Semivariance is a useful tool in portfolio or asset analysis because it provides a measure for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/downsiderisk.asp">downside risk</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> While <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/standarddeviation.asp">standard deviation</a> and variance provide measures of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a>, semivariance only looks at the negative fluctuations of an asset. Semivariance can be used to calculate the average loss that a portfolio could incur because it neutralizes all values above the mean, or above an investor's target return. </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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskaverse.asp">risk-averse</a> investors, determining optimal portfolio allocations by minimizing semivariance could reduce the likelihood of a large decline in the portfolio's value. </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"> Calculate With a Spreadsheet </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> To use a spreadsheet program to calculate semivariance: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> <li>Create a column—for example, column A—that consists of all returns in the portfolio.</li><li>Remove all returns above the mean from column A.</li><li>In column B, subtract the returns remaining in column A from the mean.</li><li>In column C, square the difference, find the sum, and divide the sum by the number of returns that fall below the mean.</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"> Different spreadsheets may have different functionality and some have easier ways or shortcuts to do this calculation. </p></div>

## What Is a Semivariance? Semivariance is a measurement of data that can be used to estimate the potential downside risk of an investment portfolio. Semivariance is calculated by measuring the [dispersion](https://www.investopedia.com/terms/d/dispersion.asp) of all observations that fall below the mean or target value of a set of data. Semivariance is an average of the squared deviations of values that are less than the mean. ### Key Takeaways * The semivariance formula can be used to measure a portfolio's downside risk. * Semivariance only considers observations that are below the mean of a data set. * Spreadsheet programs can be useful in calculating semivariance for your portfolio. ## Understanding Semivariance ### The Formula for Semivariance Is  Semivariance = 1 n × ∑ r t < Average n ( Average − r t ) 2 where: n = The total number of observations below the mean r t = The observed value \begin{aligned} &\text{Semivariance}=\frac1n\times\sum^n\_{r\_t<\text{Average}}(\text{Average}-r\_t)^2\\ &\textbf{where:}\\ &n = \text{The total number of observations below the mean}\\ &r\_t = \text{The observed value}\\ &\text{Average} = \text{The mean or target value of the dataset} \end{aligned} ​Semivariance=n1​×rt​<Average∑n​(Average−rt​)2where:n=The total number of observations below the meanrt​=The observed value​ ### What Does Semivariance Tell You? Semivariance is similar to [variance](https://www.investopedia.com/terms/v/variance.asp), but it only considers observations that are below the mean. Semivariance is a useful tool in portfolio or asset analysis because it provides a measure for [downside risk](https://www.investopedia.com/terms/d/downsiderisk.asp). While [standard deviation](https://www.investopedia.com/terms/s/standarddeviation.asp) and variance provide measures of [volatility](https://www.investopedia.com/terms/v/volatility.asp), semivariance only looks at the negative fluctuations of an asset. Semivariance can be used to calculate the average loss that a portfolio could incur because it neutralizes all values above the mean, or above an investor's target return. For [risk-averse](https://www.investopedia.com/terms/r/riskaverse.asp) investors, determining optimal portfolio allocations by minimizing semivariance could reduce the likelihood of a large decline in the portfolio's value. ### Calculate With a Spreadsheet To use a spreadsheet program to calculate semivariance: * Create a column—for example, column A—that consists of all returns in the portfolio. * Remove all returns above the mean from column A. * In column B, subtract the returns remaining in column A from the mean. * In column C, square the difference, find the sum, and divide the sum by the number of returns that fall below the mean. Different spreadsheets may have different functionality and some have easier ways or shortcuts to do this calculation.

What Is a Semivariance? Semivariance is a measurement of data that can be used to estimate the potential downside risk of an investment portfolio. Semivariance is calculated by measuring the dispersion of all observations that fall below the mean or target value of a set of data. Semivariance is an average of the squared deviations of values that are less than the mean. Key Takeaways The semivariance formula can be used to measure a portfolio's downside risk.Semivariance only considers observations that are below the mean of a data set.Spreadsheet programs can be useful in calculating semivariance for your portfolio. Understanding Semivariance The Formula for Semivariance Is  Semivariance = 1 n × ∑ r t < Average n ( Average − r t ) 2 where: n = The total number of observations below the mean r t = The observed value \begin{aligned} &\text{Semivariance}=\frac1n\times\sum^n_{r_t<\text{Average}}(\text{Average}-r_t)^2\\ &\textbf{where:}\\ &n = \text{The total number of observations below the mean}\\ &r_t = \text{The observed value}\\ &\text{Average} = \text{The mean or target value of the dataset} \end{aligned} ​Semivariance=n1​×rt​<Average∑n​(Average−rt​)2where:n=The total number of observations below the meanrt​=The observed value​ What Does Semivariance Tell You? Semivariance is similar to variance, but it only considers observations that are below the mean. Semivariance is a useful tool in portfolio or asset analysis because it provides a measure for downside risk. While standard deviation and variance provide measures of volatility, semivariance only looks at the negative fluctuations of an asset. Semivariance can be used to calculate the average loss that a portfolio could incur because it neutralizes all values above the mean, or above an investor's target return. For risk-averse investors, determining optimal portfolio allocations by minimizing semivariance could reduce the likelihood of a large decline in the portfolio's value. Calculate With a Spreadsheet To use a spreadsheet program to calculate semivariance: Create a column—for example, column A—that consists of all returns in the portfolio.Remove all returns above the mean from column A.In column B, subtract the returns remaining in column A from the mean.In column C, square the difference, find the sum, and divide the sum by the number of returns that fall below the mean. Different spreadsheets may have different functionality and some have easier ways or shortcuts to do this calculation.

https://www.investopedia.com/terms/u/unitized-endowment-pool.asp

Unitized Endowment Pool (UEP): Meaning, Benefits

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-unitized-endowment-pool-uep"></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 Unitized Endowment Pool (UEP)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A unitized endowment pool (UEP) is a form of endowment investing that allows multiple <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/endowment.asp">endowments</a> to invest in the same pool of assets. Each endowment owns individual units in a UEP and investors generally see their returns monthly. New endowments entering the pool can buy in by receiving units in the pool valued as of a specific buy-in date. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A unitized endowment pool (UEP) is a type of investment used by endowments that allow multiple groups to invest in the same basket of assets.</li><li>Each endowment owns units in the UEP, with the value of each unit determined as of a specific buy-in-date.</li><li>UEPs are similar to mutual funds, except they are only available to endowments, not to the public.</li><li>UEPs allow the individual endowments to have access to greater diversification by teaming up with a number of other firms.</li><li>The benefits UEPs provide to endowments include access to less liquid investments, access to complex financial markets, such as those of emerging economies, and the ease of selling illiquid investments.<br/></li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-a-unitized-endowment-pool-uep"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding a Unitized Endowment Pool (UEP) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> A unitized endowment pool (UEP) is sort of a mutual fund, but it’s on a bigger scale and specifically for endowments, as opposed to <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>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> While even small endowments often have a substantial amount of cash to invest, it’s sometimes beneficial to pool together with other endowments for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversification</a>. UEP units serve to clearly segregate each endowment's share in the pool. For example, a UEP with a market value of $10 billion may have 100,000 units worth $100,000 each and split those units among multiple endowments. </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"> Unitized endowment pools are one of three main investing options for endowment funds. Some choose to invest in UEPs exclusively. Others hire external managers directly. The largest tend to hire internal managers to attempt to grow endowment assets. A few use a combination of all three. </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 number of endowments that invest in unitized endowment pools and other outside investment managers, as opposed to making all decisions in-house, tends to run in cycles. In the decade following the 2007-2009 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-crisis.asp">financial crisis</a>, for example, more midsize- and large endowments hired management expertise from the outside, in general, in an effort to focus on controlling costs and putting more focus on risk management. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-benefits-of-a-uep"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> Benefits of a UEP </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Some UEPs provide access to less-liquid securities such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/privateequity.asp">private equity</a> and stakes in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/timberlandinvestment.asp">timberland</a>. Each tends to have attractive returns over time, but also carries significant liquidity risks. </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"> A smaller endowment might not own these assets outside of a unitized endowment pool because they don’t have the internal expertise to manage these assets. Moreover, selling units of a unitized endowment pool with a share of these types of assets is sometimes easier and faster than trying to sell <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/illiquid.asp">illiquid</a> assets directly. </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 school with the largest endowment is Harvard University, with an endowment of $42 billion in 2020.<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_22-0"> Some unitized endowment pools also have more experience with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/emergingmarketeconomy.asp">emerging-markets</a> equity and debt than an endowment fund’s own team. Endowment funds tend to own at least some of these types of assets, as many plan to invest for very long time horizons; even longer than the average retail investor saving for retirement. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Many endowments choose to take on more risk in search of higher potential rewards that have a better chance of beating inflation over time. This could be viewed as a downside but it depends on each endowment's <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 investment time horizon. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_26-0"><span class="heading-toc" id="toc-what-are-the-three-types-of-endowments"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Three Types of Endowments?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In general, the three types of endowments are true endowments, also known as permanent endowments, quasi-endowments, also known as Funds Functioning as Endowments (FFE), and term endowments.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_28-0"><span class="heading-toc" id="toc-what-is-a-unitized-investment"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Unitized Investment?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A unitized investment is a type of pooled investment structure that allows investors to purchase units in a pooled investment vehicle, such as an investment fund. Each investor owns a portion of the investment vehicle through their units. Unitized investments typically have a specific investment concentration or strategy.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_30-0"><span class="heading-toc" id="toc-what-is-an-endowment"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is an Endowment?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>An endowment is an investment structure for non-profit organizations that allows for their donations to be invested in order to generate returns with the ultimate goal of financing their operations.</p></div> </div></div>

## What Is a Unitized Endowment Pool (UEP)? A unitized endowment pool (UEP) is a form of endowment investing that allows multiple [endowments](https://www.investopedia.com/terms/e/endowment.asp) to invest in the same pool of assets. Each endowment owns individual units in a UEP and investors generally see their returns monthly. New endowments entering the pool can buy in by receiving units in the pool valued as of a specific buy-in date. ### Key Takeaways * A unitized endowment pool (UEP) is a type of investment used by endowments that allow multiple groups to invest in the same basket of assets. * Each endowment owns units in the UEP, with the value of each unit determined as of a specific buy-in-date. * UEPs are similar to mutual funds, except they are only available to endowments, not to the public. * UEPs allow the individual endowments to have access to greater diversification by teaming up with a number of other firms. * The benefits UEPs provide to endowments include access to less liquid investments, access to complex financial markets, such as those of emerging economies, and the ease of selling illiquid investments. ## Understanding a Unitized Endowment Pool (UEP) A unitized endowment pool (UEP) is sort of a mutual fund, but it’s on a bigger scale and specifically for endowments, as opposed to [retail investors](https://www.investopedia.com/terms/r/retailinvestor.asp). While even small endowments often have a substantial amount of cash to invest, it’s sometimes beneficial to pool together with other endowments for [diversification](https://www.investopedia.com/terms/d/diversification.asp). UEP units serve to clearly segregate each endowment's share in the pool. For example, a UEP with a market value of $10 billion may have 100,000 units worth $100,000 each and split those units among multiple endowments. Unitized endowment pools are one of three main investing options for endowment funds. Some choose to invest in UEPs exclusively. Others hire external managers directly. The largest tend to hire internal managers to attempt to grow endowment assets. A few use a combination of all three. The number of endowments that invest in unitized endowment pools and other outside investment managers, as opposed to making all decisions in-house, tends to run in cycles. In the decade following the 2007-2009 [financial crisis](https://www.investopedia.com/terms/f/financial-crisis.asp), for example, more midsize- and large endowments hired management expertise from the outside, in general, in an effort to focus on controlling costs and putting more focus on risk management. ## Benefits of a UEP Some UEPs provide access to less-liquid securities such as [private equity](https://www.investopedia.com/terms/p/privateequity.asp) and stakes in [timberland](https://www.investopedia.com/terms/t/timberlandinvestment.asp). Each tends to have attractive returns over time, but also carries significant liquidity risks. A smaller endowment might not own these assets outside of a unitized endowment pool because they don’t have the internal expertise to manage these assets. Moreover, selling units of a unitized endowment pool with a share of these types of assets is sometimes easier and faster than trying to sell [illiquid](https://www.investopedia.com/terms/i/illiquid.asp) assets directly. ### The school with the largest endowment is Harvard University, with an endowment of $42 billion in 2020. Some unitized endowment pools also have more experience with [emerging-markets](https://www.investopedia.com/terms/e/emergingmarketeconomy.asp) equity and debt than an endowment fund’s own team. Endowment funds tend to own at least some of these types of assets, as many plan to invest for very long time horizons; even longer than the average retail investor saving for retirement. Many endowments choose to take on more risk in search of higher potential rewards that have a better chance of beating inflation over time. This could be viewed as a downside but it depends on each endowment's [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp) and investment time horizon. ## What Are the Three Types of Endowments? In general, the three types of endowments are true endowments, also known as permanent endowments, quasi-endowments, also known as Funds Functioning as Endowments (FFE), and term endowments. ## What Is a Unitized Investment? A unitized investment is a type of pooled investment structure that allows investors to purchase units in a pooled investment vehicle, such as an investment fund. Each investor owns a portion of the investment vehicle through their units. Unitized investments typically have a specific investment concentration or strategy. ## What Is an Endowment? An endowment is an investment structure for non-profit organizations that allows for their donations to be invested in order to generate returns with the ultimate goal of financing their operations.

What Is a Unitized Endowment Pool (UEP)? A unitized endowment pool (UEP) is a form of endowment investing that allows multiple endowments to invest in the same pool of assets. Each endowment owns individual units in a UEP and investors generally see their returns monthly. New endowments entering the pool can buy in by receiving units in the pool valued as of a specific buy-in date. Key Takeaways A unitized endowment pool (UEP) is a type of investment used by endowments that allow multiple groups to invest in the same basket of assets.Each endowment owns units in the UEP, with the value of each unit determined as of a specific buy-in-date.UEPs are similar to mutual funds, except they are only available to endowments, not to the public.UEPs allow the individual endowments to have access to greater diversification by teaming up with a number of other firms.The benefits UEPs provide to endowments include access to less liquid investments, access to complex financial markets, such as those of emerging economies, and the ease of selling illiquid investments. Understanding a Unitized Endowment Pool (UEP) A unitized endowment pool (UEP) is sort of a mutual fund, but it’s on a bigger scale and specifically for endowments, as opposed to retail investors. While even small endowments often have a substantial amount of cash to invest, it’s sometimes beneficial to pool together with other endowments for diversification. UEP units serve to clearly segregate each endowment's share in the pool. For example, a UEP with a market value of $10 billion may have 100,000 units worth $100,000 each and split those units among multiple endowments. Unitized endowment pools are one of three main investing options for endowment funds. Some choose to invest in UEPs exclusively. Others hire external managers directly. The largest tend to hire internal managers to attempt to grow endowment assets. A few use a combination of all three. The number of endowments that invest in unitized endowment pools and other outside investment managers, as opposed to making all decisions in-house, tends to run in cycles. In the decade following the 2007-2009 financial crisis, for example, more midsize- and large endowments hired management expertise from the outside, in general, in an effort to focus on controlling costs and putting more focus on risk management. Benefits of a UEP Some UEPs provide access to less-liquid securities such as private equity and stakes in timberland. Each tends to have attractive returns over time, but also carries significant liquidity risks. A smaller endowment might not own these assets outside of a unitized endowment pool because they don’t have the internal expertise to manage these assets. Moreover, selling units of a unitized endowment pool with a share of these types of assets is sometimes easier and faster than trying to sell illiquid assets directly. The school with the largest endowment is Harvard University, with an endowment of $42 billion in 2020. Some unitized endowment pools also have more experience with emerging-markets equity and debt than an endowment fund’s own team. Endowment funds tend to own at least some of these types of assets, as many plan to invest for very long time horizons; even longer than the average retail investor saving for retirement. Many endowments choose to take on more risk in search of higher potential rewards that have a better chance of beating inflation over time. This could be viewed as a downside but it depends on each endowment's risk tolerance and investment time horizon. What Are the Three Types of Endowments? In general, the three types of endowments are true endowments, also known as permanent endowments, quasi-endowments, also known as Funds Functioning as Endowments (FFE), and term endowments. What Is a Unitized Investment? A unitized investment is a type of pooled investment structure that allows investors to purchase units in a pooled investment vehicle, such as an investment fund. Each investor owns a portion of the investment vehicle through their units. Unitized investments typically have a specific investment concentration or strategy. What Is an Endowment? An endowment is an investment structure for non-profit organizations that allows for their donations to be invested in order to generate returns with the ultimate goal of financing their operations.

https://www.investopedia.com/what-is-postal-banking-5217341

Postal Banking: What it Means, How it Works

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> In postal banking, your local post office offers some basic financial services, much like a commercial bank. Postal banking is common in much of the world and was once available in the United States. Bringing it back could be a low-cost solution for the country’s large unbanked population.<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_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> In fact, in 2021, the United States Postal Service (USPS) dipped its feet back into banking services, offering customers in Washington, D.C., Falls Church, Virginia, and the Bronx, New York to cash payroll or business checks (up to $500) on to a debit card.<span class="ql-inline-citation" data-cite="12"></span><span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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>Postal banking is common in other countries but wasn't seen in the United States for decades until 2021 when the USPS started offering some banking services in certain locations.</li><li>Advocates believe that bringing it back could make low-cost banking services available to low-income Americans.</li><li>Approximately 7.1 million American households don’t have checking or savings accounts.<span class="ql-inline-citation" data-cite="10"></span></li><li>High fees and account minimums often prevent people from opening accounts.</li><li>Unbanked individuals rely on retailers for basic financial services like check cashing or bill payments, which can be expensive.<br/></li></ul></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_7-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:67.5%;"> <img alt="What to Know About Postal Banking" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/6KRDEJmpdCvr7TDs-A8znDxNBbs=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/what-is-postal-banking-5217341-final-cf2aa61cab694e12974a34cdb8633fc0.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/6KRDEJmpdCvr7TDs-A8znDxNBbs=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/what-is-postal-banking-5217341-final-cf2aa61cab694e12974a34cdb8633fc0.png" data-srcset="https://www.investopedia.com/thmb/yMbClmnhqoVdHcTeO48pV52_WHc=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/what-is-postal-banking-5217341-final-cf2aa61cab694e12974a34cdb8633fc0.png 750w" data-tracking-container="true" height="2700" id="mntl-sc-block-image_1-0" width="4000"/> <noscript> <img alt="What to Know About Postal Banking" class="img--noscript universal-image__image" height="2700" sizes="750px" src="https://www.investopedia.com/thmb/6KRDEJmpdCvr7TDs-A8znDxNBbs=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/what-is-postal-banking-5217341-final-cf2aa61cab694e12974a34cdb8633fc0.png" srcset="https://www.investopedia.com/thmb/yMbClmnhqoVdHcTeO48pV52_WHc=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/what-is-postal-banking-5217341-final-cf2aa61cab694e12974a34cdb8633fc0.png 750w" width="4000"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>Investopedia / Julie Bang</p></span> </figcaption></figure> <span class="heading-toc" id="toc-how-postal-banking-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 Postal Banking Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> With postal banking, the local post office also serves as a sort of bank branch. For example, it might provide check cashing, bill payment processing, and even small loans. </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"> Today, U.S. post offices do not provide all of these services on a large scale, although they may sell postal <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/money-order.asp">money orders</a>, a convenience for people who need to pay a bill or want to send money safely to someone but who don’t have a checking account. Recipients can also cash money orders at a post office location. </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"> Generations ago, post offices weren’t that limited. From 1911 through 1967, the U.S. had a Postal Savings System, where Americans could deposit their money in government-backed, interest-earning accounts. But as commercial banks raised their interest rates on savings accounts, demand for the Postal Savings System declined, and the program came to an end in 1967.<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_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> In 2021, the USPS rolled out small deposit-to-card services in certain locations but ideally would like to offer customers the ability to pay bills, deposit and withdraw cash, and send money to other post offices.<span class="ql-inline-citation" data-cite="12"></span><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_16-0"></div> <span class="heading-toc" id="toc-postal-banking-and-the-unbanked"></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"> Postal Banking and the Unbanked  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> In the U.S. in 2019, the most recent year for which figures were available, more than 5% of households (about 7.1 million in all) were <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unbanked.asp">unbanked</a>, meaning that no one in the household has a checking or savings account at a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bank.asp">bank</a> or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditunion.asp">credit union</a>. For these households, basic banking services like cashing a check can be prohibitively expensive.<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> According to a 2019 survey 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 Corp. (FDIC)</a>, most unbanked households are low-income and lack access to a bank or credit union for reasons that include:<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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>High account minimums. </strong>The most commonly cited reason was that the household didn’t have enough money to meet banks’ minimum balance requirements. </li><li><strong>Lack of trust. </strong>Many people said they didn’t trust banks to handle their money. </li><li><strong>Fees. </strong>Unpredictable (and often excessive) fees—such as overdraft fees, monthly account fees, and withdrawal fees—prevent some people from opening or keeping accounts. </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"> Without access to a checking or savings account, unbanked households turn to services like check-cashing stores and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/102814/what-are-basic-requirements-qualify-payday-loan.asp">payday loan</a> centers to conduct financial transactions like cashing paychecks and paying utility bills. At one check-cashing chain in California, for example, fees can range from 1.79% to 14.99% of the face amount, depending on the type of check. </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"> Postal banking advocates say that a postal banking system would not only allow low-income individuals to cash checks at cheaper rates but also keep them away from predatory lenders. Being able to go to a post office for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-small-personal-loans-4797188">small loans</a> could end their reliance on high-cost alternatives, such as payday lenders.<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-current-status-of-postal-banking-proposals"></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"> Current Status of Postal Banking Proposals </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> In 2014, postal banking saw renewed interest thanks to a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/whitepaper.asp">white paper</a> released by the U.S. Postal Service Office of Inspector General. The paper stated that underserved households spent more than $2,400 a year on average on interest and fees from alternative financial sources, and that postal banking could cut that dramatically.<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"> The white paper started new conversations about options for underserved Americans. In 2020, Sen. Kirsten Gillibrand (D-N.Y.) sponsored a bill—the Postal Banking Act—that would allow the Postal Service to provide basic financial services. She was joined by co-sponsors Sen. Bernie Sanders (I-Vt.) and Sen. Jeff Merkley (D-Ore.).<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_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> In Oct. 2021, the Postal Service, in partnership with the American Postal Workers Union, launched a small pilot postal banking program in four cities. At select locations, post offices would provide <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/where-can-you-cash-checks-5176474">cash checking</a> services.<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_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> The Postal Banking Act and the postal banking pilot program have faced significant opposition from both Republican leadership in Congress and the banking industry. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aba.asp">American Bankers Association (ABA)</a> released a statement that said, “The American Bankers Association has long been a vocal opponent of postal banking, and has previously noted that it could be perceived as a government-endorsed provider competing with taxpaying banks and would create risks that USPS is ill-suited to manage.”<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_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> The ABA maintains that, rather than the Postal Service, the answer to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-go-from-unbanked-or-underbanked-to-banked-5096964">problem of the unbanked</a> is to be found at its own branches. “It’s easier than ever to open a bank account in this country, including Bank On-certified accounts, which are now available in more than half of all U.S. bank branches, and feature low costs, no overdraft fees, robust transaction capabilities such as a debit or prepaid card, and online bill pay,” the ABA says.<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_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-postal-banking"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Postal Banking?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Postal banking refers to providing basic banking services at local post offices. That might include things like check cashing, bill paying, and even small loans.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_41-0"><span class="heading-toc" id="toc-what-is-the-advantage-of-postal-banking"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Advantage of Postal Banking?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Advocates argue that postal banking could make financial services available to the millions of Americans who are currently unbanked, giving them a low-cost alternative to expensive check-cashing stores and payday loan providers.</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-what-is-the-argument-against-postal-banking"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Argument Against Postal Banking?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The U.S. private banking industry maintains that the U.S. Postal Service is ill-equipped to add banking to its other services and that many banks now have low-cost programs that could better serve the currently unbanked population.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_45-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Postal banking is increasingly cited as a potential solution for low-income households that don’t have access to traditional banks or credit unions. While postal banking has gained some traction in Congress in recent years, it still faces significant opposition from the banking industry. </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"> Unless postal banking becomes widespread, most people will continue to rely on banks and credit unions (or check-cashing stores and payday loan purveyors) for banking services.  </p></div>

In postal banking, your local post office offers some basic financial services, much like a commercial bank. Postal banking is common in much of the world and was once available in the United States. Bringing it back could be a low-cost solution for the country’s large unbanked population. In fact, in 2021, the United States Postal Service (USPS) dipped its feet back into banking services, offering customers in Washington, D.C., Falls Church, Virginia, and the Bronx, New York to cash payroll or business checks (up to $500) on to a debit card. ### Key Takeaways * Postal banking is common in other countries but wasn't seen in the United States for decades until 2021 when the USPS started offering some banking services in certain locations. * Advocates believe that bringing it back could make low-cost banking services available to low-income Americans. * Approximately 7.1 million American households don’t have checking or savings accounts. * High fees and account minimums often prevent people from opening accounts. * Unbanked individuals rely on retailers for basic financial services like check cashing or bill payments, which can be expensive. ![What to Know About Postal Banking]() :max_bytes(150000):strip_icc()/what-is-postal-banking-5217341-final-cf2aa61cab694e12974a34cdb8633fc0.png) Investopedia / Julie Bang ## How Postal Banking Works With postal banking, the local post office also serves as a sort of bank branch. For example, it might provide check cashing, bill payment processing, and even small loans. Today, U.S. post offices do not provide all of these services on a large scale, although they may sell postal [money orders](https://www.investopedia.com/terms/m/money-order.asp), a convenience for people who need to pay a bill or want to send money safely to someone but who don’t have a checking account. Recipients can also cash money orders at a post office location. Generations ago, post offices weren’t that limited. From 1911 through 1967, the U.S. had a Postal Savings System, where Americans could deposit their money in government-backed, interest-earning accounts. But as commercial banks raised their interest rates on savings accounts, demand for the Postal Savings System declined, and the program came to an end in 1967. In 2021, the USPS rolled out small deposit-to-card services in certain locations but ideally would like to offer customers the ability to pay bills, deposit and withdraw cash, and send money to other post offices. ## Postal Banking and the Unbanked In the U.S. in 2019, the most recent year for which figures were available, more than 5% of households (about 7.1 million in all) were [unbanked](https://www.investopedia.com/terms/u/unbanked.asp), meaning that no one in the household has a checking or savings account at a [bank](https://www.investopedia.com/terms/b/bank.asp) or [credit union](https://www.investopedia.com/terms/c/creditunion.asp). For these households, basic banking services like cashing a check can be prohibitively expensive. According to a 2019 survey by the [Federal Deposit Insurance Corp. (FDIC)](https://www.investopedia.com/terms/f/fdic.asp), most unbanked households are low-income and lack access to a bank or credit union for reasons that include: * **High account minimums.** The most commonly cited reason was that the household didn’t have enough money to meet banks’ minimum balance requirements. * **Lack of trust.** Many people said they didn’t trust banks to handle their money. * **Fees.** Unpredictable (and often excessive) fees—such as overdraft fees, monthly account fees, and withdrawal fees—prevent some people from opening or keeping accounts. Without access to a checking or savings account, unbanked households turn to services like check-cashing stores and [payday loan](https://www.investopedia.com/ask/answers/102814/what-are-basic-requirements-qualify-payday-loan.asp) centers to conduct financial transactions like cashing paychecks and paying utility bills. At one check-cashing chain in California, for example, fees can range from 1.79% to 14.99% of the face amount, depending on the type of check. Postal banking advocates say that a postal banking system would not only allow low-income individuals to cash checks at cheaper rates but also keep them away from predatory lenders. Being able to go to a post office for [small loans](https://www.investopedia.com/best-small-personal-loans-4797188) could end their reliance on high-cost alternatives, such as payday lenders. ## Current Status of Postal Banking Proposals In 2014, postal banking saw renewed interest thanks to a [white paper](https://www.investopedia.com/terms/w/whitepaper.asp) released by the U.S. Postal Service Office of Inspector General. The paper stated that underserved households spent more than $2,400 a year on average on interest and fees from alternative financial sources, and that postal banking could cut that dramatically. The white paper started new conversations about options for underserved Americans. In 2020, Sen. Kirsten Gillibrand (D-N.Y.) sponsored a bill—the Postal Banking Act—that would allow the Postal Service to provide basic financial services. She was joined by co-sponsors Sen. Bernie Sanders (I-Vt.) and Sen. Jeff Merkley (D-Ore.). In Oct. 2021, the Postal Service, in partnership with the American Postal Workers Union, launched a small pilot postal banking program in four cities. At select locations, post offices would provide [cash checking](https://www.investopedia.com/where-can-you-cash-checks-5176474) services. The Postal Banking Act and the postal banking pilot program have faced significant opposition from both Republican leadership in Congress and the banking industry. The [American Bankers Association (ABA)](https://www.investopedia.com/terms/a/aba.asp) released a statement that said, “The American Bankers Association has long been a vocal opponent of postal banking, and has previously noted that it could be perceived as a government-endorsed provider competing with taxpaying banks and would create risks that USPS is ill-suited to manage.” The ABA maintains that, rather than the Postal Service, the answer to the [problem of the unbanked](https://www.investopedia.com/how-to-go-from-unbanked-or-underbanked-to-banked-5096964) is to be found at its own branches. “It’s easier than ever to open a bank account in this country, including Bank On-certified accounts, which are now available in more than half of all U.S. bank branches, and feature low costs, no overdraft fees, robust transaction capabilities such as a debit or prepaid card, and online bill pay,” the ABA says. ## What Is Postal Banking? Postal banking refers to providing basic banking services at local post offices. That might include things like check cashing, bill paying, and even small loans. ## What Is the Advantage of Postal Banking? Advocates argue that postal banking could make financial services available to the millions of Americans who are currently unbanked, giving them a low-cost alternative to expensive check-cashing stores and payday loan providers. ## What Is the Argument Against Postal Banking? The U.S. private banking industry maintains that the U.S. Postal Service is ill-equipped to add banking to its other services and that many banks now have low-cost programs that could better serve the currently unbanked population. ## The Bottom Line Postal banking is increasingly cited as a potential solution for low-income households that don’t have access to traditional banks or credit unions. While postal banking has gained some traction in Congress in recent years, it still faces significant opposition from the banking industry. Unless postal banking becomes widespread, most people will continue to rely on banks and credit unions (or check-cashing stores and payday loan purveyors) for banking services. 

In postal banking, your local post office offers some basic financial services, much like a commercial bank. Postal banking is common in much of the world and was once available in the United States. Bringing it back could be a low-cost solution for the country’s large unbanked population. In fact, in 2021, the United States Postal Service (USPS) dipped its feet back into banking services, offering customers in Washington, D.C., Falls Church, Virginia, and the Bronx, New York to cash payroll or business checks (up to $500) on to a debit card. Key Takeaways Postal banking is common in other countries but wasn't seen in the United States for decades until 2021 when the USPS started offering some banking services in certain locations.Advocates believe that bringing it back could make low-cost banking services available to low-income Americans.Approximately 7.1 million American households don’t have checking or savings accounts.High fees and account minimums often prevent people from opening accounts.Unbanked individuals rely on retailers for basic financial services like check cashing or bill payments, which can be expensive. Investopedia / Julie Bang How Postal Banking Works With postal banking, the local post office also serves as a sort of bank branch. For example, it might provide check cashing, bill payment processing, and even small loans. Today, U.S. post offices do not provide all of these services on a large scale, although they may sell postal money orders, a convenience for people who need to pay a bill or want to send money safely to someone but who don’t have a checking account. Recipients can also cash money orders at a post office location. Generations ago, post offices weren’t that limited. From 1911 through 1967, the U.S. had a Postal Savings System, where Americans could deposit their money in government-backed, interest-earning accounts. But as commercial banks raised their interest rates on savings accounts, demand for the Postal Savings System declined, and the program came to an end in 1967. In 2021, the USPS rolled out small deposit-to-card services in certain locations but ideally would like to offer customers the ability to pay bills, deposit and withdraw cash, and send money to other post offices. Postal Banking and the Unbanked  In the U.S. in 2019, the most recent year for which figures were available, more than 5% of households (about 7.1 million in all) were unbanked, meaning that no one in the household has a checking or savings account at a bank or credit union. For these households, basic banking services like cashing a check can be prohibitively expensive. According to a 2019 survey by the Federal Deposit Insurance Corp. (FDIC), most unbanked households are low-income and lack access to a bank or credit union for reasons that include: High account minimums. The most commonly cited reason was that the household didn’t have enough money to meet banks’ minimum balance requirements. Lack of trust. Many people said they didn’t trust banks to handle their money. Fees. Unpredictable (and often excessive) fees—such as overdraft fees, monthly account fees, and withdrawal fees—prevent some people from opening or keeping accounts.  Without access to a checking or savings account, unbanked households turn to services like check-cashing stores and payday loan centers to conduct financial transactions like cashing paychecks and paying utility bills. At one check-cashing chain in California, for example, fees can range from 1.79% to 14.99% of the face amount, depending on the type of check. Postal banking advocates say that a postal banking system would not only allow low-income individuals to cash checks at cheaper rates but also keep them away from predatory lenders. Being able to go to a post office for small loans could end their reliance on high-cost alternatives, such as payday lenders. Current Status of Postal Banking Proposals In 2014, postal banking saw renewed interest thanks to a white paper released by the U.S. Postal Service Office of Inspector General. The paper stated that underserved households spent more than $2,400 a year on average on interest and fees from alternative financial sources, and that postal banking could cut that dramatically. The white paper started new conversations about options for underserved Americans. In 2020, Sen. Kirsten Gillibrand (D-N.Y.) sponsored a bill—the Postal Banking Act—that would allow the Postal Service to provide basic financial services. She was joined by co-sponsors Sen. Bernie Sanders (I-Vt.) and Sen. Jeff Merkley (D-Ore.). In Oct. 2021, the Postal Service, in partnership with the American Postal Workers Union, launched a small pilot postal banking program in four cities. At select locations, post offices would provide cash checking services. The Postal Banking Act and the postal banking pilot program have faced significant opposition from both Republican leadership in Congress and the banking industry. The American Bankers Association (ABA) released a statement that said, “The American Bankers Association has long been a vocal opponent of postal banking, and has previously noted that it could be perceived as a government-endorsed provider competing with taxpaying banks and would create risks that USPS is ill-suited to manage.” The ABA maintains that, rather than the Postal Service, the answer to the problem of the unbanked is to be found at its own branches. “It’s easier than ever to open a bank account in this country, including Bank On-certified accounts, which are now available in more than half of all U.S. bank branches, and feature low costs, no overdraft fees, robust transaction capabilities such as a debit or prepaid card, and online bill pay,” the ABA says. What Is Postal Banking? Postal banking refers to providing basic banking services at local post offices. That might include things like check cashing, bill paying, and even small loans. What Is the Advantage of Postal Banking? Advocates argue that postal banking could make financial services available to the millions of Americans who are currently unbanked, giving them a low-cost alternative to expensive check-cashing stores and payday loan providers. What Is the Argument Against Postal Banking? The U.S. private banking industry maintains that the U.S. Postal Service is ill-equipped to add banking to its other services and that many banks now have low-cost programs that could better serve the currently unbanked population. The Bottom Line Postal banking is increasingly cited as a potential solution for low-income households that don’t have access to traditional banks or credit unions. While postal banking has gained some traction in Congress in recent years, it still faces significant opposition from the banking industry. Unless postal banking becomes widespread, most people will continue to rely on banks and credit unions (or check-cashing stores and payday loan purveyors) for banking services. 

https://www.investopedia.com/articles/stocks/08/sri-versus-sin-stock.asp

Socially Responsible Investing (SRI) vs. Sin 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"> Is it better to be bad than to be good? It is a question that has plagued humanity since the beginning of time, and the world of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investing.asp">investing</a> is not immune to the controversy. In one corner are fans of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sri.asp">socially responsible investing (SRI)</a>, and in the other corner are fans of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sinfulstock.asp">sin stocks</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>Over the past decade, socially responsible investing (SRI) has become an important investment trend, with people choosing only those stocks that support their communities, the environment, and good <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/corporategovernance.asp">corporate governance</a>.</li> <li>SRI stocks can be contrasted with sin stocks—companies that engage in activities that can be harmful, such as tobacco, alcohol, and firearms, as well as large polluters.</li> <li>While SRI may fit your moral convictions, economists warn that investing solely in SRI stocks leaves important gaps in a diversified portfolio that can limit returns and concentrate <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risk.asp">risk</a>.</li> </ul></div></div></div> <span class="heading-toc" id="toc-the-case-for-socially-responsible-investing-sri-and-for-sin-stocks"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> The Case for Socially Responsible Investing (SRI) and for Sin Stocks </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> SRI fans prefer an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentstrategy.asp">investment strategy</a> that views successful investment returns and responsible corporate behavior as going hand in hand. They believe that by combining certain social criteria with rigorous investment standards, they can identify securities that will earn competitive <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/return.asp">returns</a> and help build a better world. </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"> Proponents of sin stocks have traditionally favored companies in the gambling, alcohol, tobacco, and firearms industries. Any companies that make a profit have a place in their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolios</a>, regardless of whether the firm builds nuclear power plants, sells components for land mines, or has questionable labor practices. This camp points out that somebody is going to profit from these industries and argues that there’s no reason to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/01/040401.asp">miss out on the opportunity</a>. </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-buy-into-sin-or-put-your-money-behind-your-convictions"></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"> Buy into Sin, or Put Your Money Behind Your Convictions? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> SRI fans argue that it’s possible to do some good while making money. Their argument rests on the idea that socially responsible companies are likely to be well-managed because their underpinnings are based on solid values. </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"> Sin stock fans argue that SRI mandates pass up good opportunities in companies that have strong fundamentals, trading profits for a feel-good factor. The sin stock crowd feels good when their investments deliver solid returns. They would rather put money in the bank by backing industries that meet consumer <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/demand.asp">demand</a> than starve for their convictions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/modernportfoliotheory.asp">Modern portfolio theory (MPT)</a> seems to back the argument of sin stock proponents, as constructing the optimal portfolio should be more challenging if some stocks are removed from the universe of possible investments. </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-a-look-at-the-numbers"></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"> A Look at the Numbers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The Impax Sustainable Allocation Fund, launched on Aug. 10, 1971, as the Pax Balanced Fund and renamed on Dec. 31, 2022, is the oldest operating SRI fund in the business.<span class="ql-inline-citation" data-cite="8"></span> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/vice-fund.asp">Vice Fund</a>, launched on Aug. 30, 2002, is considered one of the industry’s oldest sin funds.<span class="ql-inline-citation" data-cite="4"></span> A look at the two funds’ annualized returns (as of early 2022) tells an interesting story. For 10 years running, the socially responsible fund has done better. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_20-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th><b>Fund Name</b></th> <th><b>1-Year</b></th> <th><b>3-Year</b></th> <th><b>5-Year</b></th> <th><b>10-Year</b></th> <th><b>Since Inception</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>Impax Sustainable</td> <td>-13.38%</td> <td>7.09%</td> <td>6.97%</td> <td>7.68%</td> <td>8.24%</td> </tr> <tr> <td>Vice Fund</td> <td>-13.74%</td> <td>-0.07%</td> <td>0.74%</td> <td>6.79%</td> <td>7.82%</td> </tr> </tbody> </table> </div></figure> <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"> <em>*</em>*<em>Impax Sustainable Fund as of Aug. 31, 2022 (then the Pax Sustainable Allocation Fund); Vice Fund as of June 30, 2022</em><span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Comparing the funds to their respective indexes provides another perspective. Impax delivered index-like performance across the board, while Vice fell short of its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp">benchmark</a> in every metric.<span class="ql-inline-citation" data-cite="6"></span><span class="ql-inline-citation" data-cite="5"></span><span class="ql-inline-citation" data-cite="3"></span><span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_26-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th><b>Fund Name</b></th> <th><b>1-Year</b></th> <th><b>3-Year</b></th> <th><b>5-Year</b></th> <th><b>10-Year</b></th> <th><b>Since Inception</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>Impax Sustainable</td> <td>-13.38%</td> <td>7.09%</td> <td>6.97%</td> <td>7.68%</td> <td>8.24%</td> </tr> <tr> <td>T. Rowe Price Balanced</td> <td>-14.04%</td> <td>4.51%</td> <td>5.74%</td> <td>7.65%</td> <td>unavailable</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_28-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th><b>Fund Name</b></th> <th><b>1-Year</b></th> <th><b>3-Year</b></th> <th><b>5-Year</b></th> <th><b>10-Year</b></th> <th><b>Since Inception</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>Vice Fund</td> <td>-13.74%</td> <td>-0.07%</td> <td>0.74%</td> <td>6.79%</td> <td>7.82%</td> </tr> <tr> <td>Pioneer Global Sustainable Equity Class Y</td> <td>-8.67%</td> <td>13.39%</td> <td>8.14%</td> <td>10.34%</td> <td>6.85%</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-complications"></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"> Complications </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Interestingly, SRI funds tend to invest heavily in technology, healthcare, and financial services. It is also important to consider the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cyclicalstock.asp">cyclical</a> nature of the markets. When <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sector.asp">sectors</a>, such as technology and healthcare, are topping the charts, sin stocks may be out of favor or at least <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underperform.asp">underperforming</a> the market leaders. Similarly, when stocks that SRI funds won’t buy are leading the pack, sin stocks will <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/outperform.asp">outperform</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> It is also worth noting that the universe of SRI funds vastly outnumbers the universe of sin funds. There are dozens of SRI funds, including big names, such as Dow Jones and Calvert, and a number of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded funds (ETFs)</a>. </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"> On the sin stock side, there are fewer than a half-dozen offerings, even with ETFs included, although there are plenty of individual securities that fit the mold, so constructing a portfolio based on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stock.asp">stocks</a> that SRI funds won’t hold is easy to do. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_37-0"><span class="heading-toc" id="toc-which-funds-are-more-prevalent-sri-or-sin"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Funds Are More Prevalent, SRI or Sin?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The world of SRI funds is much larger than that of sin funds. There are fewer than a half-dozen sin offerings, including ETFs, but dozens of SRI funds, such as those of Dow Jones and Calvert, and many ETFs.</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-modern-portfolio-theory-mpt"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Modern Portfolio Theory (MPT)?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>MPT is a practical method for selecting investments to maximize their overall returns within an acceptable level of risk through <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversification</a>. Most investments are either high risk and high return or low risk and low return. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/harrymarkowitz.asp">Harry Markowitz</a>, who <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/managing-wealth/modern-portfolio-theory-why-its-still-hip/">pioneered the theory</a>, argued that investors could achieve their best results by choosing an optimal mix of the two based on an assessment of their individual tolerance to risk.<span class="ql-inline-citation" data-cite="7"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_40-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_41-0"><span class="heading-toc" id="toc-do-sri-funds-hold-some-sin-funds-former-favorites-such-as-gaming-and-alcohol-stocks"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do SRI Funds Hold Some Sin Funds’ Former Favorites, Such as Gaming and Alcohol Stocks?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, some do. Gaming and alcohol companies are viewed more favorably now than they once were, and some investors contend that there are more pressing social ills and corporate governance issues that are worse for society than those two.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_43-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Where should you put your money? If your moral convictions won’t permit investments in sin stocks, then your choice has already been made. Just be sure to learn about the screening criteria for the funds that you are considering, or you could end up with companies that don’t represent your values in your portfolio. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> If you’re just looking to make a solid investment, moral convictions aside, then a diversified portfolio including both saints and sinners may be the better choice. </p></div>

Is it better to be bad than to be good? It is a question that has plagued humanity since the beginning of time, and the world of [investing](https://www.investopedia.com/terms/i/investing.asp) is not immune to the controversy. In one corner are fans of [socially responsible investing (SRI)](https://www.investopedia.com/terms/s/sri.asp), and in the other corner are fans of [sin stocks](https://www.investopedia.com/terms/s/sinfulstock.asp). ### Key Takeaways * Over the past decade, socially responsible investing (SRI) has become an important investment trend, with people choosing only those stocks that support their communities, the environment, and good [corporate governance](https://www.investopedia.com/terms/c/corporategovernance.asp). * SRI stocks can be contrasted with sin stocks—companies that engage in activities that can be harmful, such as tobacco, alcohol, and firearms, as well as large polluters. * While SRI may fit your moral convictions, economists warn that investing solely in SRI stocks leaves important gaps in a diversified portfolio that can limit returns and concentrate [risk](https://www.investopedia.com/terms/r/risk.asp). ## The Case for Socially Responsible Investing (SRI) and for Sin Stocks SRI fans prefer an [investment strategy](https://www.investopedia.com/terms/i/investmentstrategy.asp) that views successful investment returns and responsible corporate behavior as going hand in hand. They believe that by combining certain social criteria with rigorous investment standards, they can identify securities that will earn competitive [returns](https://www.investopedia.com/terms/r/return.asp) and help build a better world. Proponents of sin stocks have traditionally favored companies in the gambling, alcohol, tobacco, and firearms industries. Any companies that make a profit have a place in their [portfolios](https://www.investopedia.com/terms/p/portfolio.asp), regardless of whether the firm builds nuclear power plants, sells components for land mines, or has questionable labor practices. This camp points out that somebody is going to profit from these industries and argues that there’s no reason to [miss out on the opportunity](https://www.investopedia.com/articles/01/040401.asp). ## Buy into Sin, or Put Your Money Behind Your Convictions? SRI fans argue that it’s possible to do some good while making money. Their argument rests on the idea that socially responsible companies are likely to be well-managed because their underpinnings are based on solid values. Sin stock fans argue that SRI mandates pass up good opportunities in companies that have strong fundamentals, trading profits for a feel-good factor. The sin stock crowd feels good when their investments deliver solid returns. They would rather put money in the bank by backing industries that meet consumer [demand](https://www.investopedia.com/terms/d/demand.asp) than starve for their convictions. [Modern portfolio theory (MPT)](https://www.investopedia.com/terms/m/modernportfoliotheory.asp) seems to back the argument of sin stock proponents, as constructing the optimal portfolio should be more challenging if some stocks are removed from the universe of possible investments. ## A Look at the Numbers The Impax Sustainable Allocation Fund, launched on Aug. 10, 1971, as the Pax Balanced Fund and renamed on Dec. 31, 2022, is the oldest operating SRI fund in the business. The [Vice Fund](https://www.investopedia.com/terms/v/vice-fund.asp), launched on Aug. 30, 2002, is considered one of the industry’s oldest sin funds. A look at the two funds’ annualized returns (as of early 2022) tells an interesting story. For 10 years running, the socially responsible fund has done better. | **Fund Name** | **1-Year** | **3-Year** | **5-Year** | **10-Year** | **Since Inception** | | --- | --- | --- | --- | --- | --- | | Impax Sustainable | -13.38% | 7.09% | 6.97% | 7.68% | 8.24% | | Vice Fund | -13.74% | -0.07% | 0.74% | 6.79% | 7.82% | *\**\**Impax Sustainable Fund as of Aug. 31, 2022 (then the Pax Sustainable Allocation Fund); Vice Fund as of June 30, 2022* Comparing the funds to their respective indexes provides another perspective. Impax delivered index-like performance across the board, while Vice fell short of its [benchmark](https://www.investopedia.com/terms/b/benchmark.asp) in every metric. | **Fund Name** | **1-Year** | **3-Year** | **5-Year** | **10-Year** | **Since Inception** | | --- | --- | --- | --- | --- | --- | | Impax Sustainable | -13.38% | 7.09% | 6.97% | 7.68% | 8.24% | | T. Rowe Price Balanced | -14.04% | 4.51% | 5.74% | 7.65% | unavailable | | **Fund Name** | **1-Year** | **3-Year** | **5-Year** | **10-Year** | **Since Inception** | | --- | --- | --- | --- | --- | --- | | Vice Fund | -13.74% | -0.07% | 0.74% | 6.79% | 7.82% | | Pioneer Global Sustainable Equity Class Y | -8.67% | 13.39% | 8.14% | 10.34% | 6.85% | ## Complications Interestingly, SRI funds tend to invest heavily in technology, healthcare, and financial services. It is also important to consider the [cyclical](https://www.investopedia.com/terms/c/cyclicalstock.asp) nature of the markets. When [sectors](https://www.investopedia.com/terms/s/sector.asp), such as technology and healthcare, are topping the charts, sin stocks may be out of favor or at least [underperforming](https://www.investopedia.com/terms/u/underperform.asp) the market leaders. Similarly, when stocks that SRI funds won’t buy are leading the pack, sin stocks will [outperform](https://www.investopedia.com/terms/o/outperform.asp). It is also worth noting that the universe of SRI funds vastly outnumbers the universe of sin funds. There are dozens of SRI funds, including big names, such as Dow Jones and Calvert, and a number of [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp). On the sin stock side, there are fewer than a half-dozen offerings, even with ETFs included, although there are plenty of individual securities that fit the mold, so constructing a portfolio based on [stocks](https://www.investopedia.com/terms/s/stock.asp) that SRI funds won’t hold is easy to do. ## Which Funds Are More Prevalent, SRI or Sin? The world of SRI funds is much larger than that of sin funds. There are fewer than a half-dozen sin offerings, including ETFs, but dozens of SRI funds, such as those of Dow Jones and Calvert, and many ETFs. ## What Is Modern Portfolio Theory (MPT)? MPT is a practical method for selecting investments to maximize their overall returns within an acceptable level of risk through [diversification](https://www.investopedia.com/terms/d/diversification.asp). Most investments are either high risk and high return or low risk and low return. [Harry Markowitz](https://www.investopedia.com/terms/h/harrymarkowitz.asp), who [pioneered the theory](https://www.investopedia.com/managing-wealth/modern-portfolio-theory-why-its-still-hip/), argued that investors could achieve their best results by choosing an optimal mix of the two based on an assessment of their individual tolerance to risk. ## Do SRI Funds Hold Some Sin Funds’ Former Favorites, Such as Gaming and Alcohol Stocks? Yes, some do. Gaming and alcohol companies are viewed more favorably now than they once were, and some investors contend that there are more pressing social ills and corporate governance issues that are worse for society than those two. ## The Bottom Line Where should you put your money? If your moral convictions won’t permit investments in sin stocks, then your choice has already been made. Just be sure to learn about the screening criteria for the funds that you are considering, or you could end up with companies that don’t represent your values in your portfolio. If you’re just looking to make a solid investment, moral convictions aside, then a diversified portfolio including both saints and sinners may be the better choice.

Is it better to be bad than to be good? It is a question that has plagued humanity since the beginning of time, and the world of investing is not immune to the controversy. In one corner are fans of socially responsible investing (SRI), and in the other corner are fans of sin stocks. Key Takeaways Over the past decade, socially responsible investing (SRI) has become an important investment trend, with people choosing only those stocks that support their communities, the environment, and good corporate governance. SRI stocks can be contrasted with sin stocks—companies that engage in activities that can be harmful, such as tobacco, alcohol, and firearms, as well as large polluters. While SRI may fit your moral convictions, economists warn that investing solely in SRI stocks leaves important gaps in a diversified portfolio that can limit returns and concentrate risk. The Case for Socially Responsible Investing (SRI) and for Sin Stocks SRI fans prefer an investment strategy that views successful investment returns and responsible corporate behavior as going hand in hand. They believe that by combining certain social criteria with rigorous investment standards, they can identify securities that will earn competitive returns and help build a better world. Proponents of sin stocks have traditionally favored companies in the gambling, alcohol, tobacco, and firearms industries. Any companies that make a profit have a place in their portfolios, regardless of whether the firm builds nuclear power plants, sells components for land mines, or has questionable labor practices. This camp points out that somebody is going to profit from these industries and argues that there’s no reason to miss out on the opportunity. Buy into Sin, or Put Your Money Behind Your Convictions? SRI fans argue that it’s possible to do some good while making money. Their argument rests on the idea that socially responsible companies are likely to be well-managed because their underpinnings are based on solid values. Sin stock fans argue that SRI mandates pass up good opportunities in companies that have strong fundamentals, trading profits for a feel-good factor. The sin stock crowd feels good when their investments deliver solid returns. They would rather put money in the bank by backing industries that meet consumer demand than starve for their convictions. Modern portfolio theory (MPT) seems to back the argument of sin stock proponents, as constructing the optimal portfolio should be more challenging if some stocks are removed from the universe of possible investments. A Look at the Numbers The Impax Sustainable Allocation Fund, launched on Aug. 10, 1971, as the Pax Balanced Fund and renamed on Dec. 31, 2022, is the oldest operating SRI fund in the business. The Vice Fund, launched on Aug. 30, 2002, is considered one of the industry’s oldest sin funds. A look at the two funds’ annualized returns (as of early 2022) tells an interesting story. For 10 years running, the socially responsible fund has done better. Fund Name 1-Year 3-Year 5-Year 10-Year Since Inception Impax Sustainable -13.38% 7.09% 6.97% 7.68% 8.24% Vice Fund -13.74% -0.07% 0.74% 6.79% 7.82% **Impax Sustainable Fund as of Aug. 31, 2022 (then the Pax Sustainable Allocation Fund); Vice Fund as of June 30, 2022 Comparing the funds to their respective indexes provides another perspective. Impax delivered index-like performance across the board, while Vice fell short of its benchmark in every metric. Fund Name 1-Year 3-Year 5-Year 10-Year Since Inception Impax Sustainable -13.38% 7.09% 6.97% 7.68% 8.24% T. Rowe Price Balanced -14.04% 4.51% 5.74% 7.65% unavailable Fund Name 1-Year 3-Year 5-Year 10-Year Since Inception Vice Fund -13.74% -0.07% 0.74% 6.79% 7.82% Pioneer Global Sustainable Equity Class Y -8.67% 13.39% 8.14% 10.34% 6.85% Complications Interestingly, SRI funds tend to invest heavily in technology, healthcare, and financial services. It is also important to consider the cyclical nature of the markets. When sectors, such as technology and healthcare, are topping the charts, sin stocks may be out of favor or at least underperforming the market leaders. Similarly, when stocks that SRI funds won’t buy are leading the pack, sin stocks will outperform. It is also worth noting that the universe of SRI funds vastly outnumbers the universe of sin funds. There are dozens of SRI funds, including big names, such as Dow Jones and Calvert, and a number of exchange-traded funds (ETFs). On the sin stock side, there are fewer than a half-dozen offerings, even with ETFs included, although there are plenty of individual securities that fit the mold, so constructing a portfolio based on stocks that SRI funds won’t hold is easy to do. Which Funds Are More Prevalent, SRI or Sin? The world of SRI funds is much larger than that of sin funds. There are fewer than a half-dozen sin offerings, including ETFs, but dozens of SRI funds, such as those of Dow Jones and Calvert, and many ETFs. What Is Modern Portfolio Theory (MPT)? MPT is a practical method for selecting investments to maximize their overall returns within an acceptable level of risk through diversification. Most investments are either high risk and high return or low risk and low return. Harry Markowitz, who pioneered the theory, argued that investors could achieve their best results by choosing an optimal mix of the two based on an assessment of their individual tolerance to risk. Do SRI Funds Hold Some Sin Funds’ Former Favorites, Such as Gaming and Alcohol Stocks? Yes, some do. Gaming and alcohol companies are viewed more favorably now than they once were, and some investors contend that there are more pressing social ills and corporate governance issues that are worse for society than those two. The Bottom Line Where should you put your money? If your moral convictions won’t permit investments in sin stocks, then your choice has already been made. Just be sure to learn about the screening criteria for the funds that you are considering, or you could end up with companies that don’t represent your values in your portfolio. If you’re just looking to make a solid investment, moral convictions aside, then a diversified portfolio including both saints and sinners may be the better choice.

https://www.investopedia.com/personal-loan-5076027

Personal Loan: Definition, Types, and How to Get One

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-personal-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 Personal Loan? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A personal loan is an amount of money you can borrow to use for a variety of purposes. For instance, you may use a personal loan to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/debtconsolidation.asp">consolidate debt</a>, pay for home renovations, or plan a dream wedding. Personal loans can be offered by banks, <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 repaid over time, typically with interest. Some lenders may also charge fees for personal loans.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Personal loans are loans that can cover a number of personal expenses. </li><li>You can find personal loans through banks, credit unions, and online lenders. </li><li>Personal loans can be secured, meaning you need collateral to borrow money, or unsecured, with no collateral needed. </li><li>Personal loans can vary greatly when it comes to their interest rates, fees, amounts, and repayment terms. </li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-personal-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 Personal Loan Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> A personal loan allows you to borrow a lump sum of money to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/111715/when-are-personal-loans-good-idea.asp">pay for a variety of expenses</a> and then repay those funds in regular payments, or installments, over time. For example, you might use a personal loan to cover: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> <li>Moving expenses</li> <li>Debt consolidation</li> <li>Medical bills</li> <li>Wedding expenses</li> <li>Home renovations or repairs</li> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/funeral-loans-bad-credit-7974019">Funeral costs</a></li> <li>Vacation costs</li> <li>Unexpected expenses</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Personal loans are different from other installment loans—such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/student-loans-4689727">student loans</a>, car loans, and mortgage loans—that are used to fund specific expenses like education, vehicles, or homes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_13-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_14-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Generally, you can use a personal loan for any expense. But some personal loan lenders restrict how you can use a personal loan. For example, you may not be able to get a personal loan to pay for college tuition, fees, or other expenses.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> A personal loan is also different from a personal <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lineofcredit.asp">line of credit</a>. A line of credit is not a lump sum amount but instead works like a credit card. You have a set credit line that you can spend money against. As you spend, your available credit is reduced. You can then increase available credit by making a payment toward your credit line.<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"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-personal-loans-work-7484814">With a personal loan</a>, there’s typically a fixed end date by which the loan will be paid off. A personal line of credit, on the other hand, may remain open and available to you indefinitely as long as your account remains in good standing with your lender.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> The Internal Revenue Service (IRS) does not consider a personal loan as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/120315/are-personal-loans-considered-income.asp">part of the borrower's income</a>. The money received on the loan is not taxed. However, if the lender forgives the loan, it is considered a canceled debt, and that amount can be taxed.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <span class="heading-toc" id="toc-types-of-personal-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"> Types of Personal Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Personal loans may be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/secureddebt.asp">secured</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unsecured.asp">unsecured</a>. A secured personal loan requires some type of collateral as a condition of borrowing. For instance, you may secure a personal loan with cash assets, such as a savings account or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">certificate of deposit (CD)</a>, or with a physical asset, such as your car or boat. If you default on the loan, the lender could keep your collateral to satisfy the debt. </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"> An unsecured personal loan requires no collateral to borrow money. Banks, credit unions, and online lenders can offer both secured and unsecured personal loans to qualified borrowers. Banks generally consider the latter to be riskier than the former because there’s no collateral to collect. That can mean paying a higher interest rate for a personal loan.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <span class="heading-toc" id="toc-how-a-personal-loan-works"></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"> How a Personal Loan Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> To get a personal loan, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/010516/how-apply-personal-loan.asp">you need to apply to a lender</a>. Again, this can be a bank, credit union, or online personal loan lender. </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"> Generally, you would first complete an application. The lender reviews it and decides whether to approve or deny it. If approved, you’ll be given the loan terms, which you can accept or reject. If you agree to them, the next step is finalizing your loan paperwork. </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 that’s done, the lender will fund the loan, which means paying you the proceeds. Depending on the lender, these may arrive through a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/directdeposit.asp">direct deposit</a> into your bank account or a check. After the loan is funded, you can use the money as you see fit. You then have to begin repaying the loan according to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-write-personal-loan-agreement-7971691">the terms established in your loan agreement</a>. </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>Defaulting on a personal loan could cause significant damage to your credit score. You could also lose your collateral with a secured loan or risk being sued by your lender to collect the debt.</p></div></div></div> <span class="heading-toc" id="toc-example-of-a-personal-loan"></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"> Example of a Personal Loan </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> When considering a personal loan, it’s helpful to understand how much it may cost. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apr.asp">annual percentage rate (APR)</a> on a personal loan represents the annualized cost of repaying the loan based on the interest rate and fees. The APR and loan term can determine how much you pay in interest total over the life of the loan.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> For example, assume you get a $10,000 personal loan with an APR of 7.5%. The loan has a repayment term of 24 months. Using those terms, your monthly payment would be $450 and the total interest paid over the life of the loan would be $799.90. </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"> Now assume you borrow the same amount but with different loan terms. Instead of a two-year term, you have three years to repay the loan, and your interest rate is 6% instead of 7.5%. Using those terms, your monthly payment would drop to $304, but your total interest paid would increase to $951.90. </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"> Comparing the numbers this way is important if you want to get the lowest monthly payment possible or pay the least amount of interest for a personal loan. Using a simple online <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-loan-calculator-5082130">personal loan calculator</a> can help you determine what kind of payment amount and interest rate are the best fit for your budget. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_44-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_45-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>Though some lenders charge no fees for personal loans, others may levy a credit check fee, a loan origination fee, or—if you decide to pay off the loan early—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>. Paying late could trigger a late payment fee.</p></div></div></div> <span class="heading-toc" id="toc-where-to-find-personal-loans"></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"> Where to Find Personal Loans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> The first place to look for personal loans may be your current bank or credit union. Your personal banker can advise you on what types of personal loans may be available and the borrowing options for which you’re most likely to qualify. </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"> Personal loans can also be found online. Numerous lenders offer <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-4773300">personal loans online</a>. You can apply electronically, get a decision in minutes and, in some cases, get funding in as little as 24 to 48 hours after loan approval. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> When comparing personal loans online or off, pay close attention to the details. Specifically, consider the following: </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>Interest rate</li><li>Fees</li><li>Repayment terms</li><li>Borrowing limits (minimum and maximum)</li><li>Collateral requirements</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_55-0"><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_56-0"><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>You can check your credit report for free at <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>. When doing so, look for any errors that may be hurting your score and don’t hesitate to dispute them. </p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> It’s also helpful to check the minimum requirements to qualify for a personal loan. Lenders can have different requirements when it comes to the <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>, income, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dti.asp">debt-to-income ratio</a> that are acceptable to be approved for a personal loan. This can help you narrow down the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-personal-loans-4773300">loans that may best fit</a> your credit and financial profile. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_59-0"><span class="heading-toc" id="toc-what-is-the-difference-between-a-cash-advance-loan-and-a-personal-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between a Cash Advance Loan and a Personal Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A cash advance loan is a loan that is designed to provide funds for a short time, typically for emergencies. It usually comes with a higher interest rate and a fee. Personal loans generally have longer terms and lower interest rates than cash advance loans.<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_60-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_61-0"><span class="heading-toc" id="toc-how-can-i-get-approved-for-a-personal-loan"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Get Approved for a Personal Loan?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Each lender has different terms for their loans, including requirements for approval. To increase your likelihood of getting a loan, you can work to improve your credit score and financial standing, in part by reducing your debt. If you have difficulty getting approved, you may consider getting a co-signer with good credit to increase your chances for approval.</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-do-personal-loans-have-fees"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do Personal Loans Have Fees?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A personal loan can include fees such as origination fees, which are added to the total cost of the loan. Other fees might include documentation fees or late fees. Each lender has different terms for their fees, so make sure you understand the fees your lender charges.<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_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 wide variety of personal loans currently available makes it almost a guarantee that there's an offer out there suited to your financial needs. However, it's easy to get overwhelmed by the sheer number of options on the market, which may lead you to inadvertently missing out on the most favorable interest rates and loan terms you might qualify for. For this reason, it's crucial to carefully research and compare different lenders and loan products. By taking the time to find the best possible loan, you can keep your monthly payment low while also reducing your risk of default. </p></div>

## What Is a Personal Loan? A personal loan is an amount of money you can borrow to use for a variety of purposes. For instance, you may use a personal loan to [consolidate debt](https://www.investopedia.com/terms/d/debtconsolidation.asp), pay for home renovations, or plan a dream wedding. Personal loans can be offered by banks, [credit unions](https://www.investopedia.com/terms/c/creditunion.asp), or online lenders. The money you borrow must be repaid over time, typically with interest. Some lenders may also charge fees for personal loans. ### Key Takeaways * Personal loans are loans that can cover a number of personal expenses. * You can find personal loans through banks, credit unions, and online lenders. * Personal loans can be secured, meaning you need collateral to borrow money, or unsecured, with no collateral needed. * Personal loans can vary greatly when it comes to their interest rates, fees, amounts, and repayment terms. ## How a Personal Loan Works A personal loan allows you to borrow a lump sum of money to [pay for a variety of expenses](https://www.investopedia.com/articles/personal-finance/111715/when-are-personal-loans-good-idea.asp) and then repay those funds in regular payments, or installments, over time. For example, you might use a personal loan to cover: * Moving expenses * Debt consolidation * Medical bills * Wedding expenses * Home renovations or repairs * [Funeral costs](https://www.investopedia.com/funeral-loans-bad-credit-7974019) * Vacation costs * Unexpected expenses Personal loans are different from other installment loans—such as [student loans](https://www.investopedia.com/student-loans-4689727), car loans, and mortgage loans—that are used to fund specific expenses like education, vehicles, or homes. ### Generally, you can use a personal loan for any expense. But some personal loan lenders restrict how you can use a personal loan. For example, you may not be able to get a personal loan to pay for college tuition, fees, or other expenses. A personal loan is also different from a personal [line of credit](https://www.investopedia.com/terms/l/lineofcredit.asp). A line of credit is not a lump sum amount but instead works like a credit card. You have a set credit line that you can spend money against. As you spend, your available credit is reduced. You can then increase available credit by making a payment toward your credit line. [With a personal loan](https://www.investopedia.com/how-personal-loans-work-7484814), there’s typically a fixed end date by which the loan will be paid off. A personal line of credit, on the other hand, may remain open and available to you indefinitely as long as your account remains in good standing with your lender. The Internal Revenue Service (IRS) does not consider a personal loan as [part of the borrower's income](https://www.investopedia.com/ask/answers/120315/are-personal-loans-considered-income.asp). The money received on the loan is not taxed. However, if the lender forgives the loan, it is considered a canceled debt, and that amount can be taxed.  ## Types of Personal Loans Personal loans may be [secured](https://www.investopedia.com/terms/s/secureddebt.asp) or [unsecured](https://www.investopedia.com/terms/u/unsecured.asp). A secured personal loan requires some type of collateral as a condition of borrowing. For instance, you may secure a personal loan with cash assets, such as a savings account or [certificate of deposit (CD)](https://www.investopedia.com/terms/c/certificateofdeposit.asp), or with a physical asset, such as your car or boat. If you default on the loan, the lender could keep your collateral to satisfy the debt. An unsecured personal loan requires no collateral to borrow money. Banks, credit unions, and online lenders can offer both secured and unsecured personal loans to qualified borrowers. Banks generally consider the latter to be riskier than the former because there’s no collateral to collect. That can mean paying a higher interest rate for a personal loan. ## How a Personal Loan Works To get a personal loan, [you need to apply to a lender](https://www.investopedia.com/articles/personal-finance/010516/how-apply-personal-loan.asp). Again, this can be a bank, credit union, or online personal loan lender. Generally, you would first complete an application. The lender reviews it and decides whether to approve or deny it. If approved, you’ll be given the loan terms, which you can accept or reject. If you agree to them, the next step is finalizing your loan paperwork. When that’s done, the lender will fund the loan, which means paying you the proceeds. Depending on the lender, these may arrive through a [direct deposit](https://www.investopedia.com/terms/d/directdeposit.asp) into your bank account or a check. After the loan is funded, you can use the money as you see fit. You then have to begin repaying the loan according to [the terms established in your loan agreement](https://www.investopedia.com/how-write-personal-loan-agreement-7971691). ### Defaulting on a personal loan could cause significant damage to your credit score. You could also lose your collateral with a secured loan or risk being sued by your lender to collect the debt. ## Example of a Personal Loan When considering a personal loan, it’s helpful to understand how much it may cost. The [annual percentage rate (APR)](https://www.investopedia.com/terms/a/apr.asp) on a personal loan represents the annualized cost of repaying the loan based on the interest rate and fees. The APR and loan term can determine how much you pay in interest total over the life of the loan. For example, assume you get a $10,000 personal loan with an APR of 7.5%. The loan has a repayment term of 24 months. Using those terms, your monthly payment would be $450 and the total interest paid over the life of the loan would be $799.90. Now assume you borrow the same amount but with different loan terms. Instead of a two-year term, you have three years to repay the loan, and your interest rate is 6% instead of 7.5%. Using those terms, your monthly payment would drop to $304, but your total interest paid would increase to $951.90. Comparing the numbers this way is important if you want to get the lowest monthly payment possible or pay the least amount of interest for a personal loan. Using a simple online [personal loan calculator](https://www.investopedia.com/personal-loan-calculator-5082130) can help you determine what kind of payment amount and interest rate are the best fit for your budget. ### Though some lenders charge no fees for personal loans, others may levy a credit check fee, a loan origination fee, or—if you decide to pay off the loan early—a [prepayment penalty](https://www.investopedia.com/terms/p/prepaymentpenalty.asp). Paying late could trigger a late payment fee. ## Where to Find Personal Loans The first place to look for personal loans may be your current bank or credit union. Your personal banker can advise you on what types of personal loans may be available and the borrowing options for which you’re most likely to qualify. Personal loans can also be found online. Numerous lenders offer [personal loans online](https://www.investopedia.com/best-personal-loans-4773300). You can apply electronically, get a decision in minutes and, in some cases, get funding in as little as 24 to 48 hours after loan approval. When comparing personal loans online or off, pay close attention to the details. Specifically, consider the following: * Interest rate * Fees * Repayment terms * Borrowing limits (minimum and maximum) * Collateral requirements ### You can check your credit report for free at [AnnualCreditReport.com](https://www.annualcreditreport.com/index.action). When doing so, look for any errors that may be hurting your score and don’t hesitate to dispute them.  It’s also helpful to check the minimum requirements to qualify for a personal loan. Lenders can have different requirements when it comes to the [credit score](https://www.investopedia.com/terms/c/credit_score.asp), income, and [debt-to-income ratio](https://www.investopedia.com/terms/d/dti.asp) that are acceptable to be approved for a personal loan. This can help you narrow down the [loans that may best fit](https://www.investopedia.com/best-personal-loans-4773300) your credit and financial profile. ## What Is the Difference Between a Cash Advance Loan and a Personal Loan? A cash advance loan is a loan that is designed to provide funds for a short time, typically for emergencies. It usually comes with a higher interest rate and a fee. Personal loans generally have longer terms and lower interest rates than cash advance loans. ## How Can I Get Approved for a Personal Loan? Each lender has different terms for their loans, including requirements for approval. To increase your likelihood of getting a loan, you can work to improve your credit score and financial standing, in part by reducing your debt. If you have difficulty getting approved, you may consider getting a co-signer with good credit to increase your chances for approval. ## Do Personal Loans Have Fees? A personal loan can include fees such as origination fees, which are added to the total cost of the loan. Other fees might include documentation fees or late fees. Each lender has different terms for their fees, so make sure you understand the fees your lender charges. ## The Bottom Line The wide variety of personal loans currently available makes it almost a guarantee that there's an offer out there suited to your financial needs. However, it's easy to get overwhelmed by the sheer number of options on the market, which may lead you to inadvertently missing out on the most favorable interest rates and loan terms you might qualify for. For this reason, it's crucial to carefully research and compare different lenders and loan products. By taking the time to find the best possible loan, you can keep your monthly payment low while also reducing your risk of default.

What Is a Personal Loan? A personal loan is an amount of money you can borrow to use for a variety of purposes. For instance, you may use a personal loan to consolidate debt, pay for home renovations, or plan a dream wedding. Personal loans can be offered by banks, credit unions, or online lenders. The money you borrow must be repaid over time, typically with interest. Some lenders may also charge fees for personal loans. Key Takeaways Personal loans are loans that can cover a number of personal expenses. You can find personal loans through banks, credit unions, and online lenders. Personal loans can be secured, meaning you need collateral to borrow money, or unsecured, with no collateral needed. Personal loans can vary greatly when it comes to their interest rates, fees, amounts, and repayment terms.  How a Personal Loan Works A personal loan allows you to borrow a lump sum of money to pay for a variety of expenses and then repay those funds in regular payments, or installments, over time. For example, you might use a personal loan to cover: Moving expenses Debt consolidation Medical bills Wedding expenses Home renovations or repairs Funeral costs Vacation costs Unexpected expenses Personal loans are different from other installment loans—such as student loans, car loans, and mortgage loans—that are used to fund specific expenses like education, vehicles, or homes. Generally, you can use a personal loan for any expense. But some personal loan lenders restrict how you can use a personal loan. For example, you may not be able to get a personal loan to pay for college tuition, fees, or other expenses. A personal loan is also different from a personal line of credit. A line of credit is not a lump sum amount but instead works like a credit card. You have a set credit line that you can spend money against. As you spend, your available credit is reduced. You can then increase available credit by making a payment toward your credit line. With a personal loan, there’s typically a fixed end date by which the loan will be paid off. A personal line of credit, on the other hand, may remain open and available to you indefinitely as long as your account remains in good standing with your lender. The Internal Revenue Service (IRS) does not consider a personal loan as part of the borrower's income. The money received on the loan is not taxed. However, if the lender forgives the loan, it is considered a canceled debt, and that amount can be taxed.  Types of Personal Loans Personal loans may be secured or unsecured. A secured personal loan requires some type of collateral as a condition of borrowing. For instance, you may secure a personal loan with cash assets, such as a savings account or certificate of deposit (CD), or with a physical asset, such as your car or boat. If you default on the loan, the lender could keep your collateral to satisfy the debt. An unsecured personal loan requires no collateral to borrow money. Banks, credit unions, and online lenders can offer both secured and unsecured personal loans to qualified borrowers. Banks generally consider the latter to be riskier than the former because there’s no collateral to collect. That can mean paying a higher interest rate for a personal loan. How a Personal Loan Works To get a personal loan, you need to apply to a lender. Again, this can be a bank, credit union, or online personal loan lender. Generally, you would first complete an application. The lender reviews it and decides whether to approve or deny it. If approved, you’ll be given the loan terms, which you can accept or reject. If you agree to them, the next step is finalizing your loan paperwork. When that’s done, the lender will fund the loan, which means paying you the proceeds. Depending on the lender, these may arrive through a direct deposit into your bank account or a check. After the loan is funded, you can use the money as you see fit. You then have to begin repaying the loan according to the terms established in your loan agreement. Defaulting on a personal loan could cause significant damage to your credit score. You could also lose your collateral with a secured loan or risk being sued by your lender to collect the debt. Example of a Personal Loan When considering a personal loan, it’s helpful to understand how much it may cost. The annual percentage rate (APR) on a personal loan represents the annualized cost of repaying the loan based on the interest rate and fees. The APR and loan term can determine how much you pay in interest total over the life of the loan. For example, assume you get a $10,000 personal loan with an APR of 7.5%. The loan has a repayment term of 24 months. Using those terms, your monthly payment would be $450 and the total interest paid over the life of the loan would be $799.90. Now assume you borrow the same amount but with different loan terms. Instead of a two-year term, you have three years to repay the loan, and your interest rate is 6% instead of 7.5%. Using those terms, your monthly payment would drop to $304, but your total interest paid would increase to $951.90. Comparing the numbers this way is important if you want to get the lowest monthly payment possible or pay the least amount of interest for a personal loan. Using a simple online personal loan calculator can help you determine what kind of payment amount and interest rate are the best fit for your budget. Though some lenders charge no fees for personal loans, others may levy a credit check fee, a loan origination fee, or—if you decide to pay off the loan early—a prepayment penalty. Paying late could trigger a late payment fee. Where to Find Personal Loans The first place to look for personal loans may be your current bank or credit union. Your personal banker can advise you on what types of personal loans may be available and the borrowing options for which you’re most likely to qualify. Personal loans can also be found online. Numerous lenders offer personal loans online. You can apply electronically, get a decision in minutes and, in some cases, get funding in as little as 24 to 48 hours after loan approval. When comparing personal loans online or off, pay close attention to the details. Specifically, consider the following: Interest rateFeesRepayment termsBorrowing limits (minimum and maximum)Collateral requirements You can check your credit report for free at AnnualCreditReport.com. When doing so, look for any errors that may be hurting your score and don’t hesitate to dispute them.  It’s also helpful to check the minimum requirements to qualify for a personal loan. Lenders can have different requirements when it comes to the credit score, income, and debt-to-income ratio that are acceptable to be approved for a personal loan. This can help you narrow down the loans that may best fit your credit and financial profile. What Is the Difference Between a Cash Advance Loan and a Personal Loan? A cash advance loan is a loan that is designed to provide funds for a short time, typically for emergencies. It usually comes with a higher interest rate and a fee. Personal loans generally have longer terms and lower interest rates than cash advance loans. How Can I Get Approved for a Personal Loan? Each lender has different terms for their loans, including requirements for approval. To increase your likelihood of getting a loan, you can work to improve your credit score and financial standing, in part by reducing your debt. If you have difficulty getting approved, you may consider getting a co-signer with good credit to increase your chances for approval. Do Personal Loans Have Fees? A personal loan can include fees such as origination fees, which are added to the total cost of the loan. Other fees might include documentation fees or late fees. Each lender has different terms for their fees, so make sure you understand the fees your lender charges. The Bottom Line The wide variety of personal loans currently available makes it almost a guarantee that there's an offer out there suited to your financial needs. However, it's easy to get overwhelmed by the sheer number of options on the market, which may lead you to inadvertently missing out on the most favorable interest rates and loan terms you might qualify for. For this reason, it's crucial to carefully research and compare different lenders and loan products. By taking the time to find the best possible loan, you can keep your monthly payment low while also reducing your risk of default.

https://www.investopedia.com/how-to-open-a-cd-5225191

5 Steps to Open a Certificate of Deposit (CD)

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Certificates of deposit (CDs) are widely available and easy to buy. You can open a CD online or at almost any <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/credit-union-vs-bank-cds-5270474">bank or credit union</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>Opening a certificate of deposit (CD) with a bank or credit union can be quick and easy.</li><li>Decide on the CD type and terms before you commit your money.</li><li>Rates vary widely from one bank to another.</li><li>Almost all banks and credit unions are covered by federal deposit insurance.</li></ul></div></div></div> <span class="heading-toc" id="toc-1-choose-a-type-and-term"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> 1. Choose a Type and Term </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> <li><strong>Type of CD.</strong> A standard CD has penalties for early withdrawal, whereas <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquid-certificate-of-deposit.asp">liquid CDs</a> (a rarer type) don't. There are also differences in the way that interest is computed, as well as when you will receive your interest. You can read more about the various types in our <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">CD Guide</a>.</li> <li><strong>Length of CD. </strong>CDs can have terms that run from as little as a few months to 10 years or more. The longer you are willing to leave your money in a CD, the higher the interest rate is. Early withdrawal penalties could wipe out any return on your investment.</li> <li><strong>Single or Joint Account.</strong> You can open a CD as a joint account as with other bank accounts. <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fdic.asp">Federal Deposit Insurance Corporation (FDIC)</a> and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/ncua.asp">National Credit Union Administration (NCUA)</a> insurance covers up to $250,000 per person per institution. The combined coverage for a joint account is $500,000.<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_7-0"></div> <span class="heading-toc" id="toc-2-pick-a-provider"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> 2. Pick a Provider </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Banks or credit unions are common choices, and you have <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/who-can-issue-certificates-of-deposit-5224229">plenty of options</a>. Investopedia's regularly updated list of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-bank-cd-rates-4801462">Best Bank CD Rates</a> is based on 200 financial institutions that sell CDs. Consider these factors when choosing a financial institution: </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><strong>Insurance coverage. </strong>Most U.S. bank account deposits, including CDs, are insured by the FDIC. Credit union deposits are insured through the NCUA. Make sure the institution you select is covered by one or the other.<span class="ql-inline-citation" data-cite="6"></span><span class="ql-inline-citation" data-cite="3"></span></li><li><strong>Interest rates. </strong>Shop around for the best interest rate. The top-paying CDs nationwide can pay three to five times the national average, so comparison shopping is well worth the effort.</li><li><strong>Early withdrawal penalties.</strong> If you access your money early, you will pay a penalty.<span class="ql-inline-citation" data-cite="7"></span> Choosing a CD with low early-withdrawal penalties could save you money, or buy a CD with a shorter term. You can always roll it over into a new CD when it expires.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_13-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_14-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Consider splitting your money among several CDs with different maturities. The longer-term CDs will earn a higher interest rate, while the shorter-term CDs will be more readily available in case of need.<span class="ql-inline-citation" data-cite="8"></span></p></div></div></div> <span class="heading-toc" id="toc-3-complete-the-application"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-heading__text"> 3. Complete the Application </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The process of opening a CD is straightforward. With many banks and credit unions, you can do it entirely online. You'll be asked for basic information like your address and contact details. You may have to show an ID if you don't already have an account at that financial institution. </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-4-indicate-how-to-receive-your-interest"></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"> 4. Indicate How to Receive Your Interest </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Investors must decide how to receive interest. Many financial institutions offer two options. You can collect all interest at the end of a CD's term or receive it in periodic disbursements, such as monthly or annually. If you want to maximize your total interest, opt to receive it at the end. If you'd prefer a regular cash flow from your CD, arrange for disbursements. </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-5-fund-the-cd"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> 5. Fund the CD </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> You'll need to fund the CD only once. Unlike savings accounts, CDs generally don't allow you to make additional deposits. You can fund your CD with an online or phone transfer from another account or by mailing a check. At the end of your CD's term, you can withdrawal your money or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-invest-with-cds-4795661">invest it in a new CD</a>. </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-is-a-cd-right-for-me"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is a CD Right for Me?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Certificates of deposit are useful in different situations. A CD with an appropriate term is a way to earn a little more interest on cash while keeping it safe. CDs also are a good choice for risk-averse investors who don't want to take a chance on more volatile investments such as stocks.</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-is-the-difference-between-a-cd-and-a-savings-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between a CD and a Savings Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>CDs and savings accounts help investors save money for a savings goal like a down payment on a house while earning a guaranteed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/do-cds-pay-compound-interest-5248340">return</a>. However, savings accounts allow you to make additional deposits and up to six monthly withdrawals. CDs require an initial deposit that is held until the maturity date, which can vary from six months to five years. CDs generally pay higher interest rates than savings accounts because the owner cannot easily withdraw the money.</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-which-cd-term-should-i-choose"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which CD Term Should I Choose?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>That depends on how soon you need to get your money back. If you are saving for a specific goal or project, the expected start of that project can help you determine your maximum CD term. On the other hand, if you're saving cash, you might opt for a longer-term CD to maximize your interest rate.</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"> Opening a certificate of deposit (CD) is easy, and choices are plentiful. Because interest rates vary widely from one financial institution to another, it pays to shop around. Investors should understand the type of CD they want and for how long they are comfortable having their money tied up in it. </p></div>

Certificates of deposit (CDs) are widely available and easy to buy. You can open a CD online or at almost any [bank or credit union](https://www.investopedia.com/credit-union-vs-bank-cds-5270474). ### Key Takeaways * Opening a certificate of deposit (CD) with a bank or credit union can be quick and easy. * Decide on the CD type and terms before you commit your money. * Rates vary widely from one bank to another. * Almost all banks and credit unions are covered by federal deposit insurance. ## 1. Choose a Type and Term * **Type of CD.** A standard CD has penalties for early withdrawal, whereas [liquid CDs](https://www.investopedia.com/terms/l/liquid-certificate-of-deposit.asp) (a rarer type) don't. There are also differences in the way that interest is computed, as well as when you will receive your interest. You can read more about the various types in our [CD Guide](https://www.investopedia.com/terms/c/certificateofdeposit.asp). * **Length of CD.** CDs can have terms that run from as little as a few months to 10 years or more. The longer you are willing to leave your money in a CD, the higher the interest rate is. Early withdrawal penalties could wipe out any return on your investment. * **Single or Joint Account.** You can open a CD as a joint account as with other bank accounts. [Federal Deposit Insurance Corporation (FDIC)](https://www.investopedia.com/terms/f/fdic.asp) and [National Credit Union Administration (NCUA)](https://www.investopedia.com/terms/n/ncua.asp) insurance covers up to $250,000 per person per institution. The combined coverage for a joint account is $500,000. ## 2. Pick a Provider Banks or credit unions are common choices, and you have [plenty of options](https://www.investopedia.com/who-can-issue-certificates-of-deposit-5224229). Investopedia's regularly updated list of [Best Bank CD Rates](https://www.investopedia.com/best-bank-cd-rates-4801462) is based on 200 financial institutions that sell CDs. Consider these factors when choosing a financial institution: * **Insurance coverage.** Most U.S. bank account deposits, including CDs, are insured by the FDIC. Credit union deposits are insured through the NCUA. Make sure the institution you select is covered by one or the other. * **Interest rates.** Shop around for the best interest rate. The top-paying CDs nationwide can pay three to five times the national average, so comparison shopping is well worth the effort. * **Early withdrawal penalties.** If you access your money early, you will pay a penalty. Choosing a CD with low early-withdrawal penalties could save you money, or buy a CD with a shorter term. You can always roll it over into a new CD when it expires. ### Consider splitting your money among several CDs with different maturities. The longer-term CDs will earn a higher interest rate, while the shorter-term CDs will be more readily available in case of need. ## 3. Complete the Application The process of opening a CD is straightforward. With many banks and credit unions, you can do it entirely online. You'll be asked for basic information like your address and contact details. You may have to show an ID if you don't already have an account at that financial institution. ## 4. Indicate How to Receive Your Interest Investors must decide how to receive interest. Many financial institutions offer two options. You can collect all interest at the end of a CD's term or receive it in periodic disbursements, such as monthly or annually. If you want to maximize your total interest, opt to receive it at the end. If you'd prefer a regular cash flow from your CD, arrange for disbursements. ## 5. Fund the CD You'll need to fund the CD only once. Unlike savings accounts, CDs generally don't allow you to make additional deposits. You can fund your CD with an online or phone transfer from another account or by mailing a check. At the end of your CD's term, you can withdrawal your money or [invest it in a new CD](https://www.investopedia.com/how-to-invest-with-cds-4795661). ## Is a CD Right for Me? Certificates of deposit are useful in different situations. A CD with an appropriate term is a way to earn a little more interest on cash while keeping it safe. CDs also are a good choice for risk-averse investors who don't want to take a chance on more volatile investments such as stocks. ## What Is the Difference Between a CD and a Savings Account? CDs and savings accounts help investors save money for a savings goal like a down payment on a house while earning a guaranteed [return](https://www.investopedia.com/do-cds-pay-compound-interest-5248340). However, savings accounts allow you to make additional deposits and up to six monthly withdrawals. CDs require an initial deposit that is held until the maturity date, which can vary from six months to five years. CDs generally pay higher interest rates than savings accounts because the owner cannot easily withdraw the money. ## Which CD Term Should I Choose? That depends on how soon you need to get your money back. If you are saving for a specific goal or project, the expected start of that project can help you determine your maximum CD term. On the other hand, if you're saving cash, you might opt for a longer-term CD to maximize your interest rate. ## The Bottom Line Opening a certificate of deposit (CD) is easy, and choices are plentiful. Because interest rates vary widely from one financial institution to another, it pays to shop around. Investors should understand the type of CD they want and for how long they are comfortable having their money tied up in it.

Certificates of deposit (CDs) are widely available and easy to buy. You can open a CD online or at almost any bank or credit union. Key Takeaways Opening a certificate of deposit (CD) with a bank or credit union can be quick and easy.Decide on the CD type and terms before you commit your money.Rates vary widely from one bank to another.Almost all banks and credit unions are covered by federal deposit insurance. 1. Choose a Type and Term Type of CD. A standard CD has penalties for early withdrawal, whereas liquid CDs (a rarer type) don't. There are also differences in the way that interest is computed, as well as when you will receive your interest. You can read more about the various types in our CD Guide. Length of CD. CDs can have terms that run from as little as a few months to 10 years or more. The longer you are willing to leave your money in a CD, the higher the interest rate is. Early withdrawal penalties could wipe out any return on your investment. Single or Joint Account. You can open a CD as a joint account as with other bank accounts. Federal Deposit Insurance Corporation (FDIC) and National Credit Union Administration (NCUA) insurance covers up to $250,000 per person per institution. The combined coverage for a joint account is $500,000. 2. Pick a Provider Banks or credit unions are common choices, and you have plenty of options. Investopedia's regularly updated list of Best Bank CD Rates is based on 200 financial institutions that sell CDs. Consider these factors when choosing a financial institution: Insurance coverage. Most U.S. bank account deposits, including CDs, are insured by the FDIC. Credit union deposits are insured through the NCUA. Make sure the institution you select is covered by one or the other.Interest rates. Shop around for the best interest rate. The top-paying CDs nationwide can pay three to five times the national average, so comparison shopping is well worth the effort.Early withdrawal penalties. If you access your money early, you will pay a penalty. Choosing a CD with low early-withdrawal penalties could save you money, or buy a CD with a shorter term. You can always roll it over into a new CD when it expires. Consider splitting your money among several CDs with different maturities. The longer-term CDs will earn a higher interest rate, while the shorter-term CDs will be more readily available in case of need. 3. Complete the Application The process of opening a CD is straightforward. With many banks and credit unions, you can do it entirely online. You'll be asked for basic information like your address and contact details. You may have to show an ID if you don't already have an account at that financial institution. 4. Indicate How to Receive Your Interest Investors must decide how to receive interest. Many financial institutions offer two options. You can collect all interest at the end of a CD's term or receive it in periodic disbursements, such as monthly or annually. If you want to maximize your total interest, opt to receive it at the end. If you'd prefer a regular cash flow from your CD, arrange for disbursements. 5. Fund the CD You'll need to fund the CD only once. Unlike savings accounts, CDs generally don't allow you to make additional deposits. You can fund your CD with an online or phone transfer from another account or by mailing a check. At the end of your CD's term, you can withdrawal your money or invest it in a new CD. Is a CD Right for Me? Certificates of deposit are useful in different situations. A CD with an appropriate term is a way to earn a little more interest on cash while keeping it safe. CDs also are a good choice for risk-averse investors who don't want to take a chance on more volatile investments such as stocks. What Is the Difference Between a CD and a Savings Account? CDs and savings accounts help investors save money for a savings goal like a down payment on a house while earning a guaranteed return. However, savings accounts allow you to make additional deposits and up to six monthly withdrawals. CDs require an initial deposit that is held until the maturity date, which can vary from six months to five years. CDs generally pay higher interest rates than savings accounts because the owner cannot easily withdraw the money. Which CD Term Should I Choose? That depends on how soon you need to get your money back. If you are saving for a specific goal or project, the expected start of that project can help you determine your maximum CD term. On the other hand, if you're saving cash, you might opt for a longer-term CD to maximize your interest rate. The Bottom Line Opening a certificate of deposit (CD) is easy, and choices are plentiful. Because interest rates vary widely from one financial institution to another, it pays to shop around. Investors should understand the type of CD they want and for how long they are comfortable having their money tied up in it.

https://www.investopedia.com/what-is-a-bank-sign-up-bonus-7969724

What Is a Bank Sign-Up 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"><span class="heading-toc" id="toc-what-is-a-bank-sign-up-bonus"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is a Bank Sign-Up Bonus? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A bank sign-up bonus is a lump sum of cash you receive when signing up for a new bank account and fulfilling various requirements. Banks and credit unions offer bank sign-up bonuses to entice new customers into joining or signing up for accounts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> A bank sign-up bonus may be offered for consumer or business accounts. Bonuses can range from $100 to $3,000, according to Investopedia research.<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_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"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Banks and credit unions use sign-up bonuses to attract and reward new customers for setting up direct deposits or depositing large sums of money in accounts. </li><li>Bank sign-up bonuses range between $100 and $3,000, but $200 to $300 is a more common bonus.</li><li>You don't usually receive a bonus just for signing up. Sign-up bonuses typically require you to qualify in other ways, such as maintaining a deposit amount.</li><li>Most bank sign-up bonuses require you to initiate a series of direct deposits, although some also accept new cash deposit transfers.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-bank-sign-up-bonus-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 Bank Sign-Up Bonus Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Typically, a bank sign-up bonus may require a sign-up code. Then, after opening the account, you perform a series of actions, which could include one or several of the following:  </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><strong>New account deposit</strong>: Adding a minimum deposit, such as $25.<span class="ql-inline-citation" data-cite="2"></span></li> <li><strong>Direct deposit</strong>: Making one or many recurring direct deposits in the account. </li> <li><strong>Transactions</strong>:<strong> </strong>Making a certain number of debit card transactions or signing up for e-statements.</li> <li><strong>Average balance</strong>: Maintaining a specific average monthly or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/average-balance.asp">daily balance</a>. </li> <li><strong>Meeting deadlines</strong>: Receiving deposits and/or leaving the funds untouched for a specific number of days.</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"> After you complete the actions to qualify for the bonus, the bonus is deposited into your new account within a timeframe specified by the bank. This may range from about 10 days to 180 days.  </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"> After your bonus is in your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/checkingaccount.asp">account</a>, you can choose whether to keep the new account or close it. However, some financial institutions will charge a fee to close the account or even subtract the bonus before closing the 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_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>Credit union sign-up bonuses can be more convoluted than bank bonuses. Credit union bonuses will require that you join the credit union as a member and they typically require more steps over a more extended period. Some bonuses may take up to a year to earn the full amount. </p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> By Jan. 31, you’ll receive a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/form-1099-int.asp">1099-INT</a> for each sign-up bonus received during the tax year. The other copy of the 1099-INT goes to the IRS. Tax wasn’t withheld when the bonus was deposited in your account, so you’ll owe <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/incometax.asp">income taxes</a> on your bonus.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Another type of bonus is a bank referral bonus. You earn this bonus when you refer a friend who opens a qualifying bank or <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">credit union</a> account using a code or link you provide. Your friend may also earn a bonus. This bonus may be much smaller, such as $50 per referral, but may arrive more quickly than other types of sign-up bonuses.   </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-types-of-bank-sign-up-bonuses"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-heading__text"> Types of Bank Sign-Up Bonuses </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Two primary types of bank sign-up bonuses (direct deposit bonus and large deposit bonus) have slightly different requirements. A third main bonus type, a combination bonus, combines features of deposit and large deposit bonuses.  </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"> Direct deposit bonus </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The most typical bank sign-up bonus will require a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/directdeposit.asp">direct deposit</a>. You open the bank account using a code or link, then set up direct deposit within a time window, such as 60 or 90 days. Some direct deposit bonuses may have a minimum amount required to earn the bonus, while others provide more significant bonuses for higher deposits.  </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 general, direct deposits must be regular monthly income. This could include payroll, salary, and government payments deposited with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ach-transfers-what-are-they-and-how-do-they-work-4590120">ACH</a>. Other types of deposits, such as transfers from other deposit accounts or peer-to-peer networks, usually won’t qualify.  </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-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_32-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>You may also be asked to take other steps, such as using a debit card several times or signing up for e-statements. </p></div></div></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"> Large deposit bonus </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> With this bonus type, the financial institution asks you to deposit substantial cash (typically $5,000 to $300,000) into one or many linked new accounts. This money can be transferred from another external bank account. </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"> Then, you must leave a minimum amount in the account for a specified time. After the time elapses, you earn the bonus, which is deposited in your account. Typically, large deposit bank sign-up bonuses are more sizable than the direct deposit type.<span class="ql-inline-citation" data-cite="5"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-subheading__text"> Combination bonus </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Some bonuses combine the previous two types. You have to set up a direct deposit within a specified time period, which may be associated with a specific minimum amount. You must also deposit funds and maintain a minimum balance. These bonuses usually work in tiers, with higher bonuses for larger minimum balance amounts.  </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-pros-and-cons-of-bank-sign-up-bonuses"></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"> Pros and Cons of Bank Sign-Up Bonuses </span> </h2> <div class="comp mntl-sc-block finance-sc-block-comparisonlist mntl-block" id="mntl-sc-block_42-0"><div class="comp mntl-sc-block mntl-sc-block-comparisonlist" id="mntl-sc-block_43-0"> <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>Earn lump sum for everyday banking</p></li> <li><p>Earn multiple bonuses throughout the year</p></li> <li><p>Reward for trying a new bank</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>Taxes due on bonus</p></li> <li><p>Potentially stuck with maintenance fees and low interest</p></li> <li><p>Can be time-intensive</p></li> </ul> </div> </div></div> <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"> Pros explained  </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> <li><strong>Earn lump sum for everyday banking</strong>: Bank sign-up bonuses can offer an easy way to earn a lump sum of cash. Depending on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-checking-accounts-5070332">interest rates</a> at the time, a sign-up bonus may pay better than interest earned. </li> <li><strong>Earn multiple bonuses throughout the year</strong>: You can earn multiple large deposit bonuses in one year with the same sizable sum of cash moved between accounts if you plan well and use the right accounts.</li> <li><strong>Reward for trying a new bank</strong>: An account deposit can incentivize you to try a new bank or credit union without committing long-term. You may prefer the new bank to your previous bank, particularly if the bonus is for an account that comes with a decent <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apy.asp">annual percentage yield (APY)</a>. </li> </ul> <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"> Cons explained  </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> <li><strong>Taxes due on bonus</strong>: The bonus will likely be reported on form 1099-INT, and you’ll probably pay federal, state, or local taxes on the bonus.<span class="ql-inline-citation" data-cite="2"></span> If you want a tax-free source of earnings, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing-strategy/090116/think-twice-buying-taxfree-municipal-bonds.asp">look elsewhere</a>. </li> <li><strong>Potentially stuck with maintenance fees and low interest</strong>: If you’re not careful, you may pay the account’s maintenance fees while you own the account, which will eat into any bonus. In addition, many accounts associated with bank sign-up bonuses don’t reward customers with competitive interest rates.</li> <li><strong>Can be time-intensive</strong>:<strong> </strong>Consider the value of the time you’ll spend reading through rules, switching your direct deposits, opening and managing the account, and closing it if you don’t want to stay with the bank. This may reduce your earnings compared with a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">high yield savings account</a> where you can deposit without worrying about as many details. </li> </ul> <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-requirements-for-bank-sign-up-bonus"></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"> Requirements for Bank Sign-Up Bonus </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> To earn a bank bonus, you must read and follow instructions closely. For example, you’ll likely need to use a link or code to sign up for your account or miss out on the bonus. Other requirements to watch out for include:  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> <li><strong>Deadlines</strong>: The window of time you have to complete actions, such as 30 days</li><li><strong>Amounts</strong>: Specific minimums that must be met to qualify for the bonus</li><li><strong>Actions</strong>: All steps required, such as setting up direct deposit or using your debit card</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> Typically, a bonus isn’t available to people in the following categories:  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> <li>Existing bank customers</li><li>Anyone who already received the bonus in the past, within a specific period (such as 12 months)</li><li>Customers with accounts closed with a negative balance within a specific period</li><li>Anyone under age 18</li><li>Anyone without a valid U.S. Taxpayer Identification Number (TIN)</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> You may also need to live in a geographic area, such as a particular state, to qualify for the bonus.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <span class="heading-toc" id="toc-what-to-look-for-in-a-sign-up-bonus"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_62-0"> <span class="mntl-sc-block-heading__text"> What To Look for in a Sign-Up Bonus </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> You might want to look for the following in a sign-up bonus:  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> <li>Earning a high APY on top of the bonus for the amount in your account</li><li>No fees charged to close the account </li><li>Easy qualification rules with low or minimal direct deposit amounts </li><li>Clear, easy-to-understand communication about which direct deposit types qualify and other bonus qualification terms and conditions </li><li>Online application and account maintenance for bonus qualification</li><li>Low minimum balance requirements to avoid monthly bank maintenance fees</li><li>Rapid qualification and deposit of your bonus—so you don’t wait six to 12 months to earn your bonus</li> </ul> <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"> In addition, compare your rate of return from the bonus with how much you could earn in a high-yield savings account over the same time period.  </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-which-bank-has-the-highest-sign-up-bonus"></span> <h2 class="mntl-sc-block-questionandanswer__question">Which Bank Has the Highest Sign-Up Bonus?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Chase, Citi, and Wells Fargo banks have some of the highest sign-up bonuses available, although it takes time and large deposit to qualify. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/chase-bank-promotions-7099363">Chase offers a $3,000 bonus</a> when you transfer $500,000 or more into a new or upgraded Private Client Checking account and maintain the balance for 90 days.<span class="ql-inline-citation" data-cite="6"></span> With Citi, you can earn a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/citibank-bonuses-7369969">$2,000 bonus</a> if you open an eligible checking account with $300,000 for several months.<span class="ql-inline-citation" data-cite="8"></span> With Wells Fargo, you can earn a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/wells-fargo-bank-promotions-7106061">$2,500 bonus</a> if you deposit $250,000 and maintain that balance for several months. However, when working with large amounts, remember that the Federal Deposit Insurance Corp. (FDIC) only insures up to $250,000 in deposits per person, per account.<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_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-should-i-switch-banks-to-get-a-sign-up-bonus"></span> <h2 class="mntl-sc-block-questionandanswer__question">Should I Switch Banks To Get a Sign-Up Bonus?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Deciding whether a bank sign-up bonus is worth your time and money can take some research. First, consider whether the bonus earned bests higher interest rates accumulated elsewhere in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">certificate of deposit (CD)</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-money-market-accounts-5096917">money market account</a>. Also, consider whether you want to keep the account open and pay potential fees or if you want to open, manage, and close the account. </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-why-do-banks-give-money-to-open-accounts"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Do Banks Give Money To Open Accounts?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Banks award money to open accounts to bring in new, regular customers who use the bank’s services. As a result, each bank or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-credit-unions-5104980">credit union</a> will have a different requirement for keeping an account open to earn a bonus, but the range is generally 90 days to 12 months. If you close the account early, you may forfeit your bonus or be required to pay a fee. </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-how-many-bank-accounts-should-i-have"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Many Bank Accounts Should I Have?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can have as many bank accounts as you wish, as government regulations don’t limit the number of accounts. However, you might consider the amount of digital clutter that can come with opening numerous checking or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-many-savings-accounts-should-i-have-7775519">savings accounts</a>. Closing accounts can be time-consuming and require phone calls with the financial institution.</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"> If you have the time and/or cash to meet a bank’s requirements, a bank sign-up bonus may be worth your while, especially if it’s sizable. A bonus may also appeal if minimal steps are involved, or the account isn’t pre-packed with fees.  </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"> Consider whether you’re interested in a long-term relationship with the financial institution. This could reduce trouble with moving around direct deposits and opening, managing, and closing accounts. While some bank sign-up bonus aficionados pursue bonuses regularly, your free time may be more limited.  </p></div>

## What Is a Bank Sign-Up Bonus? A bank sign-up bonus is a lump sum of cash you receive when signing up for a new bank account and fulfilling various requirements. Banks and credit unions offer bank sign-up bonuses to entice new customers into joining or signing up for accounts. A bank sign-up bonus may be offered for consumer or business accounts. Bonuses can range from $100 to $3,000, according to Investopedia research. ### * Banks and credit unions use sign-up bonuses to attract and reward new customers for setting up direct deposits or depositing large sums of money in accounts. * Bank sign-up bonuses range between $100 and $3,000, but $200 to $300 is a more common bonus. * You don't usually receive a bonus just for signing up. Sign-up bonuses typically require you to qualify in other ways, such as maintaining a deposit amount. * Most bank sign-up bonuses require you to initiate a series of direct deposits, although some also accept new cash deposit transfers. ## How a Bank Sign-Up Bonus Works Typically, a bank sign-up bonus may require a sign-up code. Then, after opening the account, you perform a series of actions, which could include one or several of the following:  * **New account deposit**: Adding a minimum deposit, such as $25. * **Direct deposit**: Making one or many recurring direct deposits in the account. * **Transactions**:Making a certain number of debit card transactions or signing up for e-statements. * **Average balance**: Maintaining a specific average monthly or [daily balance](https://www.investopedia.com/terms/a/average-balance.asp). * **Meeting deadlines**: Receiving deposits and/or leaving the funds untouched for a specific number of days. After you complete the actions to qualify for the bonus, the bonus is deposited into your new account within a timeframe specified by the bank. This may range from about 10 days to 180 days.  After your bonus is in your [account](https://www.investopedia.com/terms/c/checkingaccount.asp), you can choose whether to keep the new account or close it. However, some financial institutions will charge a fee to close the account or even subtract the bonus before closing the account.  ### Credit union sign-up bonuses can be more convoluted than bank bonuses. Credit union bonuses will require that you join the credit union as a member and they typically require more steps over a more extended period. Some bonuses may take up to a year to earn the full amount.  By Jan. 31, you’ll receive a [1099-INT](https://www.investopedia.com/terms/f/form-1099-int.asp) for each sign-up bonus received during the tax year. The other copy of the 1099-INT goes to the IRS. Tax wasn’t withheld when the bonus was deposited in your account, so you’ll owe [income taxes](https://www.investopedia.com/terms/i/incometax.asp) on your bonus. Another type of bonus is a bank referral bonus. You earn this bonus when you refer a friend who opens a qualifying bank or [credit union](https://www.investopedia.com/how-to-join-a-credit-union-7495339) account using a code or link you provide. Your friend may also earn a bonus. This bonus may be much smaller, such as $50 per referral, but may arrive more quickly than other types of sign-up bonuses.   ## Types of Bank Sign-Up Bonuses Two primary types of bank sign-up bonuses (direct deposit bonus and large deposit bonus) have slightly different requirements. A third main bonus type, a combination bonus, combines features of deposit and large deposit bonuses.  ### Direct deposit bonus The most typical bank sign-up bonus will require a [direct deposit](https://www.investopedia.com/terms/d/directdeposit.asp). You open the bank account using a code or link, then set up direct deposit within a time window, such as 60 or 90 days. Some direct deposit bonuses may have a minimum amount required to earn the bonus, while others provide more significant bonuses for higher deposits.  In general, direct deposits must be regular monthly income. This could include payroll, salary, and government payments deposited with [ACH](https://www.investopedia.com/ach-transfers-what-are-they-and-how-do-they-work-4590120). Other types of deposits, such as transfers from other deposit accounts or peer-to-peer networks, usually won’t qualify.  ### You may also be asked to take other steps, such as using a debit card several times or signing up for e-statements.  ### Large deposit bonus With this bonus type, the financial institution asks you to deposit substantial cash (typically $5,000 to $300,000) into one or many linked new accounts. This money can be transferred from another external bank account. Then, you must leave a minimum amount in the account for a specified time. After the time elapses, you earn the bonus, which is deposited in your account. Typically, large deposit bank sign-up bonuses are more sizable than the direct deposit type.  ### Combination bonus Some bonuses combine the previous two types. You have to set up a direct deposit within a specified time period, which may be associated with a specific minimum amount. You must also deposit funds and maintain a minimum balance. These bonuses usually work in tiers, with higher bonuses for larger minimum balance amounts.  ## Pros and Cons of Bank Sign-Up Bonuses Pros * Earn lump sum for everyday banking * Earn multiple bonuses throughout the year * Reward for trying a new bank Cons * Taxes due on bonus * Potentially stuck with maintenance fees and low interest * Can be time-intensive ### Pros explained * **Earn lump sum for everyday banking**: Bank sign-up bonuses can offer an easy way to earn a lump sum of cash. Depending on [interest rates](https://www.investopedia.com/best-high-yield-checking-accounts-5070332) at the time, a sign-up bonus may pay better than interest earned. * **Earn multiple bonuses throughout the year**: You can earn multiple large deposit bonuses in one year with the same sizable sum of cash moved between accounts if you plan well and use the right accounts. * **Reward for trying a new bank**: An account deposit can incentivize you to try a new bank or credit union without committing long-term. You may prefer the new bank to your previous bank, particularly if the bonus is for an account that comes with a decent [annual percentage yield (APY)](https://www.investopedia.com/terms/a/apy.asp). ### Cons explained * **Taxes due on bonus**: The bonus will likely be reported on form 1099-INT, and you’ll probably pay federal, state, or local taxes on the bonus. If you want a tax-free source of earnings, [look elsewhere](https://www.investopedia.com/articles/investing-strategy/090116/think-twice-buying-taxfree-municipal-bonds.asp). * **Potentially stuck with maintenance fees and low interest**: If you’re not careful, you may pay the account’s maintenance fees while you own the account, which will eat into any bonus. In addition, many accounts associated with bank sign-up bonuses don’t reward customers with competitive interest rates. * **Can be time-intensive**:Consider the value of the time you’ll spend reading through rules, switching your direct deposits, opening and managing the account, and closing it if you don’t want to stay with the bank. This may reduce your earnings compared with a [high yield savings account](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) where you can deposit without worrying about as many details. ## Requirements for Bank Sign-Up Bonus To earn a bank bonus, you must read and follow instructions closely. For example, you’ll likely need to use a link or code to sign up for your account or miss out on the bonus. Other requirements to watch out for include:  * **Deadlines**: The window of time you have to complete actions, such as 30 days * **Amounts**: Specific minimums that must be met to qualify for the bonus * **Actions**: All steps required, such as setting up direct deposit or using your debit card Typically, a bonus isn’t available to people in the following categories:  * Existing bank customers * Anyone who already received the bonus in the past, within a specific period (such as 12 months) * Customers with accounts closed with a negative balance within a specific period * Anyone under age 18 * Anyone without a valid U.S. Taxpayer Identification Number (TIN) You may also need to live in a geographic area, such as a particular state, to qualify for the bonus.  ## What To Look for in a Sign-Up Bonus You might want to look for the following in a sign-up bonus:  * Earning a high APY on top of the bonus for the amount in your account * No fees charged to close the account * Easy qualification rules with low or minimal direct deposit amounts * Clear, easy-to-understand communication about which direct deposit types qualify and other bonus qualification terms and conditions * Online application and account maintenance for bonus qualification * Low minimum balance requirements to avoid monthly bank maintenance fees * Rapid qualification and deposit of your bonus—so you don’t wait six to 12 months to earn your bonus In addition, compare your rate of return from the bonus with how much you could earn in a high-yield savings account over the same time period.  ## Which Bank Has the Highest Sign-Up Bonus? Chase, Citi, and Wells Fargo banks have some of the highest sign-up bonuses available, although it takes time and large deposit to qualify. [Chase offers a $3,000 bonus](https://www.investopedia.com/chase-bank-promotions-7099363) when you transfer $500,000 or more into a new or upgraded Private Client Checking account and maintain the balance for 90 days. With Citi, you can earn a [$2,000 bonus](https://www.investopedia.com/citibank-bonuses-7369969) if you open an eligible checking account with $300,000 for several months. With Wells Fargo, you can earn a [$2,500 bonus](https://www.investopedia.com/wells-fargo-bank-promotions-7106061) if you deposit $250,000 and maintain that balance for several months. However, when working with large amounts, remember that the Federal Deposit Insurance Corp. (FDIC) only insures up to $250,000 in deposits per person, per account.  ## Should I Switch Banks To Get a Sign-Up Bonus? Deciding whether a bank sign-up bonus is worth your time and money can take some research. First, consider whether the bonus earned bests higher interest rates accumulated elsewhere in a [certificate of deposit (CD)](https://www.investopedia.com/best-cd-rates-4770214) or [money market account](https://www.investopedia.com/best-money-market-accounts-5096917). Also, consider whether you want to keep the account open and pay potential fees or if you want to open, manage, and close the account.  ## Why Do Banks Give Money To Open Accounts? Banks award money to open accounts to bring in new, regular customers who use the bank’s services. As a result, each bank or [credit union](https://www.investopedia.com/best-credit-unions-5104980) will have a different requirement for keeping an account open to earn a bonus, but the range is generally 90 days to 12 months. If you close the account early, you may forfeit your bonus or be required to pay a fee.  ## How Many Bank Accounts Should I Have? You can have as many bank accounts as you wish, as government regulations don’t limit the number of accounts. However, you might consider the amount of digital clutter that can come with opening numerous checking or [savings accounts](https://www.investopedia.com/how-many-savings-accounts-should-i-have-7775519). Closing accounts can be time-consuming and require phone calls with the financial institution. ## The Bottom Line If you have the time and/or cash to meet a bank’s requirements, a bank sign-up bonus may be worth your while, especially if it’s sizable. A bonus may also appeal if minimal steps are involved, or the account isn’t pre-packed with fees.  Consider whether you’re interested in a long-term relationship with the financial institution. This could reduce trouble with moving around direct deposits and opening, managing, and closing accounts. While some bank sign-up bonus aficionados pursue bonuses regularly, your free time may be more limited. 

What Is a Bank Sign-Up Bonus? A bank sign-up bonus is a lump sum of cash you receive when signing up for a new bank account and fulfilling various requirements. Banks and credit unions offer bank sign-up bonuses to entice new customers into joining or signing up for accounts. A bank sign-up bonus may be offered for consumer or business accounts. Bonuses can range from $100 to $3,000, according to Investopedia research. Banks and credit unions use sign-up bonuses to attract and reward new customers for setting up direct deposits or depositing large sums of money in accounts. Bank sign-up bonuses range between $100 and $3,000, but $200 to $300 is a more common bonus.You don't usually receive a bonus just for signing up. Sign-up bonuses typically require you to qualify in other ways, such as maintaining a deposit amount.Most bank sign-up bonuses require you to initiate a series of direct deposits, although some also accept new cash deposit transfers. How a Bank Sign-Up Bonus Works Typically, a bank sign-up bonus may require a sign-up code. Then, after opening the account, you perform a series of actions, which could include one or several of the following:  New account deposit: Adding a minimum deposit, such as $25. Direct deposit: Making one or many recurring direct deposits in the account.  Transactions: Making a certain number of debit card transactions or signing up for e-statements. Average balance: Maintaining a specific average monthly or daily balance.  Meeting deadlines: Receiving deposits and/or leaving the funds untouched for a specific number of days. After you complete the actions to qualify for the bonus, the bonus is deposited into your new account within a timeframe specified by the bank. This may range from about 10 days to 180 days.  After your bonus is in your account, you can choose whether to keep the new account or close it. However, some financial institutions will charge a fee to close the account or even subtract the bonus before closing the account.  Credit union sign-up bonuses can be more convoluted than bank bonuses. Credit union bonuses will require that you join the credit union as a member and they typically require more steps over a more extended period. Some bonuses may take up to a year to earn the full amount.  By Jan. 31, you’ll receive a 1099-INT for each sign-up bonus received during the tax year. The other copy of the 1099-INT goes to the IRS. Tax wasn’t withheld when the bonus was deposited in your account, so you’ll owe income taxes on your bonus. Another type of bonus is a bank referral bonus. You earn this bonus when you refer a friend who opens a qualifying bank or credit union account using a code or link you provide. Your friend may also earn a bonus. This bonus may be much smaller, such as $50 per referral, but may arrive more quickly than other types of sign-up bonuses.   Types of Bank Sign-Up Bonuses Two primary types of bank sign-up bonuses (direct deposit bonus and large deposit bonus) have slightly different requirements. A third main bonus type, a combination bonus, combines features of deposit and large deposit bonuses.  Direct deposit bonus The most typical bank sign-up bonus will require a direct deposit. You open the bank account using a code or link, then set up direct deposit within a time window, such as 60 or 90 days. Some direct deposit bonuses may have a minimum amount required to earn the bonus, while others provide more significant bonuses for higher deposits.  In general, direct deposits must be regular monthly income. This could include payroll, salary, and government payments deposited with ACH. Other types of deposits, such as transfers from other deposit accounts or peer-to-peer networks, usually won’t qualify.  You may also be asked to take other steps, such as using a debit card several times or signing up for e-statements.  Large deposit bonus With this bonus type, the financial institution asks you to deposit substantial cash (typically $5,000 to $300,000) into one or many linked new accounts. This money can be transferred from another external bank account. Then, you must leave a minimum amount in the account for a specified time. After the time elapses, you earn the bonus, which is deposited in your account. Typically, large deposit bank sign-up bonuses are more sizable than the direct deposit type.  Combination bonus Some bonuses combine the previous two types. You have to set up a direct deposit within a specified time period, which may be associated with a specific minimum amount. You must also deposit funds and maintain a minimum balance. These bonuses usually work in tiers, with higher bonuses for larger minimum balance amounts.  Pros and Cons of Bank Sign-Up Bonuses Pros Earn lump sum for everyday banking Earn multiple bonuses throughout the year Reward for trying a new bank Cons Taxes due on bonus Potentially stuck with maintenance fees and low interest Can be time-intensive Pros explained  Earn lump sum for everyday banking: Bank sign-up bonuses can offer an easy way to earn a lump sum of cash. Depending on interest rates at the time, a sign-up bonus may pay better than interest earned.  Earn multiple bonuses throughout the year: You can earn multiple large deposit bonuses in one year with the same sizable sum of cash moved between accounts if you plan well and use the right accounts. Reward for trying a new bank: An account deposit can incentivize you to try a new bank or credit union without committing long-term. You may prefer the new bank to your previous bank, particularly if the bonus is for an account that comes with a decent annual percentage yield (APY).  Cons explained  Taxes due on bonus: The bonus will likely be reported on form 1099-INT, and you’ll probably pay federal, state, or local taxes on the bonus. If you want a tax-free source of earnings, look elsewhere.  Potentially stuck with maintenance fees and low interest: If you’re not careful, you may pay the account’s maintenance fees while you own the account, which will eat into any bonus. In addition, many accounts associated with bank sign-up bonuses don’t reward customers with competitive interest rates. Can be time-intensive: Consider the value of the time you’ll spend reading through rules, switching your direct deposits, opening and managing the account, and closing it if you don’t want to stay with the bank. This may reduce your earnings compared with a high yield savings account where you can deposit without worrying about as many details.  Requirements for Bank Sign-Up Bonus To earn a bank bonus, you must read and follow instructions closely. For example, you’ll likely need to use a link or code to sign up for your account or miss out on the bonus. Other requirements to watch out for include:  Deadlines: The window of time you have to complete actions, such as 30 daysAmounts: Specific minimums that must be met to qualify for the bonusActions: All steps required, such as setting up direct deposit or using your debit card Typically, a bonus isn’t available to people in the following categories:  Existing bank customersAnyone who already received the bonus in the past, within a specific period (such as 12 months)Customers with accounts closed with a negative balance within a specific periodAnyone under age 18Anyone without a valid U.S. Taxpayer Identification Number (TIN) You may also need to live in a geographic area, such as a particular state, to qualify for the bonus.  What To Look for in a Sign-Up Bonus You might want to look for the following in a sign-up bonus:  Earning a high APY on top of the bonus for the amount in your accountNo fees charged to close the account Easy qualification rules with low or minimal direct deposit amounts Clear, easy-to-understand communication about which direct deposit types qualify and other bonus qualification terms and conditions Online application and account maintenance for bonus qualificationLow minimum balance requirements to avoid monthly bank maintenance feesRapid qualification and deposit of your bonus—so you don’t wait six to 12 months to earn your bonus In addition, compare your rate of return from the bonus with how much you could earn in a high-yield savings account over the same time period.  Which Bank Has the Highest Sign-Up Bonus? Chase, Citi, and Wells Fargo banks have some of the highest sign-up bonuses available, although it takes time and large deposit to qualify. Chase offers a $3,000 bonus when you transfer $500,000 or more into a new or upgraded Private Client Checking account and maintain the balance for 90 days. With Citi, you can earn a $2,000 bonus if you open an eligible checking account with $300,000 for several months. With Wells Fargo, you can earn a $2,500 bonus if you deposit $250,000 and maintain that balance for several months. However, when working with large amounts, remember that the Federal Deposit Insurance Corp. (FDIC) only insures up to $250,000 in deposits per person, per account.  Should I Switch Banks To Get a Sign-Up Bonus? Deciding whether a bank sign-up bonus is worth your time and money can take some research. First, consider whether the bonus earned bests higher interest rates accumulated elsewhere in a certificate of deposit (CD) or money market account. Also, consider whether you want to keep the account open and pay potential fees or if you want to open, manage, and close the account.  Why Do Banks Give Money To Open Accounts? Banks award money to open accounts to bring in new, regular customers who use the bank’s services. As a result, each bank or credit union will have a different requirement for keeping an account open to earn a bonus, but the range is generally 90 days to 12 months. If you close the account early, you may forfeit your bonus or be required to pay a fee.  How Many Bank Accounts Should I Have? You can have as many bank accounts as you wish, as government regulations don’t limit the number of accounts. However, you might consider the amount of digital clutter that can come with opening numerous checking or savings accounts. Closing accounts can be time-consuming and require phone calls with the financial institution. The Bottom Line If you have the time and/or cash to meet a bank’s requirements, a bank sign-up bonus may be worth your while, especially if it’s sizable. A bonus may also appeal if minimal steps are involved, or the account isn’t pre-packed with fees.  Consider whether you’re interested in a long-term relationship with the financial institution. This could reduce trouble with moving around direct deposits and opening, managing, and closing accounts. While some bank sign-up bonus aficionados pursue bonuses regularly, your free time may be more limited. 

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

R: What it Means, Uses, Financial Formulas

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-does-r-mean"></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 Does R Mean? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> In securities trading, the letter R has a special meaning when added to the end of a ticker symbol. The letter R has a different meaning when applied as part of financial formula where it usually means some form of return. </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 NASDAQ exchange, R is used as a fifth letter in a company ticker symbol when the security being traded is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rightsoffering.asp" rel="noopener noreferrer">rights offering</a>. Rights offerings allow shareholders the opportunity to purchase more shares directly from the company at a special price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_6-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The Letter R at the end of a NASDAQ ticker symbol means the security being quoted is a rights offering.</li><li>Rights offerings that are sold by shareholders are traded on the open market.</li><li>In financial formulas the letter R designates Returns.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-uses-of-r"></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 Uses of R </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> When added to the end of a ticker symbol, the letter R designates that the shares in question are a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rightsoffering.asp" rel="noopener noreferrer">rights offering</a>. This is an issue of rights to a company's existing shareholders that entitles them to buy additional shares directly from the company in proportion to their existing holdings within a fixed time period called the subscription period, which typically lasts one to three months. In a rights offering, a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/subscription-price.asp" rel="noopener noreferrer">subscription price</a> at which each share may be purchased is normally <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/at-a-discount.asp" rel="noopener noreferrer">at a discount</a> to the current market price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Existing shareholders are not obligated to buy additional shares. They may decline to exercise their rights or, if the rights are transferable, they may sell them on the open market. Such securities are quoted on stock exchanges and traded with varying degrees of liquidity depending on the company involved. </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"> Nasdaq-listed securities usually have four or five characters. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stocksymbol.asp" rel="noopener noreferrer">ticker symbol</a> by itself has four letters; if a fifth letter appears, it identifies the issue as other than a single issue of common or capital stock. The Nasdaq has a fifth-letter identifier for every letter of the alphabet; for example, "D" denotes a new issue, "F" denotes a foreign issue, and "Q" denotes bankruptcy. </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-use-of-r-in-financial-formulas"></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"> Use of R in Financial Formulas </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> R is also a common symbol representing "return" in many financial formulas. There are many different types of returns and they are usually denoted with the upper or lower case letter "R," though there is no formal designation. If there are multiple returns used in a calculation, they are often given subscript letters. </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 formulas, lower case "r" usually represents the required rate of return. R_Eis usually expected return. R_M is usually the return on the market as a whole. R_for R_rf is usually the risk-free rate of return. R₁, R₂, R₃, R_i are returns in the first, second, third and -ith period, respectively. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> For example, the equation for the Sharpe ratio, a measure of risk-adjusted return, is as follows: </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"> <span data-value="\begin{aligned} &amp;\mathit{S}_r = \frac{ \mathit{R}_p - \mathit{R}_f }{ \sigma \mathit{p} } \\ &amp;\textbf{where:}\\ &amp;\mathit{S}_r = \text{Sharpe Ratio} \\ &amp;\mathit{R}_p = \text{Portfolio risk} \\ &amp;\mathit{R}_f = \text{Risk free rate} \\ &amp;\sigma \mathit{p} = \text{Standard deviation of portfolio} \\ \end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mrow> <mtable> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <msub> <mi> S </mi> <mi> r </mi> </msub> <mo> = </mo> <mfrac> <mrow> <msub> <mi> R </mi> <mi> p </mi> </msub> <mo> − </mo> <msub> <mi> R </mi> <mi> f </mi> </msub> </mrow> <mrow> <mi> σ </mi> <mrow> <mi> p </mi> </mrow> </mrow> </mfrac> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> where: </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <msub> <mi> S </mi> <mi> r </mi> </msub> <mo> = </mo> <mtext> Sharpe Ratio </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <msub> <mi> R </mi> <mi> p </mi> </msub> <mo> = </mo> <mtext> Portfolio risk </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <msub> <mi> R </mi> <mi> f </mi> </msub> <mo> = </mo> <mtext> Risk free rate </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> σ </mi> <mrow> <mi> p </mi> </mrow> <mo> = </mo> <mtext> Standard deviation of portfolio </mtext> </mrow> </mstyle> </mtd> </mtr> </mtable> </mrow> <annotation encoding="application/x-tex"> \begin{aligned} &amp;\mathit{S}_r = \frac{ \mathit{R}_p - \mathit{R}_f }{ \sigma \mathit{p} } \\ &amp;\textbf{where:}\\ &amp;\mathit{S}_r = \text{Sharpe Ratio} \\ &amp;\mathit{R}_p = \text{Portfolio risk} \\ &amp;\mathit{R}_f = \text{Risk free rate} \\ &amp;\sigma \mathit{p} = \text{Standard deviation of portfolio} \\ \end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="strut"></span><span class="strut bottom"></span><span class="base"><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span><span class="col-align-l"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="mord"><span class="mord mathit">S</span></span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathit mtight">r</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span></span><span class="mrel">=</span><span class="mord"><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 mathit">σ</span><span class="mord"><span class="mord mathit">p</span></span></span></span><span class=""><span class="pstrut"></span><span class="frac-line"></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"><span class="mord"><span class="mord mathit">R</span></span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathit mtight">p</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span></span><span class="mbin">−</span><span class="mord"><span class="mord"><span class="mord mathit">R</span></span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathit mtight">f</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span><span class="mclose nulldelimiter"></span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord mathbf">where:</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="mord"><span class="mord mathit">S</span></span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathit mtight">r</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span></span><span class="mrel">=</span><span class="mord text"><span class="mord mathrm">Sharpe Ratio</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="mord"><span class="mord mathit">R</span></span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathit mtight">p</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span></span><span class="mrel">=</span><span class="mord text"><span class="mord mathrm">Portfolio risk</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord"><span class="mord"><span class="mord mathit">R</span></span><span class="msupsub"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="sizing reset-size6 size3 mtight"><span class="mord mathit mtight">f</span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span></span><span class="mrel">=</span><span class="mord text"><span class="mord mathrm">Risk free rate</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathit">σ</span><span class="mord"><span class="mord mathit">p</span></span><span class="mrel">=</span><span class="mord text"><span class="mord mathrm">Standard deviation of portfolio</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> In this formula, Sr stands for Sharpe Ratio, Rp stands for Risk of the Portfolio being evaluated, and Rf stands for the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risk-freerate.asp" rel="noopener noreferrer">Risk Free rate</a>, and σp stands for the standard deviation of the portfolio's excess return above the risk free rate. </p></div>

## What Does R Mean? In securities trading, the letter R has a special meaning when added to the end of a ticker symbol. The letter R has a different meaning when applied as part of financial formula where it usually means some form of return. On the NASDAQ exchange, R is used as a fifth letter in a company ticker symbol when the security being traded is a [rights offering](https://www.investopedia.com/terms/r/rightsoffering.asp). Rights offerings allow shareholders the opportunity to purchase more shares directly from the company at a special price. ### Key Takeaways * The Letter R at the end of a NASDAQ ticker symbol means the security being quoted is a rights offering. * Rights offerings that are sold by shareholders are traded on the open market. * In financial formulas the letter R designates Returns. ## Understanding Uses of R When added to the end of a ticker symbol, the letter R designates that the shares in question are a [rights offering](https://www.investopedia.com/terms/r/rightsoffering.asp). This is an issue of rights to a company's existing shareholders that entitles them to buy additional shares directly from the company in proportion to their existing holdings within a fixed time period called the subscription period, which typically lasts one to three months. In a rights offering, a [subscription price](https://www.investopedia.com/terms/s/subscription-price.asp) at which each share may be purchased is normally [at a discount](https://www.investopedia.com/terms/a/at-a-discount.asp) to the current market price. Existing shareholders are not obligated to buy additional shares. They may decline to exercise their rights or, if the rights are transferable, they may sell them on the open market. Such securities are quoted on stock exchanges and traded with varying degrees of liquidity depending on the company involved. Nasdaq-listed securities usually have four or five characters. The [ticker symbol](https://www.investopedia.com/terms/s/stocksymbol.asp) by itself has four letters; if a fifth letter appears, it identifies the issue as other than a single issue of common or capital stock. The Nasdaq has a fifth-letter identifier for every letter of the alphabet; for example, "D" denotes a new issue, "F" denotes a foreign issue, and "Q" denotes bankruptcy. ## Use of R in Financial Formulas R is also a common symbol representing "return" in many financial formulas. There are many different types of returns and they are usually denoted with the upper or lower case letter "R," though there is no formal designation. If there are multiple returns used in a calculation, they are often given subscript letters. In formulas, lower case "r" usually represents the required rate of return. RE is usually expected return. RM is usually the return on the market as a whole. Rf or Rrf is usually the risk-free rate of return. R1, R2, R3, Ri are returns in the first, second, third and -ith period, respectively. For example, the equation for the Sharpe ratio, a measure of risk-adjusted return, is as follows:  S r = R p − R f σ p where: S r = Sharpe Ratio R p = Portfolio risk R f = Risk free rate σ p = Standard deviation of portfolio \begin{aligned} &\mathit{S}\_r = \frac{ \mathit{R}\_p - \mathit{R}\_f }{ \sigma \mathit{p} } \\ &\textbf{where:}\\ &\mathit{S}\_r = \text{Sharpe Ratio} \\ &\mathit{R}\_p = \text{Portfolio risk} \\ &\mathit{R}\_f = \text{Risk free rate} \\ &\sigma \mathit{p} = \text{Standard deviation of portfolio} \\ \end{aligned} ​Sr​=σpRp​−Rf​​where:Sr​=Sharpe RatioRp​=Portfolio riskRf​=Risk free rateσp=Standard deviation of portfolio​ In this formula, Sr stands for Sharpe Ratio, Rp stands for Risk of the Portfolio being evaluated, and Rf stands for the [Risk Free rate](https://www.investopedia.com/terms/r/risk-freerate.asp), and σp stands for the standard deviation of the portfolio's excess return above the risk free rate.

What Does R Mean? In securities trading, the letter R has a special meaning when added to the end of a ticker symbol. The letter R has a different meaning when applied as part of financial formula where it usually means some form of return. On the NASDAQ exchange, R is used as a fifth letter in a company ticker symbol when the security being traded is a rights offering. Rights offerings allow shareholders the opportunity to purchase more shares directly from the company at a special price. Key Takeaways The Letter R at the end of a NASDAQ ticker symbol means the security being quoted is a rights offering.Rights offerings that are sold by shareholders are traded on the open market.In financial formulas the letter R designates Returns. Understanding Uses of R When added to the end of a ticker symbol, the letter R designates that the shares in question are a rights offering. This is an issue of rights to a company's existing shareholders that entitles them to buy additional shares directly from the company in proportion to their existing holdings within a fixed time period called the subscription period, which typically lasts one to three months. In a rights offering, a subscription price at which each share may be purchased is normally at a discount to the current market price. Existing shareholders are not obligated to buy additional shares. They may decline to exercise their rights or, if the rights are transferable, they may sell them on the open market. Such securities are quoted on stock exchanges and traded with varying degrees of liquidity depending on the company involved. Nasdaq-listed securities usually have four or five characters. The ticker symbol by itself has four letters; if a fifth letter appears, it identifies the issue as other than a single issue of common or capital stock. The Nasdaq has a fifth-letter identifier for every letter of the alphabet; for example, "D" denotes a new issue, "F" denotes a foreign issue, and "Q" denotes bankruptcy. Use of R in Financial Formulas R is also a common symbol representing "return" in many financial formulas. There are many different types of returns and they are usually denoted with the upper or lower case letter "R," though there is no formal designation. If there are multiple returns used in a calculation, they are often given subscript letters. In formulas, lower case "r" usually represents the required rate of return. RE is usually expected return. RM is usually the return on the market as a whole. Rf or Rrf is usually the risk-free rate of return. R1, R2, R3, Ri are returns in the first, second, third and -ith period, respectively. For example, the equation for the Sharpe ratio, a measure of risk-adjusted return, is as follows:  S r = R p − R f σ p where: S r = Sharpe Ratio R p = Portfolio risk R f = Risk free rate σ p = Standard deviation of portfolio \begin{aligned} &\mathit{S}_r = \frac{ \mathit{R}_p - \mathit{R}_f }{ \sigma \mathit{p} } \\ &\textbf{where:}\\ &\mathit{S}_r = \text{Sharpe Ratio} \\ &\mathit{R}_p = \text{Portfolio risk} \\ &\mathit{R}_f = \text{Risk free rate} \\ &\sigma \mathit{p} = \text{Standard deviation of portfolio} \\ \end{aligned} ​Sr​=σpRp​−Rf​​where:Sr​=Sharpe RatioRp​=Portfolio riskRf​=Risk free rateσp=Standard deviation of portfolio​ In this formula, Sr stands for Sharpe Ratio, Rp stands for Risk of the Portfolio being evaluated, and Rf stands for the Risk Free rate, and σp stands for the standard deviation of the portfolio's excess return above the risk free rate.

https://www.investopedia.com/30-year-mortgage-rates-move-higher-for-a-third-day-8610309

30-Year Mortgage Rates Move Higher for a Third Day

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> After falling early last week to their lowest level since the start of February, 30-year mortgage rates have reversed course over the past three days. Shooting up a cumulative third of a percentage point, the average is now up to 7.45%. Rates for other loan types moved generally higher Friday, though most averages showed just modest increases. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-square figure-high-res" id="mntl-sc-block_3-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:83.8%;"> <img alt="Line graph showing the last 90 days of the 30-year mortgage rate average for new purchase loans - March 18, 2024" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/_xii7MLLQu3QBOnKnZWicF5oSAY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/3-18-3a8a878c25b64b7296581b78a42890de.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/_xii7MLLQu3QBOnKnZWicF5oSAY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/3-18-3a8a878c25b64b7296581b78a42890de.png" data-srcset="https://www.investopedia.com/thmb/-0YvsoQaqVRaHktLoRRXFyXCxoc=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/3-18-3a8a878c25b64b7296581b78a42890de.png 750w" data-tracking-container="true" height="2080" id="mntl-sc-block-image_1-0" width="2480"/> <noscript> <img alt="Line graph showing the last 90 days of the 30-year mortgage rate average for new purchase loans - March 18, 2024" class="img--noscript universal-image__image" height="2080" sizes="750px" src="https://www.investopedia.com/thmb/_xii7MLLQu3QBOnKnZWicF5oSAY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/3-18-3a8a878c25b64b7296581b78a42890de.png" srcset="https://www.investopedia.com/thmb/-0YvsoQaqVRaHktLoRRXFyXCxoc=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/3-18-3a8a878c25b64b7296581b78a42890de.png 750w" width="2480"/> </noscript> </div> </div> </figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Because rates vary widely across lenders, it's always smart to shop around for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-rates-5094943">your best mortgage option</a> and compare rates regularly, no matter the type of home loan you're seeking. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_6-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">National Averages of Lenders' Best Rates</th> </tr> <tr> <th><b>Loan Type</b></th> <th><b>New Purchase</b></th> <th><b>Refinance</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>30-Year Fixed</td> <td>7.45%</td> <td>7.80%</td> </tr> <tr> <td>FHA 30-Year Fixed</td> <td>7.43%</td> <td>7.60%</td> </tr> <tr> <td>Jumbo 30-Year Fixed</td> <td>6.95%</td> <td>6.95%</td> </tr> <tr> <td>15-Year Fixed</td> <td>6.69%</td> <td>6.86%</td> </tr> <tr> <td>5/6 ARM</td> <td>7.65%</td> <td>7.76%</td> </tr> </tbody> </table> <figcaption>National averages of the lowest rates offered by more than 200 of the country's top lenders, with a loan-to-value ratio (LTV) of 80%, an applicant with a FICO credit score of 700–760, and no mortgage points.</figcaption> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--credible-rate-table--mortgage" id="mntl-sc-block_8-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div id="credible-block"></div> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <span class="heading-toc" id="toc-todays-mortgage-rate-averages-new-purchase"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> Today's Mortgage Rate Averages: New Purchase </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Rates on 30-year new purchase mortgages jumped another 11 basis points Friday, after adding 23 points the two previous days. That bumps the flagship average to 7.45%, which is notably up from its recent low of 7.11%, and is close to a 7.48% peak seen three weeks ago. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Given that 30-year rates sank into 6% territory at the start of February, Friday's average is elevated. Still, rates are dramatically cheaper than in October, when the 30-year average notched a historic 23-year peak of 8.45%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_15-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/DdJ92/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="History of 30y average since Jun 2021"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block related-link" data-tracking-container="true" id="mntl-sc-block_18-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://www.investopedia.com/mortgage-rates-5094943" id="mntl-sc-block-featuredlink__link_1-0" rel="nocaes"><span class="link__wrapper">Compare the Best Mortgage Rates Today - May 21, 2024</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Rates on 15-year new purchase loans meanwhile held roughly steady Friday, tacking on just 2 basis points. The 15-year average is now 6.69%, a two-week high. Though current rates are pricier than the seven-month low of 6.10% we saw just before the new year, they are still much more affordable than last fall's 7.59% average, a peak since 2000. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Jumbo 30-year rates marched in place Friday at 6.95%, matching their highest mark since November. Though daily historical jumbo rates were not available before 2009, it's estimated the 7.52% peak reached last October was the most expensive jumbo 30-year average in more than 20 years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Many other new purchase averages moved only a few basis points in either direction Friday. The biggest gainers were jumbo 15-year and jumbo 5/6 adjustable-rate loans, whose averages each climbed 13 basis points. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_26-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">National Averages of Lenders' Best Rates - New Purchase</th> </tr> <tr> <th>Loan Type</th> <th><b>New Purchase Rates</b></th> <th><b>Daily Change</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td>30-Year Fixed</td> <td>7.45%</td> <td>+0.11</td> </tr> <tr> <td>FHA 30-Year Fixed</td> <td>7.43%</td> <td>-0.03</td> </tr> <tr> <td>VA 30-Year Fixed</td> <td>7.09%</td> <td>+0.05</td> </tr> <tr> <td>Jumbo 30-Year Fixed</td> <td>6.95%</td> <td>No Change</td> </tr> <tr> <td>20-Year Fixed</td> <td>7.11%</td> <td>+0.09</td> </tr> <tr> <td>15-Year Fixed</td> <td>6.69%</td> <td>+0.02</td> </tr> <tr> <td>FHA 15-Year Fixed</td> <td>6.82%</td> <td>No Change</td> </tr> <tr> <td>Jumbo 15-Year Fixed</td> <td>6.91%</td> <td>+0.13</td> </tr> <tr> <td>10-Year Fixed</td> <td>6.59%</td> <td>+0.04</td> </tr> <tr> <td>10/6 ARM</td> <td>7.60%</td> <td>+0.04</td> </tr> <tr> <td>7/6 ARM</td> <td>7.58%</td> <td>+0.08</td> </tr> <tr> <td>Jumbo 7/6 ARM</td> <td>6.58%</td> <td>No Change</td> </tr> <tr> <td>5/6 ARM</td> <td>7.65%</td> <td>-0.03</td> </tr> <tr> <td>Jumbo 5/6 ARM</td> <td>6.68%</td> <td>+0.13</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_28-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/FzF9w/1/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="90-Day Ranges of Best Mortgage Rates"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <span class="heading-toc" id="toc-the-weekly-freddie-mac-average"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_30-0"> <span class="mntl-sc-block-heading__text"> The Weekly Freddie Mac Average </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Every Thursday afternoon, Freddie Mac publishes a weekly average of 30-year mortgage rates, and last week's reading subtracted 14 basis points to fall to 6.74%. Back in late October, Freddie Mac's average reached a historic peak of 7.79%—its most expensive level in 23 years. But since then, it has come down significantly, registering a recent low of 6.60% in mid-January.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Freddie Mac’s average differs from our own 30-year average for two notable reasons. First, Freddie Mac calculates a <em>weekly</em> average that blends five previous days of rates, while our Investopedia averages are daily, offering a more precise and timely indicator of rate movement. Second, the rates included in Freddie Mac's survey can include loans priced with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discountpoints.asp">discount points</a>, while Investopedia’s averages only include zero-point loans. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-todays-mortgage-rate-averages-refinancing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_35-0"> <span class="mntl-sc-block-heading__text"> Today's Mortgage Rate Averages: Refinancing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Refinancing rates climbed Friday for almost every loan type, though most saw minimal increases. Like its new purchase sibling, the 30-year refi average shot up, gaining 18 basis points. That leaves the gap between 30-year new purchase and refi rates at 35 basis points. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Rate movement among other refi loan types was more modest. Friday's only notable gainers were jumbo 15-year and jumbo 5/6 ARM loans, which rose 13 basis points. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_40-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="3">National Averages of Lenders' Best Rates - Refinance</th> </tr> <tr> <th>Loan Type</th> <th><b>Refinance Rates</b></th> <th>Daily Change</th> </tr> </thead> <tbody data-check="0"> <tr> <td>30-Year Fixed</td> <td>7.80%</td> <td>+0.18</td> </tr> <tr> <td>FHA 30-Year Fixed</td> <td>7.60%</td> <td>+0.04</td> </tr> <tr> <td>VA 30-Year Fixed</td> <td>7.64%</td> <td>+0.05</td> </tr> <tr> <td>Jumbo 30-Year Fixed</td> <td>6.95%</td> <td>No Change</td> </tr> <tr> <td>20-Year Fixed</td> <td>7.44%</td> <td>+0.07</td> </tr> <tr> <td>15-Year Fixed</td> <td>6.86%</td> <td>+0.02</td> </tr> <tr> <td>FHA 15-Year Fixed</td> <td>7.00%</td> <td>+0.05</td> </tr> <tr> <td>Jumbo 15-Year Fixed</td> <td>6.91%</td> <td>+0.13</td> </tr> <tr> <td>10-Year Fixed</td> <td>6.79%</td> <td>+0.02</td> </tr> <tr> <td>10/6 ARM</td> <td>7.75%</td> <td>+0.03</td> </tr> <tr> <td>7/6 ARM</td> <td>7.84%</td> <td>+0.02</td> </tr> <tr> <td>Jumbo 7/6 ARM</td> <td>6.68%</td> <td>No Change</td> </tr> <tr> <td>5/6 ARM</td> <td>7.76%</td> <td>+0.03</td> </tr> <tr> <td>Jumbo 5/6 ARM</td> <td>6.68%</td> <td>+0.13</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Calculate monthly payments for different loan scenarios with our <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage-calculator-5084794">Mortgage Calculator</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_44-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_45-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>The rates you see here generally won’t compare directly with teaser rates you see advertised online, since those rates are cherry-picked as the most attractive, while these rates are averages. Teaser rates may involve paying points in advance, or they may be selected based on a hypothetical borrower with an ultra-high credit score or taking a smaller-than-typical loan. The mortgage rate you ultimately secure will be based on factors like your credit score, income, and more, so it may be higher or lower than the averages you see here.</p></div></div></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--mortgage-loan-calculator" id="mntl-sc-block_46-0"><div class="comp mortgage-loan-calculator mntl-block" data-defer="load" id="mortgage-loan-calculator_1-0"></div></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <span class="heading-toc" id="toc-lowest-mortgage-rates-by-state"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_48-0"> <span class="mntl-sc-block-heading__text"> Lowest Mortgage Rates by State </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> The lowest mortgage rates available vary depending on the state where originations occur. Mortgage rates can be influenced by state-level variations in credit score, average mortgage loan type, and size, in addition to individual lenders' varying risk management strategies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> The states with the cheapest 30-year new purchase rates were Louisiana, Mississippi, Vermont, Hawaii, Iowa, Kansas, Rhode Island, and Virginia, while the states with the most expensive rates were Tennessee, Alabama, Minnesota, Oregon, and Arizona. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_53-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/yyPnX/1/" frameborder="0" id="mntl-sc-block-iframe__uri_3-0" title="State-by-state average minimum rates"></iframe></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <span class="heading-toc" id="toc-what-causes-mortgage-rates-to-rise-or-fall"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_55-0"> <span class="mntl-sc-block-heading__text"> What Causes Mortgage Rates to Rise or Fall? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> Mortgage rates are determined by a complex interaction of macroeconomic and industry factors, such as: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> <li>The level and direction of the bond market, especially 10-year Treasury yields</li> <li>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalreservebank.asp">Federal Reserve's</a> current monetary policy, especially as it relates to bond buying and funding government-backed mortgages</li> <li>Competition between <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-mortgage-lenders-5076852">mortgage lenders and across loan types</a></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Because fluctuations can be caused by any number of these at once, it's generally difficult to attribute the change to any one factor. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> Macroeconomic factors kept the mortgage market relatively low for much of 2021. In particular, the Federal Reserve had been buying billions of dollars of bonds in response to the pandemic's economic pressures. This <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/060115/how-do-open-market-operations-omos-affect-bond-prices.asp">bond-buying policy</a> is a major influencer of mortgage rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> But starting in November 2021, the Fed began tapering its bond purchases downward, making sizable reductions each month until reaching net zero in March 2022.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_65-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> Between that time and July 2023, the Fed aggressively raised the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalfundsrate.asp">federal funds rate</a> to fight decades-high inflation. While the fed funds rate can influence mortgage rates, it does not directly do so. In fact, the fed funds rate and mortgage rates can move in opposite directions. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> But given the historic speed and magnitude of the Fed's 2022 and 2023 rate increases—raising the benchmark rate 5.25 percentage points over 16 months—even the indirect influence of the fed funds rate has resulted in a dramatic upward impact on mortgage rates over the last two years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> The Fed has opted to hold rates steady at its last four meetings, the last of which concluded Jan. 31. Though the central bank's statement signaled that we have almost certainly reached the end of Fed rate hikes in this campaign, Fed Chair <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/jerome-powell-5210572">Jerome Powell</a> stated that inflation is still too high, and they will therefore proceed cautiously on deciding <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-interest-rate-decision-january-2024-8553695">when to make the first rate cut</a>. Specifically, he indicated it's unlikely they will be ready for any rate reduction by the time of their next meeting, which is scheduled for March 19–20. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> After its December meeting, the Fed released quarterly data that showed almost 80% of Fed members expect there to be two to four rate cuts in 2024, with the median expectation being three rate decreases totaling 0.75%.<span class="ql-inline-citation" data-cite="5"></span> But when in 2024 these will begin—and ultimately how many are implemented this year—is an open question at this time. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <span class="heading-toc" id="toc-how-we-track-mortgage-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_74-0"> <span class="mntl-sc-block-heading__text"> How We Track Mortgage Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_75-0"> The national averages cited above were calculated based on the lowest rate offered by more than 200 of the country's top lenders, assuming a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/loantovalue.asp">loan-to-value ratio (LTV)</a> of 80% and an applicant with a FICO credit score in the 700–760 range. The resulting rates are representative of what customers should expect to see when receiving actual quotes from lenders based on their qualifications, which may vary from advertised teaser rates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_76-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_77-0"> For our map of the best state rates, the lowest rate currently offered by a surveyed lender in that state is listed, assuming the same parameters of an 80% LTV and a credit score between 700–760. </p></div>

After falling early last week to their lowest level since the start of February, 30-year mortgage rates have reversed course over the past three days. Shooting up a cumulative third of a percentage point, the average is now up to 7.45%. Rates for other loan types moved generally higher Friday, though most averages showed just modest increases. ![Line graph showing the last 90 days of the 30-year mortgage rate average for new purchase loans - March 18, 2024]() :max_bytes(150000):strip_icc()/3-18-3a8a878c25b64b7296581b78a42890de.png) Because rates vary widely across lenders, it's always smart to shop around for [your best mortgage option](https://www.investopedia.com/mortgage-rates-5094943) and compare rates regularly, no matter the type of home loan you're seeking. | National Averages of Lenders' Best Rates | | | | --- | --- | --- | | **Loan Type** | **New Purchase** | **Refinance** | | 30-Year Fixed | 7.45% | 7.80% | | FHA 30-Year Fixed | 7.43% | 7.60% | | Jumbo 30-Year Fixed | 6.95% | 6.95% | | 15-Year Fixed | 6.69% | 6.86% | | 5/6 ARM | 7.65% | 7.76% | National averages of the lowest rates offered by more than 200 of the country's top lenders, with a loan-to-value ratio (LTV) of 80%, an applicant with a FICO credit score of 700–760, and no mortgage points. ## Today's Mortgage Rate Averages: New Purchase Rates on 30-year new purchase mortgages jumped another 11 basis points Friday, after adding 23 points the two previous days. That bumps the flagship average to 7.45%, which is notably up from its recent low of 7.11%, and is close to a 7.48% peak seen three weeks ago. Given that 30-year rates sank into 6% territory at the start of February, Friday's average is elevated. Still, rates are dramatically cheaper than in October, when the 30-year average notched a historic 23-year peak of 8.45%. [Compare the Best Mortgage Rates Today - May 21, 2024](https://www.investopedia.com/mortgage-rates-5094943) Rates on 15-year new purchase loans meanwhile held roughly steady Friday, tacking on just 2 basis points. The 15-year average is now 6.69%, a two-week high. Though current rates are pricier than the seven-month low of 6.10% we saw just before the new year, they are still much more affordable than last fall's 7.59% average, a peak since 2000. Jumbo 30-year rates marched in place Friday at 6.95%, matching their highest mark since November. Though daily historical jumbo rates were not available before 2009, it's estimated the 7.52% peak reached last October was the most expensive jumbo 30-year average in more than 20 years. Many other new purchase averages moved only a few basis points in either direction Friday. The biggest gainers were jumbo 15-year and jumbo 5/6 adjustable-rate loans, whose averages each climbed 13 basis points. | National Averages of Lenders' Best Rates - New Purchase | | | | --- | --- | --- | | Loan Type | **New Purchase Rates** | **Daily Change** | | 30-Year Fixed | 7.45% | +0.11 | | FHA 30-Year Fixed | 7.43% | -0.03 | | VA 30-Year Fixed | 7.09% | +0.05 | | Jumbo 30-Year Fixed | 6.95% | No Change | | 20-Year Fixed | 7.11% | +0.09 | | 15-Year Fixed | 6.69% | +0.02 | | FHA 15-Year Fixed | 6.82% | No Change | | Jumbo 15-Year Fixed | 6.91% | +0.13 | | 10-Year Fixed | 6.59% | +0.04 | | 10/6 ARM | 7.60% | +0.04 | | 7/6 ARM | 7.58% | +0.08 | | Jumbo 7/6 ARM | 6.58% | No Change | | 5/6 ARM | 7.65% | -0.03 | | Jumbo 5/6 ARM | 6.68% | +0.13 | ## The Weekly Freddie Mac Average Every Thursday afternoon, Freddie Mac publishes a weekly average of 30-year mortgage rates, and last week's reading subtracted 14 basis points to fall to 6.74%. Back in late October, Freddie Mac's average reached a historic peak of 7.79%—its most expensive level in 23 years. But since then, it has come down significantly, registering a recent low of 6.60% in mid-January. Freddie Mac’s average differs from our own 30-year average for two notable reasons. First, Freddie Mac calculates a *weekly* average that blends five previous days of rates, while our Investopedia averages are daily, offering a more precise and timely indicator of rate movement. Second, the rates included in Freddie Mac's survey can include loans priced with [discount points](https://www.investopedia.com/terms/d/discountpoints.asp), while Investopedia’s averages only include zero-point loans. ## Today's Mortgage Rate Averages: Refinancing Refinancing rates climbed Friday for almost every loan type, though most saw minimal increases. Like its new purchase sibling, the 30-year refi average shot up, gaining 18 basis points. That leaves the gap between 30-year new purchase and refi rates at 35 basis points. Rate movement among other refi loan types was more modest. Friday's only notable gainers were jumbo 15-year and jumbo 5/6 ARM loans, which rose 13 basis points. | National Averages of Lenders' Best Rates - Refinance | | | | --- | --- | --- | | Loan Type | **Refinance Rates** | Daily Change | | 30-Year Fixed | 7.80% | +0.18 | | FHA 30-Year Fixed | 7.60% | +0.04 | | VA 30-Year Fixed | 7.64% | +0.05 | | Jumbo 30-Year Fixed | 6.95% | No Change | | 20-Year Fixed | 7.44% | +0.07 | | 15-Year Fixed | 6.86% | +0.02 | | FHA 15-Year Fixed | 7.00% | +0.05 | | Jumbo 15-Year Fixed | 6.91% | +0.13 | | 10-Year Fixed | 6.79% | +0.02 | | 10/6 ARM | 7.75% | +0.03 | | 7/6 ARM | 7.84% | +0.02 | | Jumbo 7/6 ARM | 6.68% | No Change | | 5/6 ARM | 7.76% | +0.03 | | Jumbo 5/6 ARM | 6.68% | +0.13 | Calculate monthly payments for different loan scenarios with our [Mortgage Calculator](https://www.investopedia.com/mortgage-calculator-5084794). ### The rates you see here generally won’t compare directly with teaser rates you see advertised online, since those rates are cherry-picked as the most attractive, while these rates are averages. Teaser rates may involve paying points in advance, or they may be selected based on a hypothetical borrower with an ultra-high credit score or taking a smaller-than-typical loan. The mortgage rate you ultimately secure will be based on factors like your credit score, income, and more, so it may be higher or lower than the averages you see here. ## Lowest Mortgage Rates by State The lowest mortgage rates available vary depending on the state where originations occur. Mortgage rates can be influenced by state-level variations in credit score, average mortgage loan type, and size, in addition to individual lenders' varying risk management strategies. The states with the cheapest 30-year new purchase rates were Louisiana, Mississippi, Vermont, Hawaii, Iowa, Kansas, Rhode Island, and Virginia, while the states with the most expensive rates were Tennessee, Alabama, Minnesota, Oregon, and Arizona. ## What Causes Mortgage Rates to Rise or Fall? Mortgage rates are determined by a complex interaction of macroeconomic and industry factors, such as: * The level and direction of the bond market, especially 10-year Treasury yields * The [Federal Reserve's](https://www.investopedia.com/terms/f/federalreservebank.asp) current monetary policy, especially as it relates to bond buying and funding government-backed mortgages * Competition between [mortgage lenders and across loan types](https://www.investopedia.com/best-mortgage-lenders-5076852) Because fluctuations can be caused by any number of these at once, it's generally difficult to attribute the change to any one factor. Macroeconomic factors kept the mortgage market relatively low for much of 2021. In particular, the Federal Reserve had been buying billions of dollars of bonds in response to the pandemic's economic pressures. This [bond-buying policy](https://www.investopedia.com/ask/answers/060115/how-do-open-market-operations-omos-affect-bond-prices.asp) is a major influencer of mortgage rates. But starting in November 2021, the Fed began tapering its bond purchases downward, making sizable reductions each month until reaching net zero in March 2022. Between that time and July 2023, the Fed aggressively raised the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) to fight decades-high inflation. While the fed funds rate can influence mortgage rates, it does not directly do so. In fact, the fed funds rate and mortgage rates can move in opposite directions. But given the historic speed and magnitude of the Fed's 2022 and 2023 rate increases—raising the benchmark rate 5.25 percentage points over 16 months—even the indirect influence of the fed funds rate has resulted in a dramatic upward impact on mortgage rates over the last two years. The Fed has opted to hold rates steady at its last four meetings, the last of which concluded Jan. 31. Though the central bank's statement signaled that we have almost certainly reached the end of Fed rate hikes in this campaign, Fed Chair [Jerome Powell](https://www.investopedia.com/jerome-powell-5210572) stated that inflation is still too high, and they will therefore proceed cautiously on deciding [when to make the first rate cut](https://www.investopedia.com/fed-interest-rate-decision-january-2024-8553695). Specifically, he indicated it's unlikely they will be ready for any rate reduction by the time of their next meeting, which is scheduled for March 19–20. After its December meeting, the Fed released quarterly data that showed almost 80% of Fed members expect there to be two to four rate cuts in 2024, with the median expectation being three rate decreases totaling 0.75%. But when in 2024 these will begin—and ultimately how many are implemented this year—is an open question at this time. ## How We Track Mortgage Rates The national averages cited above were calculated based on the lowest rate offered by more than 200 of the country's top lenders, assuming a [loan-to-value ratio (LTV)](https://www.investopedia.com/terms/l/loantovalue.asp) of 80% and an applicant with a FICO credit score in the 700–760 range. The resulting rates are representative of what customers should expect to see when receiving actual quotes from lenders based on their qualifications, which may vary from advertised teaser rates. For our map of the best state rates, the lowest rate currently offered by a surveyed lender in that state is listed, assuming the same parameters of an 80% LTV and a credit score between 700–760.

After falling early last week to their lowest level since the start of February, 30-year mortgage rates have reversed course over the past three days. Shooting up a cumulative third of a percentage point, the average is now up to 7.45%. Rates for other loan types moved generally higher Friday, though most averages showed just modest increases. Because rates vary widely across lenders, it's always smart to shop around for your best mortgage option and compare rates regularly, no matter the type of home loan you're seeking. National Averages of Lenders' Best Rates Loan Type New Purchase Refinance 30-Year Fixed 7.45% 7.80% FHA 30-Year Fixed 7.43% 7.60% Jumbo 30-Year Fixed 6.95% 6.95% 15-Year Fixed 6.69% 6.86% 5/6 ARM 7.65% 7.76% National averages of the lowest rates offered by more than 200 of the country's top lenders, with a loan-to-value ratio (LTV) of 80%, an applicant with a FICO credit score of 700–760, and no mortgage points. Today's Mortgage Rate Averages: New Purchase Rates on 30-year new purchase mortgages jumped another 11 basis points Friday, after adding 23 points the two previous days. That bumps the flagship average to 7.45%, which is notably up from its recent low of 7.11%, and is close to a 7.48% peak seen three weeks ago. Given that 30-year rates sank into 6% territory at the start of February, Friday's average is elevated. Still, rates are dramatically cheaper than in October, when the 30-year average notched a historic 23-year peak of 8.45%. Compare the Best Mortgage Rates Today - May 21, 2024 Rates on 15-year new purchase loans meanwhile held roughly steady Friday, tacking on just 2 basis points. The 15-year average is now 6.69%, a two-week high. Though current rates are pricier than the seven-month low of 6.10% we saw just before the new year, they are still much more affordable than last fall's 7.59% average, a peak since 2000. Jumbo 30-year rates marched in place Friday at 6.95%, matching their highest mark since November. Though daily historical jumbo rates were not available before 2009, it's estimated the 7.52% peak reached last October was the most expensive jumbo 30-year average in more than 20 years. Many other new purchase averages moved only a few basis points in either direction Friday. The biggest gainers were jumbo 15-year and jumbo 5/6 adjustable-rate loans, whose averages each climbed 13 basis points. National Averages of Lenders' Best Rates - New Purchase Loan Type New Purchase Rates Daily Change 30-Year Fixed 7.45% +0.11 FHA 30-Year Fixed 7.43% -0.03 VA 30-Year Fixed 7.09% +0.05 Jumbo 30-Year Fixed 6.95% No Change 20-Year Fixed 7.11% +0.09 15-Year Fixed 6.69% +0.02 FHA 15-Year Fixed 6.82% No Change Jumbo 15-Year Fixed 6.91% +0.13 10-Year Fixed 6.59% +0.04 10/6 ARM 7.60% +0.04 7/6 ARM 7.58% +0.08 Jumbo 7/6 ARM 6.58% No Change 5/6 ARM 7.65% -0.03 Jumbo 5/6 ARM 6.68% +0.13 The Weekly Freddie Mac Average Every Thursday afternoon, Freddie Mac publishes a weekly average of 30-year mortgage rates, and last week's reading subtracted 14 basis points to fall to 6.74%. Back in late October, Freddie Mac's average reached a historic peak of 7.79%—its most expensive level in 23 years. But since then, it has come down significantly, registering a recent low of 6.60% in mid-January. Freddie Mac’s average differs from our own 30-year average for two notable reasons. First, Freddie Mac calculates a weekly average that blends five previous days of rates, while our Investopedia averages are daily, offering a more precise and timely indicator of rate movement. Second, the rates included in Freddie Mac's survey can include loans priced with discount points, while Investopedia’s averages only include zero-point loans. Today's Mortgage Rate Averages: Refinancing Refinancing rates climbed Friday for almost every loan type, though most saw minimal increases. Like its new purchase sibling, the 30-year refi average shot up, gaining 18 basis points. That leaves the gap between 30-year new purchase and refi rates at 35 basis points. Rate movement among other refi loan types was more modest. Friday's only notable gainers were jumbo 15-year and jumbo 5/6 ARM loans, which rose 13 basis points. National Averages of Lenders' Best Rates - Refinance Loan Type Refinance Rates Daily Change 30-Year Fixed 7.80% +0.18 FHA 30-Year Fixed 7.60% +0.04 VA 30-Year Fixed 7.64% +0.05 Jumbo 30-Year Fixed 6.95% No Change 20-Year Fixed 7.44% +0.07 15-Year Fixed 6.86% +0.02 FHA 15-Year Fixed 7.00% +0.05 Jumbo 15-Year Fixed 6.91% +0.13 10-Year Fixed 6.79% +0.02 10/6 ARM 7.75% +0.03 7/6 ARM 7.84% +0.02 Jumbo 7/6 ARM 6.68% No Change 5/6 ARM 7.76% +0.03 Jumbo 5/6 ARM 6.68% +0.13 Calculate monthly payments for different loan scenarios with our Mortgage Calculator. The rates you see here generally won’t compare directly with teaser rates you see advertised online, since those rates are cherry-picked as the most attractive, while these rates are averages. Teaser rates may involve paying points in advance, or they may be selected based on a hypothetical borrower with an ultra-high credit score or taking a smaller-than-typical loan. The mortgage rate you ultimately secure will be based on factors like your credit score, income, and more, so it may be higher or lower than the averages you see here. Lowest Mortgage Rates by State The lowest mortgage rates available vary depending on the state where originations occur. Mortgage rates can be influenced by state-level variations in credit score, average mortgage loan type, and size, in addition to individual lenders' varying risk management strategies. The states with the cheapest 30-year new purchase rates were Louisiana, Mississippi, Vermont, Hawaii, Iowa, Kansas, Rhode Island, and Virginia, while the states with the most expensive rates were Tennessee, Alabama, Minnesota, Oregon, and Arizona. What Causes Mortgage Rates to Rise or Fall? Mortgage rates are determined by a complex interaction of macroeconomic and industry factors, such as: The level and direction of the bond market, especially 10-year Treasury yields The Federal Reserve's current monetary policy, especially as it relates to bond buying and funding government-backed mortgages Competition between mortgage lenders and across loan types Because fluctuations can be caused by any number of these at once, it's generally difficult to attribute the change to any one factor. Macroeconomic factors kept the mortgage market relatively low for much of 2021. In particular, the Federal Reserve had been buying billions of dollars of bonds in response to the pandemic's economic pressures. This bond-buying policy is a major influencer of mortgage rates. But starting in November 2021, the Fed began tapering its bond purchases downward, making sizable reductions each month until reaching net zero in March 2022. Between that time and July 2023, the Fed aggressively raised the federal funds rate to fight decades-high inflation. While the fed funds rate can influence mortgage rates, it does not directly do so. In fact, the fed funds rate and mortgage rates can move in opposite directions. But given the historic speed and magnitude of the Fed's 2022 and 2023 rate increases—raising the benchmark rate 5.25 percentage points over 16 months—even the indirect influence of the fed funds rate has resulted in a dramatic upward impact on mortgage rates over the last two years. The Fed has opted to hold rates steady at its last four meetings, the last of which concluded Jan. 31. Though the central bank's statement signaled that we have almost certainly reached the end of Fed rate hikes in this campaign, Fed Chair Jerome Powell stated that inflation is still too high, and they will therefore proceed cautiously on deciding when to make the first rate cut. Specifically, he indicated it's unlikely they will be ready for any rate reduction by the time of their next meeting, which is scheduled for March 19–20. After its December meeting, the Fed released quarterly data that showed almost 80% of Fed members expect there to be two to four rate cuts in 2024, with the median expectation being three rate decreases totaling 0.75%. But when in 2024 these will begin—and ultimately how many are implemented this year—is an open question at this time. How We Track Mortgage Rates The national averages cited above were calculated based on the lowest rate offered by more than 200 of the country's top lenders, assuming a loan-to-value ratio (LTV) of 80% and an applicant with a FICO credit score in the 700–760 range. The resulting rates are representative of what customers should expect to see when receiving actual quotes from lenders based on their qualifications, which may vary from advertised teaser rates. For our map of the best state rates, the lowest rate currently offered by a surveyed lender in that state is listed, assuming the same parameters of an 80% LTV and a credit score between 700–760.

https://www.investopedia.com/cannabis-stocks-soar-on-reports-of-possible-reclassification-8641344

Cannabis Stocks Soar on Reports of Possible Reclassification

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Shares of cannabis companies jumped in intraday trading on Tuesday after the Associated Press reported federal drug enforcement authorities were proposing to reclassify marijuana as a less dangerous drug. </li><li>Marijuana is currently classified as a Schedule I drug, putting it on a level with heroin and LSD as one of the nation's most dangerous substances.</li><li>The proposal would not change marijuana's legal status on the federal level.</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"> Cannabis stocks soared on Tuesday after the <em>Associated Press</em> reported the U.S. Drug Enforcement Administration (DEA) planned to reclassify marijuana as a less dangerous class of drug.<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 DEA’s proposal, according to sources who spoke to the <em>AP</em> on the condition of anonymity, would acknowledge marijuana’s medical applications and recognize the substance has less potential to be abused than more dangerous drugs.  </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"> Marijuana is currently classified as a Schedule I drug alongside heroin and LSD. The DEA proposal would make marijuana a Schedule III drug, characterized by “moderate to low potential for physical and psychological dependence,” alongside ketamine and anabolic steroids.<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"> While the proposal would not legalize marijuana nationally, it is seen as a major policy change that could shift public opinion. Marijuana has already been legalized for medical use in 38 states and recreational use in 24.<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"> Cannabis stocks soared following the news. With about an hour left in Tuesday's trading session, the AdvisorShares Pure US Cannabis ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSOS">MSOS</a>) was up 22%, while shares of Canadian grower Canopy Growth Corp. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CGC">CGC</a>) and New York-based Curaleaf Holdings (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CURLF">CURLF</a>) were up 54% and 18%, respectively. </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

### Key Takeaways * Shares of cannabis companies jumped in intraday trading on Tuesday after the Associated Press reported federal drug enforcement authorities were proposing to reclassify marijuana as a less dangerous drug. * Marijuana is currently classified as a Schedule I drug, putting it on a level with heroin and LSD as one of the nation's most dangerous substances. * The proposal would not change marijuana's legal status on the federal level. Cannabis stocks soared on Tuesday after the *Associated Press* reported the U.S. Drug Enforcement Administration (DEA) planned to reclassify marijuana as a less dangerous class of drug. The DEA’s proposal, according to sources who spoke to the *AP* on the condition of anonymity, would acknowledge marijuana’s medical applications and recognize the substance has less potential to be abused than more dangerous drugs.  Marijuana is currently classified as a Schedule I drug alongside heroin and LSD. The DEA proposal would make marijuana a Schedule III drug, characterized by “moderate to low potential for physical and psychological dependence,” alongside ketamine and anabolic steroids. While the proposal would not legalize marijuana nationally, it is seen as a major policy change that could shift public opinion. Marijuana has already been legalized for medical use in 38 states and recreational use in 24. Cannabis stocks soared following the news. With about an hour left in Tuesday's trading session, the AdvisorShares Pure US Cannabis ETF ([MSOS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSOS)) was up 22%, while shares of Canadian grower Canopy Growth Corp. ([CGC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CGC)) and New York-based Curaleaf Holdings ([CURLF](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CURLF)) were up 54% and 18%, respectively. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Shares of cannabis companies jumped in intraday trading on Tuesday after the Associated Press reported federal drug enforcement authorities were proposing to reclassify marijuana as a less dangerous drug. Marijuana is currently classified as a Schedule I drug, putting it on a level with heroin and LSD as one of the nation's most dangerous substances.The proposal would not change marijuana's legal status on the federal level. Cannabis stocks soared on Tuesday after the Associated Press reported the U.S. Drug Enforcement Administration (DEA) planned to reclassify marijuana as a less dangerous class of drug. The DEA’s proposal, according to sources who spoke to the AP on the condition of anonymity, would acknowledge marijuana’s medical applications and recognize the substance has less potential to be abused than more dangerous drugs.  Marijuana is currently classified as a Schedule I drug alongside heroin and LSD. The DEA proposal would make marijuana a Schedule III drug, characterized by “moderate to low potential for physical and psychological dependence,” alongside ketamine and anabolic steroids. While the proposal would not legalize marijuana nationally, it is seen as a major policy change that could shift public opinion. Marijuana has already been legalized for medical use in 38 states and recreational use in 24. Cannabis stocks soared following the news. With about an hour left in Tuesday's trading session, the AdvisorShares Pure US Cannabis ETF (MSOS) was up 22%, while shares of Canadian grower Canopy Growth Corp. (CGC) and New York-based Curaleaf Holdings (CURLF) were up 54% and 18%, respectively. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/articles/investing/092115/alpha-and-beta-beginners.asp

Alpha and Beta for Beginners

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> We often hear the terms <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/alpha.asp" rel="noopener noreferrer">alpha</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/beta.asp" rel="noopener noreferrer">beta</a> when talking about investments. These are <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/102714/whats-difference-between-alpha-and-beta.asp" rel="noopener noreferrer">two different measures</a> that are part of the same equation derived from a linear <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/regression.asp" rel="noopener noreferrer">regression</a>. Don't worry if that sounds too complicated, we'll explain it all in this article. </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>Alpha and beta are two different parts of an equation used to explain the performance of stocks and investment funds.</li><li>Beta is a measure of volatility relative to a benchmark, such as the S&amp;P 500.</li><li>Alpha is the excess return on an investment after adjusting for market-related volatility and random fluctuations.</li><li>Alpha and beta are both measures used to compare and predict returns.</li></ul></div></div></div> <span class="heading-toc" id="toc-the-equation"></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 Equation </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> If equations make your eyes glaze over, you can just skip this part. On the other hand, we can go straight to the equation if you know some algebra or ever took a class covering regressions in college. The basic model is given by: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <li>y = a + bx + u</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"> Where: </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>y is the performance of the stock or fund.</li> <li>a is alpha, which is the excess return of the stock or fund.</li> <li>b is beta, which is volatility relative to the benchmark.</li> <li>x is the performance of the benchmark, which is often 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> index.</li> <li>u is the residual, which is the unexplained random portion of performance in a given year.</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-defining-beta"></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"> Defining Beta </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Beta is a measure of volatility relative to a benchmark, and it's actually easier to talk about beta first. It measures the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/systematicrisk.asp" rel="noopener noreferrer">systematic risk</a> of a security or a portfolio compared to an index like the S&amp;P 500. Many <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/growthstock.asp" rel="noopener noreferrer">growth stocks</a> would have a beta over 1, probably much higher. A <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/treasurybill.asp" rel="noopener noreferrer">T-bill</a> would have a beta close to zero because its prices hardly move relative to the market as a whole. </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 data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/beta.asp" rel="noopener noreferrer">Beta</a> is a multiplicative factor. A 2X <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/etfs/top-leveraged-sp-500-etfs/" rel="noopener noreferrer">leveraged S&amp;P 500 ETF</a> has a beta very close to 2 relative to the S&amp;P 500 by design. It goes up or down twice as much as the index in a given period of time. If beta is -2, then the investment moves in the opposite direction of the index by a factor of two. Most investments with <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/beta-know-risk/" rel="noopener noreferrer">negative betas</a> are <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inverse-etf.asp" rel="noopener noreferrer">inverse ETFs</a> or hold Treasury bonds. </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"> What beta also tells you is when risk cannot be diversified away. If you look at the beta of a typical <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualfund.asp" rel="noopener noreferrer">mutual fund</a>, it's essentially telling you how much market risk you're taking. </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"> It's crucial to realize that high or low beta frequently leads to market outperformance. A fund with lots of growth stocks and high beta will usually beat the market during a good year for stocks. Similarly, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/101215/top-4-conservative-allocation-mutual-funds.asp" rel="noopener noreferrer">conservative fund</a> that holds bonds will have a low beta and typically outperform the S&amp;P 500 during a poor year for the market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_23-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_24-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>If a stock or fund outperforms the market for a year, it is probably because of beta or random luck rather than alpha.</p></div></div></div> <span class="heading-toc" id="toc-defining-alpha"></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"> Defining Alpha </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Alpha is the excess return on an investment after adjusting for market-related volatility and random fluctuations. Alpha is one of the five major risk management indicators for mutual funds, stocks, and bonds. In a sense, it tells investors whether an asset has consistently performed better or worse than its beta predicts. </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"> Alpha is also a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/021015/does-negative-alpha-automatically-mean-i-should-sell.asp">measure of risk</a>. An alpha of -15 means the investment was far too risky given the return. An alpha of zero suggests that an asset has earned a return commensurate with the risk. Alpha of greater than zero means an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/07/alphabeta.asp">investment outperformed</a>, after adjusting for volatility. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> When <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 talk about high alpha, they're usually saying that their managers are good enough to outperform the market. But that raises another important question: when alpha is the "excess" return over an index, what index are you using? </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> For example, fund managers might brag that their funds generated 13% returns when the S&amp;P returned 11%. But is the S&amp;P an appropriate index to use? The manager might invest in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/small_value_stock.asp">small-cap value stocks</a>. These stocks have higher returns than the S&amp;P 500, according to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/famaandfrenchthreefactormodel.asp">Fama and French Three-Factor Model</a>. In this case, a small-cap value index might be a better benchmark than the S&amp;P 500. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> There is also a chance that a fund manager just got lucky instead of having true alpha. Suppose a manager outperforms the market by an average of 2% during the first three years of the fund without any extra market-related volatility. In that case, beta equals one, and it might look like alpha is 2%. </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"> However, suppose the fund manager then underperforms the market by 2% over the next three years. It now looks like alpha equals zero. The original appearance of alpha was due to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sample-size-neglect.asp">sample size neglect</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Very few investors have true alpha, and it typically takes a decade or more to be sure. <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> is generally considered to have alpha. Buffett focused on <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valueinvesting.asp">value investing</a>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/04/072304.asp">dividend growth</a>, and growth at a reasonable price (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/garp.asp">GARP</a>) strategies during his career. A study of Buffett's alpha found that he tended to use leverage with high-quality and low-beta stocks.<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_39-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Alpha and beta are both <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/measure-mutual-fund-risk/" rel="noopener noreferrer">risk ratios</a> that investors use as tools to compare and predict returns. They're significant numbers to know, but one must <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-theory/08/deeper-look-at-alpha.asp" rel="noopener noreferrer">check carefully</a> to see how they are calculated. </p></div>

We often hear the terms [alpha](https://www.investopedia.com/terms/a/alpha.asp) and [beta](https://www.investopedia.com/terms/b/beta.asp) when talking about investments. These are [two different measures](https://www.investopedia.com/ask/answers/102714/whats-difference-between-alpha-and-beta.asp) that are part of the same equation derived from a linear [regression](https://www.investopedia.com/terms/r/regression.asp). Don't worry if that sounds too complicated, we'll explain it all in this article. ### Key Takeaways * Alpha and beta are two different parts of an equation used to explain the performance of stocks and investment funds. * Beta is a measure of volatility relative to a benchmark, such as the S&P 500. * Alpha is the excess return on an investment after adjusting for market-related volatility and random fluctuations. * Alpha and beta are both measures used to compare and predict returns. ## The Equation If equations make your eyes glaze over, you can just skip this part. On the other hand, we can go straight to the equation if you know some algebra or ever took a class covering regressions in college. The basic model is given by: * y = a + bx + u Where: * y is the performance of the stock or fund. * a is alpha, which is the excess return of the stock or fund. * b is beta, which is volatility relative to the benchmark. * x is the performance of the benchmark, which is often the [S&P 500](https://www.investopedia.com/terms/s/sp500.asp) index. * u is the residual, which is the unexplained random portion of performance in a given year. ## Defining Beta Beta is a measure of volatility relative to a benchmark, and it's actually easier to talk about beta first. It measures the [systematic risk](https://www.investopedia.com/terms/s/systematicrisk.asp) of a security or a portfolio compared to an index like the S&P 500. Many [growth stocks](https://www.investopedia.com/terms/g/growthstock.asp) would have a beta over 1, probably much higher. A [T-bill](https://www.investopedia.com/terms/t/treasurybill.asp) would have a beta close to zero because its prices hardly move relative to the market as a whole. [Beta](https://www.investopedia.com/terms/b/beta.asp) is a multiplicative factor. A 2X [leveraged S&P 500 ETF](https://www.investopedia.com/articles/etfs/top-leveraged-sp-500-etfs/) has a beta very close to 2 relative to the S&P 500 by design. It goes up or down twice as much as the index in a given period of time. If beta is -2, then the investment moves in the opposite direction of the index by a factor of two. Most investments with [negative betas](https://www.investopedia.com/investing/beta-know-risk/) are [inverse ETFs](https://www.investopedia.com/terms/i/inverse-etf.asp) or hold Treasury bonds. What beta also tells you is when risk cannot be diversified away. If you look at the beta of a typical [mutual fund](https://www.investopedia.com/terms/m/mutualfund.asp), it's essentially telling you how much market risk you're taking. It's crucial to realize that high or low beta frequently leads to market outperformance. A fund with lots of growth stocks and high beta will usually beat the market during a good year for stocks. Similarly, a [conservative fund](https://www.investopedia.com/articles/investing/101215/top-4-conservative-allocation-mutual-funds.asp) that holds bonds will have a low beta and typically outperform the S&P 500 during a poor year for the market. ### If a stock or fund outperforms the market for a year, it is probably because of beta or random luck rather than alpha. ## Defining Alpha Alpha is the excess return on an investment after adjusting for market-related volatility and random fluctuations. Alpha is one of the five major risk management indicators for mutual funds, stocks, and bonds. In a sense, it tells investors whether an asset has consistently performed better or worse than its beta predicts. Alpha is also a [measure of risk](https://www.investopedia.com/ask/answers/021015/does-negative-alpha-automatically-mean-i-should-sell.asp). An alpha of -15 means the investment was far too risky given the return. An alpha of zero suggests that an asset has earned a return commensurate with the risk. Alpha of greater than zero means an [investment outperformed](https://www.investopedia.com/articles/07/alphabeta.asp), after adjusting for volatility. When [hedge fund](https://www.investopedia.com/terms/h/hedgefund.asp) managers talk about high alpha, they're usually saying that their managers are good enough to outperform the market. But that raises another important question: when alpha is the "excess" return over an index, what index are you using? For example, fund managers might brag that their funds generated 13% returns when the S&P returned 11%. But is the S&P an appropriate index to use? The manager might invest in [small-cap value stocks](https://www.investopedia.com/terms/s/small_value_stock.asp). These stocks have higher returns than the S&P 500, according to the [Fama and French Three-Factor Model](https://www.investopedia.com/terms/f/famaandfrenchthreefactormodel.asp). In this case, a small-cap value index might be a better benchmark than the S&P 500. There is also a chance that a fund manager just got lucky instead of having true alpha. Suppose a manager outperforms the market by an average of 2% during the first three years of the fund without any extra market-related volatility. In that case, beta equals one, and it might look like alpha is 2%. However, suppose the fund manager then underperforms the market by 2% over the next three years. It now looks like alpha equals zero. The original appearance of alpha was due to [sample size neglect](https://www.investopedia.com/terms/s/sample-size-neglect.asp). Very few investors have true alpha, and it typically takes a decade or more to be sure. [Warren Buffett](https://www.investopedia.com/articles/01/071801.asp) is generally considered to have alpha. Buffett focused on [value investing](https://www.investopedia.com/terms/v/valueinvesting.asp), [dividend growth](https://www.investopedia.com/articles/basics/04/072304.asp), and growth at a reasonable price ([GARP](https://www.investopedia.com/terms/g/garp.asp)) strategies during his career. A study of Buffett's alpha found that he tended to use leverage with high-quality and low-beta stocks. ## The Bottom Line Alpha and beta are both [risk ratios](https://www.investopedia.com/investing/measure-mutual-fund-risk/) that investors use as tools to compare and predict returns. They're significant numbers to know, but one must [check carefully](https://www.investopedia.com/articles/financial-theory/08/deeper-look-at-alpha.asp) to see how they are calculated.

We often hear the terms alpha and beta when talking about investments. These are two different measures that are part of the same equation derived from a linear regression. Don't worry if that sounds too complicated, we'll explain it all in this article. Key Takeaways Alpha and beta are two different parts of an equation used to explain the performance of stocks and investment funds.Beta is a measure of volatility relative to a benchmark, such as the S&P 500.Alpha is the excess return on an investment after adjusting for market-related volatility and random fluctuations.Alpha and beta are both measures used to compare and predict returns. The Equation If equations make your eyes glaze over, you can just skip this part. On the other hand, we can go straight to the equation if you know some algebra or ever took a class covering regressions in college. The basic model is given by: y = a + bx + u Where: y is the performance of the stock or fund. a is alpha, which is the excess return of the stock or fund. b is beta, which is volatility relative to the benchmark. x is the performance of the benchmark, which is often the S&P 500 index. u is the residual, which is the unexplained random portion of performance in a given year. Defining Beta Beta is a measure of volatility relative to a benchmark, and it's actually easier to talk about beta first. It measures the systematic risk of a security or a portfolio compared to an index like the S&P 500. Many growth stocks would have a beta over 1, probably much higher. A T-bill would have a beta close to zero because its prices hardly move relative to the market as a whole. Beta is a multiplicative factor. A 2X leveraged S&P 500 ETF has a beta very close to 2 relative to the S&P 500 by design. It goes up or down twice as much as the index in a given period of time. If beta is -2, then the investment moves in the opposite direction of the index by a factor of two. Most investments with negative betas are inverse ETFs or hold Treasury bonds. What beta also tells you is when risk cannot be diversified away. If you look at the beta of a typical mutual fund, it's essentially telling you how much market risk you're taking. It's crucial to realize that high or low beta frequently leads to market outperformance. A fund with lots of growth stocks and high beta will usually beat the market during a good year for stocks. Similarly, a conservative fund that holds bonds will have a low beta and typically outperform the S&P 500 during a poor year for the market. If a stock or fund outperforms the market for a year, it is probably because of beta or random luck rather than alpha. Defining Alpha Alpha is the excess return on an investment after adjusting for market-related volatility and random fluctuations. Alpha is one of the five major risk management indicators for mutual funds, stocks, and bonds. In a sense, it tells investors whether an asset has consistently performed better or worse than its beta predicts. Alpha is also a measure of risk. An alpha of -15 means the investment was far too risky given the return. An alpha of zero suggests that an asset has earned a return commensurate with the risk. Alpha of greater than zero means an investment outperformed, after adjusting for volatility. When hedge fund managers talk about high alpha, they're usually saying that their managers are good enough to outperform the market. But that raises another important question: when alpha is the "excess" return over an index, what index are you using? For example, fund managers might brag that their funds generated 13% returns when the S&P returned 11%. But is the S&P an appropriate index to use? The manager might invest in small-cap value stocks. These stocks have higher returns than the S&P 500, according to the Fama and French Three-Factor Model. In this case, a small-cap value index might be a better benchmark than the S&P 500. There is also a chance that a fund manager just got lucky instead of having true alpha. Suppose a manager outperforms the market by an average of 2% during the first three years of the fund without any extra market-related volatility. In that case, beta equals one, and it might look like alpha is 2%. However, suppose the fund manager then underperforms the market by 2% over the next three years. It now looks like alpha equals zero. The original appearance of alpha was due to sample size neglect. Very few investors have true alpha, and it typically takes a decade or more to be sure. Warren Buffett is generally considered to have alpha. Buffett focused on value investing, dividend growth, and growth at a reasonable price (GARP) strategies during his career. A study of Buffett's alpha found that he tended to use leverage with high-quality and low-beta stocks. The Bottom Line Alpha and beta are both risk ratios that investors use as tools to compare and predict returns. They're significant numbers to know, but one must check carefully to see how they are calculated.

https://www.investopedia.com/bitcoin-miners-surpass-bitcoin-the-halving-may-change-that-8584288

Bitcoin Miner Stock Gains Surpass Bitcoin. The Halving May Change That.

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Bitcoin miner stock gains are outpacing the price of Bitcoin.</li><li>The halving happening in April will cut rewards for miners, and could drive the price of Bitcoin higher because of the lower supply of new coins.</li><li>The most efficient miners will be the ones best equipped to handle the halving, industry players say.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Bitcoin miner stocks are outpacing the price of Bitcoin, which hit its highest level since 2021 as the cryptocurrency goes mainstream with the recent <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/spot-bitcoin-etfs-are-approved-by-sec-cleared-to-start-trading-thursday-8357670">approval of Bitcoin Exchange-Traded Funds (ETFs)</a>.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Those gains, however, may not stick for some miners with the four-year <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/bitcoin-halving-4843769">halving</a>—when the reward miners get for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tech/how-does-bitcoin-mining-work/">mining</a> gets cut in half to ensure Bitcoin's scarcity—happening in April. The halving results in the number of new coins created getting cut by 50%, and the rewards for miners being cut in half.<br/> </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 fall in revenue could to some extent be compensated by rising Bitcoin prices resulting from the lower supply of new coins. But companies with less efficient machines and operations may have a harder time.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Miners with higher electricity costs or lower-efficiency machines "will have a difficult time mining profitably post-halving," Luxor Technology Chief Operating Officer Ethan Vera said. Luxor provides services and products for the mining industry. "Many companies are stuck in power contracts, or benefit from top line gross revenue and as such might continue to mine despite not being profitable. Companies' <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/balancesheet.asp">balance sheets</a> will determine how long they can survive doing that."<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The halving comes amid renewed interest in Bitcoin after 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> approved 11 Bitcoin ETF applications in January, paving the way for investors to access the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/alternative_investment.asp">alternative asset</a> more easily.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_13-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:56.1%;"> <img alt="Bitcoin Miners v. Bitcoin" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/S0dVPjbQrh1UFFrcoP0oee_as1E=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Screenshot2024-02-16at9.07.33AM-9713ef309cdc4550b6009e2b8331498a.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/S0dVPjbQrh1UFFrcoP0oee_as1E=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Screenshot2024-02-16at9.07.33AM-9713ef309cdc4550b6009e2b8331498a.png" data-srcset="https://www.investopedia.com/thmb/VlHnYQS4INBShFflQUzZBvsq84E=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Screenshot2024-02-16at9.07.33AM-9713ef309cdc4550b6009e2b8331498a.png 750w" data-tracking-container="true" height="1172" id="mntl-sc-block-image_1-0" width="2086"/> <noscript> <img alt="Bitcoin Miners v. Bitcoin" class="img--noscript universal-image__image" height="1172" sizes="750px" src="https://www.investopedia.com/thmb/S0dVPjbQrh1UFFrcoP0oee_as1E=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Screenshot2024-02-16at9.07.33AM-9713ef309cdc4550b6009e2b8331498a.png" srcset="https://www.investopedia.com/thmb/VlHnYQS4INBShFflQUzZBvsq84E=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Screenshot2024-02-16at9.07.33AM-9713ef309cdc4550b6009e2b8331498a.png 750w" width="2086"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>TradingView</p></span> </figcaption></figure> <span class="heading-toc" id="toc-winners-and-losers"></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"> Winners and Losers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Cantor Fitzgerald analyzed 13 Bitcoin miners in January and found that at the then price of Bitcoin at $40,000, only two miners, CleanSpark (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=CLSK">CLSK</a>) and Bitdeer (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BTDR">BTDR</a>), would be able to profit from mining. But at above $50,000 now, more miners would be profitable. The ones facing the highest costs were Hut 8 (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=HUT">HUT</a>) and Argo Blockchain (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ARBK">ARBK</a>). It costs them $60,360 and $62,276, respectively, to mine each coin.<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"> Hut 8 and Argo Blockchain did not respond to requests for comment. </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"> Riot Platforms (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=RIOT">RIOT</a>) said it has positioned itself as one of the "lowest cost miners" ahead of the halving. It has the third-lowest cost at nearly $44,000 per coin, according to Cantor Fitzgerald.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> "Riot also intends to leverage our ability to obtain Bitcoin at a significant discount to its current market price by retaining a greater proportion of our monthly Bitcoin production in the near term," the company said in a January statement. "This is made possible by our strong liquidity profile, and will further cement our position as one of the largest holders of Bitcoin.”<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_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:78.7%;"> <img alt="Cantor Fitzgerald" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/dZ5tRIMuLGLlqhg8_OiKzeS7OwU=/1064x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatsAppImage2024-02-16at11.47.15-cc1490dd0a934aef9aa1af33d225ef02-9a32d1044dad475b944a98a1a7b6b040.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/98dikSM7PLU-rHiJZkuytmWgmlY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatsAppImage2024-02-16at11.47.15-cc1490dd0a934aef9aa1af33d225ef02-9a32d1044dad475b944a98a1a7b6b040.jpg" data-srcset="https://www.investopedia.com/thmb/YCYNxr_tCULTqMw5PZ_arThKcr8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatsAppImage2024-02-16at11.47.15-cc1490dd0a934aef9aa1af33d225ef02-9a32d1044dad475b944a98a1a7b6b040.jpg 750w" data-tracking-container="true" height="838" id="mntl-sc-block-image_2-0" width="1064"/> <noscript> <img alt="Cantor Fitzgerald" class="img--noscript universal-image__image" height="838" sizes="750px" src="https://www.investopedia.com/thmb/98dikSM7PLU-rHiJZkuytmWgmlY=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatsAppImage2024-02-16at11.47.15-cc1490dd0a934aef9aa1af33d225ef02-9a32d1044dad475b944a98a1a7b6b040.jpg" srcset="https://www.investopedia.com/thmb/YCYNxr_tCULTqMw5PZ_arThKcr8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/WhatsAppImage2024-02-16at11.47.15-cc1490dd0a934aef9aa1af33d225ef02-9a32d1044dad475b944a98a1a7b6b040.jpg 750w" width="1064"/> </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>Cantor Fitzgerald</p></span> </figcaption></figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Marathon Digital (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MARA">MARA</a>) is preparing for the halving with plenty of cash on hand.<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"> "We need to be resilient," Chief Executive Officer Fred Thiel said in a video last month. "If the price of Bitcoin let's just say it drops to $30,000 at the time of the halving, not many miners are going to be able to operate profitably and how many miners have enough cash on the balance sheet to be able to survive six to 12 months, maybe 24 months before it becomes profitable to mine again when Bitcoin has moved back up?"<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_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Marathon's cost per coin is $50,559, making it profitable by a hair at today's price. <br> </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"> Bitcoin miner CleanSpark, which according to Cantor Fitzgerald is profitable with a cost of nearly $37,000 per coin, expects some 30% of machines currently hashing to be forced to unplug, according to Executive Chair Matthew Schultz. That's an opportunity for growth.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> "We’re aggressively seeking opportunities for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mergersandacquisitions.asp">M&amp;A</a>" to buy facilities and infrastructure, Schultz said.<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>Correction— Feb 20., 2024:</em> This article was updated to provide greater clarity on the number of Bitcoin ETFs approved.<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 * Bitcoin miner stock gains are outpacing the price of Bitcoin. * The halving happening in April will cut rewards for miners, and could drive the price of Bitcoin higher because of the lower supply of new coins. * The most efficient miners will be the ones best equipped to handle the halving, industry players say. Bitcoin miner stocks are outpacing the price of Bitcoin, which hit its highest level since 2021 as the cryptocurrency goes mainstream with the recent [approval of Bitcoin Exchange-Traded Funds (ETFs)](https://www.investopedia.com/spot-bitcoin-etfs-are-approved-by-sec-cleared-to-start-trading-thursday-8357670). Those gains, however, may not stick for some miners with the four-year [halving](https://www.investopedia.com/bitcoin-halving-4843769)—when the reward miners get for [mining](https://www.investopedia.com/tech/how-does-bitcoin-mining-work/) gets cut in half to ensure Bitcoin's scarcity—happening in April. The halving results in the number of new coins created getting cut by 50%, and the rewards for miners being cut in half. The fall in revenue could to some extent be compensated by rising Bitcoin prices resulting from the lower supply of new coins. But companies with less efficient machines and operations may have a harder time. Miners with higher electricity costs or lower-efficiency machines "will have a difficult time mining profitably post-halving," Luxor Technology Chief Operating Officer Ethan Vera said. Luxor provides services and products for the mining industry. "Many companies are stuck in power contracts, or benefit from top line gross revenue and as such might continue to mine despite not being profitable. Companies' [balance sheets](https://www.investopedia.com/terms/b/balancesheet.asp) will determine how long they can survive doing that." The halving comes amid renewed interest in Bitcoin after the [Securities and Exchange Commission](https://www.investopedia.com/terms/s/sec.asp) approved 11 Bitcoin ETF applications in January, paving the way for investors to access the [alternative asset](https://www.investopedia.com/terms/a/alternative_investment.asp) more easily.  ![Bitcoin Miners v. Bitcoin]() :max_bytes(150000):strip_icc()/Screenshot2024-02-16at9.07.33AM-9713ef309cdc4550b6009e2b8331498a.png) TradingView ## Winners and Losers Cantor Fitzgerald analyzed 13 Bitcoin miners in January and found that at the then price of Bitcoin at $40,000, only two miners, CleanSpark ([CLSK](https://www.investopedia.com/markets/quote?tvwidgetsymbol=CLSK)) and Bitdeer ([BTDR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BTDR)), would be able to profit from mining. But at above $50,000 now, more miners would be profitable. The ones facing the highest costs were Hut 8 ([HUT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=HUT)) and Argo Blockchain ([ARBK](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ARBK)). It costs them $60,360 and $62,276, respectively, to mine each coin. Hut 8 and Argo Blockchain did not respond to requests for comment. Riot Platforms ([RIOT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=RIOT)) said it has positioned itself as one of the "lowest cost miners" ahead of the halving. It has the third-lowest cost at nearly $44,000 per coin, according to Cantor Fitzgerald. "Riot also intends to leverage our ability to obtain Bitcoin at a significant discount to its current market price by retaining a greater proportion of our monthly Bitcoin production in the near term," the company said in a January statement. "This is made possible by our strong liquidity profile, and will further cement our position as one of the largest holders of Bitcoin.” ![Cantor Fitzgerald]() :max_bytes(150000):strip_icc()/WhatsAppImage2024-02-16at11.47.15-cc1490dd0a934aef9aa1af33d225ef02-9a32d1044dad475b944a98a1a7b6b040.jpg) Cantor Fitzgerald Marathon Digital ([MARA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MARA)) is preparing for the halving with plenty of cash on hand. "We need to be resilient," Chief Executive Officer Fred Thiel said in a video last month. "If the price of Bitcoin let's just say it drops to $30,000 at the time of the halving, not many miners are going to be able to operate profitably and how many miners have enough cash on the balance sheet to be able to survive six to 12 months, maybe 24 months before it becomes profitable to mine again when Bitcoin has moved back up?" Marathon's cost per coin is $50,559, making it profitable by a hair at today's price.  Bitcoin miner CleanSpark, which according to Cantor Fitzgerald is profitable with a cost of nearly $37,000 per coin, expects some 30% of machines currently hashing to be forced to unplug, according to Executive Chair Matthew Schultz. That's an opportunity for growth. "We’re aggressively seeking opportunities for [M&A](https://www.investopedia.com/terms/m/mergersandacquisitions.asp)" to buy facilities and infrastructure, Schultz said. *Correction— Feb 20., 2024:* This article was updated to provide greater clarity on the number of Bitcoin ETFs approved. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Bitcoin miner stock gains are outpacing the price of Bitcoin.The halving happening in April will cut rewards for miners, and could drive the price of Bitcoin higher because of the lower supply of new coins.The most efficient miners will be the ones best equipped to handle the halving, industry players say. Bitcoin miner stocks are outpacing the price of Bitcoin, which hit its highest level since 2021 as the cryptocurrency goes mainstream with the recent approval of Bitcoin Exchange-Traded Funds (ETFs). Those gains, however, may not stick for some miners with the four-year halving—when the reward miners get for mining gets cut in half to ensure Bitcoin's scarcity—happening in April. The halving results in the number of new coins created getting cut by 50%, and the rewards for miners being cut in half. The fall in revenue could to some extent be compensated by rising Bitcoin prices resulting from the lower supply of new coins. But companies with less efficient machines and operations may have a harder time. Miners with higher electricity costs or lower-efficiency machines "will have a difficult time mining profitably post-halving," Luxor Technology Chief Operating Officer Ethan Vera said. Luxor provides services and products for the mining industry. "Many companies are stuck in power contracts, or benefit from top line gross revenue and as such might continue to mine despite not being profitable. Companies' balance sheets will determine how long they can survive doing that." The halving comes amid renewed interest in Bitcoin after the Securities and Exchange Commission approved 11 Bitcoin ETF applications in January, paving the way for investors to access the alternative asset more easily.  TradingView Winners and Losers Cantor Fitzgerald analyzed 13 Bitcoin miners in January and found that at the then price of Bitcoin at $40,000, only two miners, CleanSpark (CLSK) and Bitdeer (BTDR), would be able to profit from mining. But at above $50,000 now, more miners would be profitable. The ones facing the highest costs were Hut 8 (HUT) and Argo Blockchain (ARBK). It costs them $60,360 and $62,276, respectively, to mine each coin. Hut 8 and Argo Blockchain did not respond to requests for comment. Riot Platforms (RIOT) said it has positioned itself as one of the "lowest cost miners" ahead of the halving. It has the third-lowest cost at nearly $44,000 per coin, according to Cantor Fitzgerald. "Riot also intends to leverage our ability to obtain Bitcoin at a significant discount to its current market price by retaining a greater proportion of our monthly Bitcoin production in the near term," the company said in a January statement. "This is made possible by our strong liquidity profile, and will further cement our position as one of the largest holders of Bitcoin.” Cantor Fitzgerald Marathon Digital (MARA) is preparing for the halving with plenty of cash on hand. "We need to be resilient," Chief Executive Officer Fred Thiel said in a video last month. "If the price of Bitcoin let's just say it drops to $30,000 at the time of the halving, not many miners are going to be able to operate profitably and how many miners have enough cash on the balance sheet to be able to survive six to 12 months, maybe 24 months before it becomes profitable to mine again when Bitcoin has moved back up?" Marathon's cost per coin is $50,559, making it profitable by a hair at today's price.  Bitcoin miner CleanSpark, which according to Cantor Fitzgerald is profitable with a cost of nearly $37,000 per coin, expects some 30% of machines currently hashing to be forced to unplug, according to Executive Chair Matthew Schultz. That's an opportunity for growth. "We’re aggressively seeking opportunities for M&A" to buy facilities and infrastructure, Schultz said. Correction— Feb 20., 2024: This article was updated to provide greater clarity on the number of Bitcoin ETFs approved. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/ask/answers/07/stop_order_mutual_fund.asp

Can You Place a Stop-Loss Order on a Mutual 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"> 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 order</a> is an order to sell (or buy) a stock at the prevailing market price once the stock reaches a specific level known as the stop price. It is designed to limit an investor's loss on a stock position if the market unexpectedly reverses. </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"> Neither stop-loss orders nor the related stop-loss limit order apply to the trading of <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> shares. That's because the only price applicable to shares of an open-end mutual fund is the net asset value, which is calculated after the close of market every day. </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 stop-loss order cannot be placed for shares of a mutual fund because the per-unit price of fund shares is based solely on one figure, the daily net asset value.</li><li>A stop-loss order applies to shares of stock that are actively traded; it becomes a market order once the market reaches the stop price.</li><li>A mutual fund's net asset value is determined by subtracting the value of a fund's liabilities from the value of its assets and dividing the result by the number of a mutual fund's outstanding shares.</li><li>A fund's assets are the securities it invests in using the pooled funds of investors.</li><li>No matter the time of day an order to buy or sell fund shares is placed, it isn't fulfilled until after the market closes and the net asset value is established.</li></ul></div></div></div> <span class="heading-toc" id="toc-trading-mutual-funds-vs-stocks"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Trading Mutual Funds vs. Stocks </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-subheading__text"> Orders for Mutual Fund Shares </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> To better understand this circumstance, it's worth looking at the structure of a mutual fund and how shares of a fund are bought and sold. </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 traditional mutual fund is an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/open-endfund.asp">open-end fund</a> that issues unlimited numbers of shares according to the demand for them by investors. Money flows into and out of open-end funds as investors buy and sell their shares. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Investors may place orders throughout any business day to buy or sell mutual fund shares. However, these orders can not be executed until after the market closes. At this point, all orders to buy and sell are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/110615/when-are-mutual-fund-orders-executed.asp">executed at the same price</a> for that day. The price for mutual fund shares corresponds to 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 the fund, and that is calculated after the close of the trading day. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_15-0"> <span class="mntl-sc-block-subheading__text"> Orders for Shares of Stock </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> The transaction process is different for stocks. In the case of stock, a company issues a finite number of shares and, after an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipo.asp">initial public offering</a> (IPO), these shares trade in the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/secondarymarket.asp">secondary market</a>. A stock's share price is determined by the forces of supply and demand—in other words, the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketsentiment.asp">market sentiment</a> that exists among buyers and sellers. </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"> Shares of stock trade on a stock <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exchange.asp">exchange</a>. They can be bought and sold during the hours that the exchange is open for business. Shares of stock trade at prevailing market prices, which change throughout any trading day. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> For instance, investors can instruct that orders for their shares be executed at the market or at a specific (limit) price. There are a variety of order types related to stocks. </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"> Shares of stock change hands a vast number of times at various prices throughout any trading day.<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-callout mntl-block" id="mntl-sc-block_24-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_25-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>A closed end fund is not an open-end fund that has closed to new investors. A closed end fund is an investment company with shares that trade on the open market, after an initial public offering. It doesn't sell to the public or redeem their shares.</p></div></div></div> <span class="heading-toc" id="toc-determining-net-asset-value"></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"> Determining Net Asset Value </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> As mentioned, mutual fund shares are priced, for both purchase and sale, according to their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nav.asp">net asset value</a>, or NAV. How is this value determined? </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"> Net asset value = Fund assets minus fund liabilities/number of outstanding shares </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> For example, a stock mutual fund's assets are the stocks in its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolio</a>. These stocks are valued according to their closing prices at the end of each day. A mutual fund's net asset value is then determined by totaling the value of all its investments and subtracting from that the value of its liabilities. That result is then divided by the number of shares the mutual fund has issued. Once net asset value is established, orders from fund customers can be filled. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_33-0"><span class="heading-toc" id="toc-what-is-a-stop-loss-order"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is a Stop-Loss Order?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A stop-loss order is an order to sell (or buy) a stock at the market once the stock's price reaches the stop price. It is used to reduce a trader's exposure to loss should the market turn against their position.</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-why-cant-mutual-funds-accept-stop-loss-orders"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Can't Mutual Funds Accept Stop-Loss Orders?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>They can't accept a stop-loss order because such an order doesn't correspond to the way mutual fund shares are priced or traded. Shares in an open-end mutual fund are both bought and sold at a single price that's established at the end of every business day after the market closes. Since just one price is available, and orders are filled after the market is closed, a stop-loss order doesn't apply.</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-when-are-orders-to-buy-mutual-fund-shares-filled"></span> <h2 class="mntl-sc-block-questionandanswer__question">When Are Orders to Buy Mutual Fund Shares Filled?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No matter what time during the day that an investor places their order to buy or sell fund shares, the order can only be filled after the price for the shares, or net asset value (NAV), is determined. The NAV can only be determined after the market closes.</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"> Mutual funds can't be traded like stocks because they are priced differently. While stocks allow investors to place various types of order, such as stop-loss orders, market orders, limit orders, good-til-canceled orders, and more, mutual fund shares can be bought or sold only at a single price per day. </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 trading limitations of mutual funds spurred professional investors to press for alternatives. This resulted in the creation of the popular <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded fund</a>. An ETF is an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/indexfund.asp">index mutual fund</a> that is listed on a stock exchange and can be traded at various prices throughout the trading day, as stocks are. </p></div>

A [stop-loss order](https://www.investopedia.com/terms/s/stop-lossorder.asp) is an order to sell (or buy) a stock at the prevailing market price once the stock reaches a specific level known as the stop price. It is designed to limit an investor's loss on a stock position if the market unexpectedly reverses. Neither stop-loss orders nor the related stop-loss limit order apply to the trading of [mutual fund](https://www.investopedia.com/terms/m/mutualfund.asp) shares. That's because the only price applicable to shares of an open-end mutual fund is the net asset value, which is calculated after the close of market every day. ### Key Takeaways * A stop-loss order cannot be placed for shares of a mutual fund because the per-unit price of fund shares is based solely on one figure, the daily net asset value. * A stop-loss order applies to shares of stock that are actively traded; it becomes a market order once the market reaches the stop price. * A mutual fund's net asset value is determined by subtracting the value of a fund's liabilities from the value of its assets and dividing the result by the number of a mutual fund's outstanding shares. * A fund's assets are the securities it invests in using the pooled funds of investors. * No matter the time of day an order to buy or sell fund shares is placed, it isn't fulfilled until after the market closes and the net asset value is established. ## Trading Mutual Funds vs. Stocks ### Orders for Mutual Fund Shares To better understand this circumstance, it's worth looking at the structure of a mutual fund and how shares of a fund are bought and sold. The traditional mutual fund is an [open-end fund](https://www.investopedia.com/terms/o/open-endfund.asp) that issues unlimited numbers of shares according to the demand for them by investors. Money flows into and out of open-end funds as investors buy and sell their shares. Investors may place orders throughout any business day to buy or sell mutual fund shares. However, these orders can not be executed until after the market closes. At this point, all orders to buy and sell are [executed at the same price](https://www.investopedia.com/ask/answers/110615/when-are-mutual-fund-orders-executed.asp) for that day. The price for mutual fund shares corresponds to the [net asset value](https://www.investopedia.com/terms/n/nav.asp) (NAV) of the fund, and that is calculated after the close of the trading day. ### Orders for Shares of Stock The transaction process is different for stocks. In the case of stock, a company issues a finite number of shares and, after an [initial public offering](https://www.investopedia.com/terms/i/ipo.asp) (IPO), these shares trade in the [secondary market](https://www.investopedia.com/terms/s/secondarymarket.asp). A stock's share price is determined by the forces of supply and demand—in other words, the [market sentiment](https://www.investopedia.com/terms/m/marketsentiment.asp) that exists among buyers and sellers. Shares of stock trade on a stock [exchange](https://www.investopedia.com/terms/e/exchange.asp). They can be bought and sold during the hours that the exchange is open for business. Shares of stock trade at prevailing market prices, which change throughout any trading day. For instance, investors can instruct that orders for their shares be executed at the market or at a specific (limit) price. There are a variety of order types related to stocks. Shares of stock change hands a vast number of times at various prices throughout any trading day. ### A closed end fund is not an open-end fund that has closed to new investors. A closed end fund is an investment company with shares that trade on the open market, after an initial public offering. It doesn't sell to the public or redeem their shares. ## Determining Net Asset Value As mentioned, mutual fund shares are priced, for both purchase and sale, according to their [net asset value](https://www.investopedia.com/terms/n/nav.asp), or NAV. How is this value determined? Net asset value = Fund assets minus fund liabilities/number of outstanding shares For example, a stock mutual fund's assets are the stocks in its [portfolio](https://www.investopedia.com/terms/p/portfolio.asp). These stocks are valued according to their closing prices at the end of each day. A mutual fund's net asset value is then determined by totaling the value of all its investments and subtracting from that the value of its liabilities. That result is then divided by the number of shares the mutual fund has issued. Once net asset value is established, orders from fund customers can be filled. ## What Is a Stop-Loss Order? A stop-loss order is an order to sell (or buy) a stock at the market once the stock's price reaches the stop price. It is used to reduce a trader's exposure to loss should the market turn against their position. ## Why Can't Mutual Funds Accept Stop-Loss Orders? They can't accept a stop-loss order because such an order doesn't correspond to the way mutual fund shares are priced or traded. Shares in an open-end mutual fund are both bought and sold at a single price that's established at the end of every business day after the market closes. Since just one price is available, and orders are filled after the market is closed, a stop-loss order doesn't apply. ## When Are Orders to Buy Mutual Fund Shares Filled? No matter what time during the day that an investor places their order to buy or sell fund shares, the order can only be filled after the price for the shares, or net asset value (NAV), is determined. The NAV can only be determined after the market closes. ## The Bottom Line Mutual funds can't be traded like stocks because they are priced differently. While stocks allow investors to place various types of order, such as stop-loss orders, market orders, limit orders, good-til-canceled orders, and more, mutual fund shares can be bought or sold only at a single price per day. The trading limitations of mutual funds spurred professional investors to press for alternatives. This resulted in the creation of the popular [exchange-traded fund](https://www.investopedia.com/terms/e/etf.asp). An ETF is an [index mutual fund](https://www.investopedia.com/terms/i/indexfund.asp) that is listed on a stock exchange and can be traded at various prices throughout the trading day, as stocks are.

A stop-loss order is an order to sell (or buy) a stock at the prevailing market price once the stock reaches a specific level known as the stop price. It is designed to limit an investor's loss on a stock position if the market unexpectedly reverses. Neither stop-loss orders nor the related stop-loss limit order apply to the trading of mutual fund shares. That's because the only price applicable to shares of an open-end mutual fund is the net asset value, which is calculated after the close of market every day. Key Takeaways A stop-loss order cannot be placed for shares of a mutual fund because the per-unit price of fund shares is based solely on one figure, the daily net asset value.A stop-loss order applies to shares of stock that are actively traded; it becomes a market order once the market reaches the stop price.A mutual fund's net asset value is determined by subtracting the value of a fund's liabilities from the value of its assets and dividing the result by the number of a mutual fund's outstanding shares.A fund's assets are the securities it invests in using the pooled funds of investors.No matter the time of day an order to buy or sell fund shares is placed, it isn't fulfilled until after the market closes and the net asset value is established. Trading Mutual Funds vs. Stocks Orders for Mutual Fund Shares To better understand this circumstance, it's worth looking at the structure of a mutual fund and how shares of a fund are bought and sold. The traditional mutual fund is an open-end fund that issues unlimited numbers of shares according to the demand for them by investors. Money flows into and out of open-end funds as investors buy and sell their shares. Investors may place orders throughout any business day to buy or sell mutual fund shares. However, these orders can not be executed until after the market closes. At this point, all orders to buy and sell are executed at the same price for that day. The price for mutual fund shares corresponds to the net asset value (NAV) of the fund, and that is calculated after the close of the trading day. Orders for Shares of Stock The transaction process is different for stocks. In the case of stock, a company issues a finite number of shares and, after an initial public offering (IPO), these shares trade in the secondary market. A stock's share price is determined by the forces of supply and demand—in other words, the market sentiment that exists among buyers and sellers. Shares of stock trade on a stock exchange. They can be bought and sold during the hours that the exchange is open for business. Shares of stock trade at prevailing market prices, which change throughout any trading day. For instance, investors can instruct that orders for their shares be executed at the market or at a specific (limit) price. There are a variety of order types related to stocks. Shares of stock change hands a vast number of times at various prices throughout any trading day. A closed end fund is not an open-end fund that has closed to new investors. A closed end fund is an investment company with shares that trade on the open market, after an initial public offering. It doesn't sell to the public or redeem their shares. Determining Net Asset Value As mentioned, mutual fund shares are priced, for both purchase and sale, according to their net asset value, or NAV. How is this value determined? Net asset value = Fund assets minus fund liabilities/number of outstanding shares For example, a stock mutual fund's assets are the stocks in its portfolio. These stocks are valued according to their closing prices at the end of each day. A mutual fund's net asset value is then determined by totaling the value of all its investments and subtracting from that the value of its liabilities. That result is then divided by the number of shares the mutual fund has issued. Once net asset value is established, orders from fund customers can be filled. What Is a Stop-Loss Order? A stop-loss order is an order to sell (or buy) a stock at the market once the stock's price reaches the stop price. It is used to reduce a trader's exposure to loss should the market turn against their position. Why Can't Mutual Funds Accept Stop-Loss Orders? They can't accept a stop-loss order because such an order doesn't correspond to the way mutual fund shares are priced or traded. Shares in an open-end mutual fund are both bought and sold at a single price that's established at the end of every business day after the market closes. Since just one price is available, and orders are filled after the market is closed, a stop-loss order doesn't apply. When Are Orders to Buy Mutual Fund Shares Filled? No matter what time during the day that an investor places their order to buy or sell fund shares, the order can only be filled after the price for the shares, or net asset value (NAV), is determined. The NAV can only be determined after the market closes. The Bottom Line Mutual funds can't be traded like stocks because they are priced differently. While stocks allow investors to place various types of order, such as stop-loss orders, market orders, limit orders, good-til-canceled orders, and more, mutual fund shares can be bought or sold only at a single price per day. The trading limitations of mutual funds spurred professional investors to press for alternatives. This resulted in the creation of the popular exchange-traded fund. An ETF is an index mutual fund that is listed on a stock exchange and can be traded at various prices throughout the trading day, as stocks are.

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

Personal Income Definition & Difference From Disposable Income

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-personal-income"></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 Personal Income? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Personal income refers to all <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/income.asp">income</a> collectively received by all individuals or households in a country. Personal income includes compensation from a number of sources, including salaries, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wage-expense.asp#:~:text=Wage%20and%20salary%20are%20often,they%20are%20usually%20paid%20overtime.">wages</a>, and bonuses received from employment or self-employment, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp">dividends</a> and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/distribution.asp">distributions</a> received from investments, rental receipts from real estate investments, and <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/profitsharingplan.asp">profit sharing</a> from businesses. </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>Personal income is the amount of money collectively received by the inhabitants of a country.</li><li>Sources of personal income include money earned from employment, dividends and distributions paid by investments, rents derived from property ownership, and profit sharing from businesses.</li><li>Personal income is generally subject to taxation.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-personal-income"></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 Personal Income </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The term “personal income” is sometimes used to refer to the total compensation received by an individual, but this is more aptly referred to as individual income. In most jurisdictions, personal income, also called <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>, is <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/070915/what-difference-between-taxable-income-and-gross-income.asp">subject to taxation above a certain base amount</a>.<span class="ql-inline-citation" data-cite="9"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Personal income has a significant effect on consumer consumption. As <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> drives much of the economy, national statistical organizations, economists, and analysts track personal income on a quarterly or annual basis.<span class="ql-inline-citation" data-cite="11"></span><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_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> In the United States, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bea.asp">Bureau of Economic Analysis (BEA)</a> tracks personal income statistics each month and compares them to numbers from the previous month. The agency also breaks out the numbers into categories, such as personal income earned through employment wages, rental income, farming, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/soleproprietorship.asp">sole proprietorships</a>. This allows the agency to make analyses about how earning trends are changing.<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_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Personal income tends to rise during periods of economic <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expansion.asp">expansion</a> and stagnate or decline slightly during <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/recession.asp">recessionary</a> times. Rapid economic growth since the 1980s in economies such as China, India, and Brazil has spurred substantial increases in personal incomes for millions of their citizens.<span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-personal-income-vs-disposable-personal-income"></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"> Personal Income vs. Disposable Personal Income </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/d/disposableincome.asp">Disposable personal income (DPI)</a> refers to the amount of money that a population has left after <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxes.asp">taxes</a> have been paid. It differs from personal income in that it takes taxes into account.<span class="ql-inline-citation" data-cite="14"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Analyzing after-tax income is important, as this is the money that the population is effectively left with to spend, save, or invest.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_20-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-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>Only <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/incometax.asp">income taxes</a> are removed from the personal income figure when calculating disposable personal income.<span class="ql-inline-citation" data-cite="15"></span></p></div></div></div> <span class="heading-toc" id="toc-personal-income-vs-personal-consumption-expenditures"></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"> Personal Income vs. Personal Consumption Expenditures </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Personal income is often compared to <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 (PCEs)</a>. PCEs measure changes in the price of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/consumer-goods.asp">consumer goods</a> and services. By taking these changes into account, analysts can ascertain <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/041515/whats-difference-between-income-effect-and-price-effect.asp">how changes in personal income affect spending</a>.<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_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> To illustrate, if personal income increases significantly one month, and PCEs also increase, consumers collectively may have more cash in their pockets but also may have to spend more money on basic goods and services. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_27-0"><span class="heading-toc" id="toc-is-personal-income-before-or-after-taxes"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is personal income before or after taxes?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Personal income represents all payments made to individuals before tax. It’s not disposable income, which reveals how much people actually have left to spend, save, or invest after income taxes have been deducted.</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-you-calculate-personal-income-and-disposable-income"></span> <h2 class="mntl-sc-block-questionandanswer__question">How do you calculate personal income and disposable income?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>To calculate personal income, all income collectively received by individuals or households in a country needs to be tallied up. That is not only gross pay from work but also dividends, rental income, interest, and so forth. Disposable income is then calculated by taking the personal income number and subtracting personal income taxes.</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-difference-between-gross-national-income-gni-and-personal-income"></span> <h2 class="mntl-sc-block-questionandanswer__question">What is the difference between gross national income (GNI) and personal income?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Personal income focuses on how much money a country’s inhabitants are earning. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gross-national-income-gni.asp">Gross national income (GNI)</a>, on the other hand, reveals the total amount of money earned by a nation’s residents and businesses.</p></div> </div></div>

## What Is Personal Income? Personal income refers to all [income](https://www.investopedia.com/terms/i/income.asp) collectively received by all individuals or households in a country. Personal income includes compensation from a number of sources, including salaries, [wages](https://www.investopedia.com/terms/w/wage-expense.asp#:~:text=Wage%20and%20salary%20are%20often,they%20are%20usually%20paid%20overtime.), and bonuses received from employment or self-employment, [dividends](https://www.investopedia.com/terms/d/dividend.asp) and [distributions](https://www.investopedia.com/terms/d/distribution.asp) received from investments, rental receipts from real estate investments, and [profit sharing](https://www.investopedia.com/terms/p/profitsharingplan.asp) from businesses. ### Key Takeaways * Personal income is the amount of money collectively received by the inhabitants of a country. * Sources of personal income include money earned from employment, dividends and distributions paid by investments, rents derived from property ownership, and profit sharing from businesses. * Personal income is generally subject to taxation. ## Understanding Personal Income The term “personal income” is sometimes used to refer to the total compensation received by an individual, but this is more aptly referred to as individual income. In most jurisdictions, personal income, also called [gross income](https://www.investopedia.com/terms/g/grossincome.asp), is [subject to taxation above a certain base amount](https://www.investopedia.com/ask/answers/070915/what-difference-between-taxable-income-and-gross-income.asp). Personal income has a significant effect on consumer consumption. As [consumer spending](https://www.investopedia.com/terms/c/consumer-spending.asp) drives much of the economy, national statistical organizations, economists, and analysts track personal income on a quarterly or annual basis. In the United States, the [Bureau of Economic Analysis (BEA)](https://www.investopedia.com/terms/b/bea.asp) tracks personal income statistics each month and compares them to numbers from the previous month. The agency also breaks out the numbers into categories, such as personal income earned through employment wages, rental income, farming, and [sole proprietorships](https://www.investopedia.com/terms/s/soleproprietorship.asp). This allows the agency to make analyses about how earning trends are changing. Personal income tends to rise during periods of economic [expansion](https://www.investopedia.com/terms/e/expansion.asp) and stagnate or decline slightly during [recessionary](https://www.investopedia.com/terms/r/recession.asp) times. Rapid economic growth since the 1980s in economies such as China, India, and Brazil has spurred substantial increases in personal incomes for millions of their citizens. ## Personal Income vs. Disposable Personal Income [Disposable personal income (DPI)](https://www.investopedia.com/terms/d/disposableincome.asp) refers to the amount of money that a population has left after [taxes](https://www.investopedia.com/terms/t/taxes.asp) have been paid. It differs from personal income in that it takes taxes into account. Analyzing after-tax income is important, as this is the money that the population is effectively left with to spend, save, or invest. ### Only [income taxes](https://www.investopedia.com/terms/i/incometax.asp) are removed from the personal income figure when calculating disposable personal income. ## Personal Income vs. Personal Consumption Expenditures Personal income is often compared to [personal consumption expenditures (PCEs)](https://www.investopedia.com/terms/p/pce.asp). PCEs measure changes in the price of [consumer goods](https://www.investopedia.com/terms/c/consumer-goods.asp) and services. By taking these changes into account, analysts can ascertain [how changes in personal income affect spending](https://www.investopedia.com/ask/answers/041515/whats-difference-between-income-effect-and-price-effect.asp). To illustrate, if personal income increases significantly one month, and PCEs also increase, consumers collectively may have more cash in their pockets but also may have to spend more money on basic goods and services. ## Is personal income before or after taxes? Personal income represents all payments made to individuals before tax. It’s not disposable income, which reveals how much people actually have left to spend, save, or invest after income taxes have been deducted. ## How do you calculate personal income and disposable income? To calculate personal income, all income collectively received by individuals or households in a country needs to be tallied up. That is not only gross pay from work but also dividends, rental income, interest, and so forth. Disposable income is then calculated by taking the personal income number and subtracting personal income taxes. ## What is the difference between gross national income (GNI) and personal income? Personal income focuses on how much money a country’s inhabitants are earning. [Gross national income (GNI)](https://www.investopedia.com/terms/g/gross-national-income-gni.asp), on the other hand, reveals the total amount of money earned by a nation’s residents and businesses.

What Is Personal Income? Personal income refers to all income collectively received by all individuals or households in a country. Personal income includes compensation from a number of sources, including salaries, wages, and bonuses received from employment or self-employment, dividends and distributions received from investments, rental receipts from real estate investments, and profit sharing from businesses. Key Takeaways Personal income is the amount of money collectively received by the inhabitants of a country.Sources of personal income include money earned from employment, dividends and distributions paid by investments, rents derived from property ownership, and profit sharing from businesses.Personal income is generally subject to taxation. Understanding Personal Income The term “personal income” is sometimes used to refer to the total compensation received by an individual, but this is more aptly referred to as individual income. In most jurisdictions, personal income, also called gross income, is subject to taxation above a certain base amount. Personal income has a significant effect on consumer consumption. As consumer spending drives much of the economy, national statistical organizations, economists, and analysts track personal income on a quarterly or annual basis. In the United States, the Bureau of Economic Analysis (BEA) tracks personal income statistics each month and compares them to numbers from the previous month. The agency also breaks out the numbers into categories, such as personal income earned through employment wages, rental income, farming, and sole proprietorships. This allows the agency to make analyses about how earning trends are changing. Personal income tends to rise during periods of economic expansion and stagnate or decline slightly during recessionary times. Rapid economic growth since the 1980s in economies such as China, India, and Brazil has spurred substantial increases in personal incomes for millions of their citizens. Personal Income vs. Disposable Personal Income Disposable personal income (DPI) refers to the amount of money that a population has left after taxes have been paid. It differs from personal income in that it takes taxes into account. Analyzing after-tax income is important, as this is the money that the population is effectively left with to spend, save, or invest. Only income taxes are removed from the personal income figure when calculating disposable personal income. Personal Income vs. Personal Consumption Expenditures Personal income is often compared to personal consumption expenditures (PCEs). PCEs measure changes in the price of consumer goods and services. By taking these changes into account, analysts can ascertain how changes in personal income affect spending. To illustrate, if personal income increases significantly one month, and PCEs also increase, consumers collectively may have more cash in their pockets but also may have to spend more money on basic goods and services. Is personal income before or after taxes? Personal income represents all payments made to individuals before tax. It’s not disposable income, which reveals how much people actually have left to spend, save, or invest after income taxes have been deducted. How do you calculate personal income and disposable income? To calculate personal income, all income collectively received by individuals or households in a country needs to be tallied up. That is not only gross pay from work but also dividends, rental income, interest, and so forth. Disposable income is then calculated by taking the personal income number and subtracting personal income taxes. What is the difference between gross national income (GNI) and personal income? Personal income focuses on how much money a country’s inhabitants are earning. Gross national income (GNI), on the other hand, reveals the total amount of money earned by a nation’s residents and businesses.

https://www.investopedia.com/types-of-pensions-in-the-uk-7547657

Types of Pensions in the U.K.

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> In the United Kingdom, there are three primary ways to accumulate pension funds to provide a steady income upon <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retirement.asp">retirement</a>. Those types are the government-backed State Pension, the employer-sponsored workplace pensions, and the individually established personal pensions. Depending on how the plan pays out, these plans are further divided into <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tier-1-and-tier-2-pensions-7548609">Tier 1 and Tier 2</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>Understanding pension types, eligibility, and contribution requirements is crucial for achieving financial stability in retirement.</li><li>The U.K. State Pension requires reaching pension age and making sufficient National Insurance (NI) contributions, while workplace pensions depend on employment status and earnings.</li><li>Employers in the U.K. are generally required to enroll eligible employees into workplace pensions, with both parties contributing.</li><li>U.K. personal pensions may be an ideal option for self-employed individuals or those seeking additional retirement savings, as they are flexible and open to almost anyone in the country.</li></ul></div></div></div> <span class="heading-toc" id="toc-breakdown-of-types-of-pensions-in-the-uk"></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"> Breakdown of Types of Pensions in the U.K. </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The U.K. offers three main <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing-strategy/090916/how-do-pension-funds-work.asp">pension</a> types: the State Pension, workplace pensions, and personal pensions: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> <li>The State Pension is government-provided, with eligibility based on National Insurance contributions and age.</li> <li>Workplace pensions are set up by employers and include defined benefit and defined contribution plans.</li> <li>Personal pensions are independently managed private schemes, including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stakeholder.asp">stakeholder</a> pensions and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/self-invested-personal-pension-sipp.asp">self-invested personal pensions (SIPPs)</a>.</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"> It’s crucial to understand all these options for effective <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/retirement-planning-4689695">retirement planning</a> in the U.K. Consider seeking financial advice for personalized guidance. </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"> State Pension </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> A State Pension is a government-provided pension that you receive when you reach the State Pension age—currently 66 for both men and women.<span class="ql-inline-citation" data-cite="8"></span> The State Pension amount received depends on your National Insurance (NI) contributions record. There are two types of State Pension: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <li>Basic State Pension: For people who reached the State Pension age before April 6, 2016.<span class="ql-inline-citation" data-cite="9"></span></li><li>New State Pension: For people who reach the State Pension age on or after April 6, 2016.<span class="ql-inline-citation" data-cite="10"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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_2-0">Note</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Retirement benefits are the financial compensation or perks that an individual receives after they retire from their job. These benefits can include pensions, social insurance or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/121015/how-social-security-works-after-retirement.asp">Social Security</a> payments, and other forms of savings or investment accounts intended to provide income during retirement.<br/></p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_19-0"> <span class="mntl-sc-block-subheading__text"> Workplace Pensions </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Also known as occupational pensions, these are now required to be set up by employers to provide retirement benefits for their employees in the U.K.<span class="ql-inline-citation" data-cite="12"></span> There are two main types of U.K. workplace pensions: </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><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/definedbenefitpensionplan.asp">Defined benefit (DB)</a> schemes: Also known as final salary pensions, these guarantee a specific income in retirement based on your salary and years of service with the employer.</li> <li>Defined contribution (DC) schemes: In these plans, both you and your employer contribute to your pension savings, and the amount is then invested. The size of your pension depends on the amount contributed and the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/11/increase-investment-performance.asp">investment performance</a>.<span class="ql-inline-citation" data-cite="11"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Personal Pensions </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> Personal pensions in the U.K. are individual pension schemes, usually <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/definedcontributionplan.asp">defined contribution plans</a>, available to anyone, including those who are self-employed. They are designed to help individuals save money for retirement and offer flexibility in terms of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retirement-contribution.asp">contributions</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investment.asp">investment</a> options. </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"> These are private pension schemes that you can set up independently of an employer, or through some workplaces. They are typically managed by insurance companies, banks, or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investment-management.asp">investment firms</a>. You can choose from various investment options, and the eventual pension payout depends on the contributions made and investment performance. Personal pensions generally include: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> <li><strong>Stakeholder pensions</strong>: These are low-fee, flexible personal pensions with minimum standards set by the government.</li><li><strong>Self-invested personal pensions (SIPPs)</strong>: These offer a wider range of investment options compared with traditional personal pensions, allowing you greater control over your pension investments.<span class="ql-inline-citation" data-cite="13"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <span class="heading-toc" id="toc-setting-up-a-pension-in-the-uk"></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"> Setting Up a Pension in the U.K. </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Setting up a pension in the U.K. typically involves the following steps: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> <li><strong>Check eligibility</strong>: Confirm if you’re eligible for the State Pension, workplace pensions, or personal pensions based on age, employment, and residency.</li> <li><strong>Enroll in a workplace pension</strong>: Employers automatically enroll eligible employees into a pension scheme and contribute on their behalf.<span class="ql-inline-citation" data-cite="12"></span></li> <li><strong>Choose a personal pension</strong>: Self-employed individuals or those seeking additional savings can set up a personal pension. Make sure to compare providers, fees, and investment options.</li> <li><strong>Make regular contributions</strong>: Fund your pension through salary deductions for workplace pensions or direct payments for personal pensions. The State Pension relies on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/national-insurance-contributions-nic.asp">National Insurance contributions</a>.<span class="ql-inline-citation" data-cite="15"></span><span class="ql-inline-citation" data-cite="14"></span></li> <li><strong>Monitor investments</strong>: Review and adjust your investments in defined contribution workplace pensions and personal pensions to align with your <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/retirement/11/5-steps-to-retirement-plan.asp">retirement goals</a>.</li> <li><strong>Seek financial advice</strong>: Consult a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-advisor.asp">financial advisor </a>for personalized guidance on pension options, investments, and tax implications to maximize your retirement savings.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Remember that setting up a pension is an ongoing process that requires regular monitoring, adjustments, and contributions throughout your working life to ensure a comfortable retirement. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_38-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_39-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Retirement savings are the funds that an individual sets aside during their working years to provide financial security during retirement. These savings can come from various sources, such as employer-sponsored plans, personal savings accounts, or other investment vehicles designed to help individuals save money for their future.</p></div></div></div> <span class="heading-toc" id="toc-who-is-eligible-for-a-pension-in-the-uk"></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"> Who Is Eligible for a Pension in the U.K.? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> Eligibility for pensions in the U.K. depends on the type of pension scheme. Here’s a breakdown of eligibility criteria for the main pension types: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> <strong>State Pension</strong>: You must have reached the State Pension age, which is currently 66 for both men and women.<span class="ql-inline-citation" data-cite="8"></span> You need to have made sufficient National Insurance (NI) contributions or have received NI credits. For the new State Pension, you typically need at least 10 qualifying years on your NI record to receive any payment. The years don’t need to be consecutive.<span class="ql-inline-citation" data-cite="15"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> <strong>Workplace pensions</strong>: You must be employed by a company that offers a workplace pension scheme. Automatic enrollment criteria: Age from 22 to the State Pension age, earning more than £10,000 per year, and working in the U.K. Employees not meeting these criteria may still be eligible to join the scheme voluntarily.<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_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> <strong>Personal pensions</strong>: There are no specific eligibility criteria for personal pensions, as they are open to anyone looking to save for retirement. Both employed and self-employed individuals can set up a personal pension. Age restrictions may apply, depending on the pension provider and their terms.<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_48-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> It’s essential to understand the eligibility criteria for different pension schemes to plan your retirement effectively. If you’re unsure about your eligibility, consider seeking professional financial advice. </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-do-all-british-citizens-get-a-pension"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do All British Citizens Get a Pension?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No, not all British citizens get a pension. Eligibility for different pension types depends on factors like age, National Insurance contributions, and employment status.</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-how-many-years-do-i-have-to-work-in-the-uk-to-get-a-pension"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Many Years Do I Have to Work in the U.K. to Get a Pension?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>For the new State Pension, you typically need at least 10 qualifying years on your National Insurance record to receive any payment.<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_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-much-is-the-state-pension-in-england"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Is the State Pension in England?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The (full new) State Pension in England as of June 2023 is £203.85 per week.<span class="ql-inline-citation" data-cite="15"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_57-0"><span class="heading-toc" id="toc-can-i-still-get-my-pension-if-i-live-outside-the-uk"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can I Still Get My Pension If I Live Outside the U.K.?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, you can still receive your pension while living abroad, but the payment rules and annual increases may vary depending on the country and the type of pension.<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_58-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_59-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> U.K. pension schemes help secure financial stability during retirement. The three main types are the State Pension, funded by National Insurance contributions; workplace pensions, where employers are required to enroll and contribute for eligible employees; and personal pensions, available to anyone, including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/self-employed-person.asp">self-employed individuals</a>. Understanding eligibility criteria and contribution requirements is essential for effective retirement planning. </p></div>

In the United Kingdom, there are three primary ways to accumulate pension funds to provide a steady income upon [retirement](https://www.investopedia.com/terms/r/retirement.asp). Those types are the government-backed State Pension, the employer-sponsored workplace pensions, and the individually established personal pensions. Depending on how the plan pays out, these plans are further divided into [Tier 1 and Tier 2](https://www.investopedia.com/tier-1-and-tier-2-pensions-7548609). ### Key Takeaways * Understanding pension types, eligibility, and contribution requirements is crucial for achieving financial stability in retirement. * The U.K. State Pension requires reaching pension age and making sufficient National Insurance (NI) contributions, while workplace pensions depend on employment status and earnings. * Employers in the U.K. are generally required to enroll eligible employees into workplace pensions, with both parties contributing. * U.K. personal pensions may be an ideal option for self-employed individuals or those seeking additional retirement savings, as they are flexible and open to almost anyone in the country. ## Breakdown of Types of Pensions in the U.K. The U.K. offers three main [pension](https://www.investopedia.com/articles/investing-strategy/090916/how-do-pension-funds-work.asp) types: the State Pension, workplace pensions, and personal pensions: * The State Pension is government-provided, with eligibility based on National Insurance contributions and age. * Workplace pensions are set up by employers and include defined benefit and defined contribution plans. * Personal pensions are independently managed private schemes, including [stakeholder](https://www.investopedia.com/terms/s/stakeholder.asp) pensions and [self-invested personal pensions (SIPPs)](https://www.investopedia.com/terms/s/self-invested-personal-pension-sipp.asp). It’s crucial to understand all these options for effective [retirement planning](https://www.investopedia.com/retirement-planning-4689695) in the U.K. Consider seeking financial advice for personalized guidance. ### State Pension A State Pension is a government-provided pension that you receive when you reach the State Pension age—currently 66 for both men and women. The State Pension amount received depends on your National Insurance (NI) contributions record. There are two types of State Pension: * Basic State Pension: For people who reached the State Pension age before April 6, 2016. * New State Pension: For people who reach the State Pension age on or after April 6, 2016. ### Note Retirement benefits are the financial compensation or perks that an individual receives after they retire from their job. These benefits can include pensions, social insurance or [Social Security](https://www.investopedia.com/articles/personal-finance/121015/how-social-security-works-after-retirement.asp) payments, and other forms of savings or investment accounts intended to provide income during retirement. ### Workplace Pensions Also known as occupational pensions, these are now required to be set up by employers to provide retirement benefits for their employees in the U.K. There are two main types of U.K. workplace pensions: * [Defined benefit (DB)](https://www.investopedia.com/terms/d/definedbenefitpensionplan.asp) schemes: Also known as final salary pensions, these guarantee a specific income in retirement based on your salary and years of service with the employer. * Defined contribution (DC) schemes: In these plans, both you and your employer contribute to your pension savings, and the amount is then invested. The size of your pension depends on the amount contributed and the [investment performance](https://www.investopedia.com/articles/stocks/11/increase-investment-performance.asp). ### Personal Pensions Personal pensions in the U.K. are individual pension schemes, usually [defined contribution plans](https://www.investopedia.com/terms/d/definedcontributionplan.asp), available to anyone, including those who are self-employed. They are designed to help individuals save money for retirement and offer flexibility in terms of [contributions](https://www.investopedia.com/terms/r/retirement-contribution.asp) and [investment](https://www.investopedia.com/terms/i/investment.asp) options. These are private pension schemes that you can set up independently of an employer, or through some workplaces. They are typically managed by insurance companies, banks, or [investment firms](https://www.investopedia.com/terms/i/investment-management.asp). You can choose from various investment options, and the eventual pension payout depends on the contributions made and investment performance. Personal pensions generally include: * **Stakeholder pensions**: These are low-fee, flexible personal pensions with minimum standards set by the government. * **Self-invested personal pensions (SIPPs)**: These offer a wider range of investment options compared with traditional personal pensions, allowing you greater control over your pension investments. ## Setting Up a Pension in the U.K. Setting up a pension in the U.K. typically involves the following steps: * **Check eligibility**: Confirm if you’re eligible for the State Pension, workplace pensions, or personal pensions based on age, employment, and residency. * **Enroll in a workplace pension**: Employers automatically enroll eligible employees into a pension scheme and contribute on their behalf. * **Choose a personal pension**: Self-employed individuals or those seeking additional savings can set up a personal pension. Make sure to compare providers, fees, and investment options. * **Make regular contributions**: Fund your pension through salary deductions for workplace pensions or direct payments for personal pensions. The State Pension relies on [National Insurance contributions](https://www.investopedia.com/terms/n/national-insurance-contributions-nic.asp). * **Monitor investments**: Review and adjust your investments in defined contribution workplace pensions and personal pensions to align with your [retirement goals](https://www.investopedia.com/articles/retirement/11/5-steps-to-retirement-plan.asp). * **Seek financial advice**: Consult a [financial advisor](https://www.investopedia.com/terms/f/financial-advisor.asp) for personalized guidance on pension options, investments, and tax implications to maximize your retirement savings. Remember that setting up a pension is an ongoing process that requires regular monitoring, adjustments, and contributions throughout your working life to ensure a comfortable retirement. ### Retirement savings are the funds that an individual sets aside during their working years to provide financial security during retirement. These savings can come from various sources, such as employer-sponsored plans, personal savings accounts, or other investment vehicles designed to help individuals save money for their future. ## Who Is Eligible for a Pension in the U.K.? Eligibility for pensions in the U.K. depends on the type of pension scheme. Here’s a breakdown of eligibility criteria for the main pension types: **State Pension**: You must have reached the State Pension age, which is currently 66 for both men and women. You need to have made sufficient National Insurance (NI) contributions or have received NI credits. For the new State Pension, you typically need at least 10 qualifying years on your NI record to receive any payment. The years don’t need to be consecutive. **Workplace pensions**: You must be employed by a company that offers a workplace pension scheme. Automatic enrollment criteria: Age from 22 to the State Pension age, earning more than £10,000 per year, and working in the U.K. Employees not meeting these criteria may still be eligible to join the scheme voluntarily. **Personal pensions**: There are no specific eligibility criteria for personal pensions, as they are open to anyone looking to save for retirement. Both employed and self-employed individuals can set up a personal pension. Age restrictions may apply, depending on the pension provider and their terms. It’s essential to understand the eligibility criteria for different pension schemes to plan your retirement effectively. If you’re unsure about your eligibility, consider seeking professional financial advice. ## Do All British Citizens Get a Pension? No, not all British citizens get a pension. Eligibility for different pension types depends on factors like age, National Insurance contributions, and employment status. ## How Many Years Do I Have to Work in the U.K. to Get a Pension? For the new State Pension, you typically need at least 10 qualifying years on your National Insurance record to receive any payment. ## How Much Is the State Pension in England? The (full new) State Pension in England as of June 2023 is £203.85 per week. ## Can I Still Get My Pension If I Live Outside the U.K.? Yes, you can still receive your pension while living abroad, but the payment rules and annual increases may vary depending on the country and the type of pension. ## The Bottom Line U.K. pension schemes help secure financial stability during retirement. The three main types are the State Pension, funded by National Insurance contributions; workplace pensions, where employers are required to enroll and contribute for eligible employees; and personal pensions, available to anyone, including [self-employed individuals](https://www.investopedia.com/terms/s/self-employed-person.asp). Understanding eligibility criteria and contribution requirements is essential for effective retirement planning.

In the United Kingdom, there are three primary ways to accumulate pension funds to provide a steady income upon retirement. Those types are the government-backed State Pension, the employer-sponsored workplace pensions, and the individually established personal pensions. Depending on how the plan pays out, these plans are further divided into Tier 1 and Tier 2. Key Takeaways Understanding pension types, eligibility, and contribution requirements is crucial for achieving financial stability in retirement.The U.K. State Pension requires reaching pension age and making sufficient National Insurance (NI) contributions, while workplace pensions depend on employment status and earnings.Employers in the U.K. are generally required to enroll eligible employees into workplace pensions, with both parties contributing.U.K. personal pensions may be an ideal option for self-employed individuals or those seeking additional retirement savings, as they are flexible and open to almost anyone in the country. Breakdown of Types of Pensions in the U.K. The U.K. offers three main pension types: the State Pension, workplace pensions, and personal pensions: The State Pension is government-provided, with eligibility based on National Insurance contributions and age. Workplace pensions are set up by employers and include defined benefit and defined contribution plans. Personal pensions are independently managed private schemes, including stakeholder pensions and self-invested personal pensions (SIPPs). It’s crucial to understand all these options for effective retirement planning in the U.K. Consider seeking financial advice for personalized guidance. State Pension A State Pension is a government-provided pension that you receive when you reach the State Pension age—currently 66 for both men and women. The State Pension amount received depends on your National Insurance (NI) contributions record. There are two types of State Pension: Basic State Pension: For people who reached the State Pension age before April 6, 2016.New State Pension: For people who reach the State Pension age on or after April 6, 2016. Note Retirement benefits are the financial compensation or perks that an individual receives after they retire from their job. These benefits can include pensions, social insurance or Social Security payments, and other forms of savings or investment accounts intended to provide income during retirement. Workplace Pensions Also known as occupational pensions, these are now required to be set up by employers to provide retirement benefits for their employees in the U.K. There are two main types of U.K. workplace pensions: Defined benefit (DB) schemes: Also known as final salary pensions, these guarantee a specific income in retirement based on your salary and years of service with the employer. Defined contribution (DC) schemes: In these plans, both you and your employer contribute to your pension savings, and the amount is then invested. The size of your pension depends on the amount contributed and the investment performance. Personal Pensions Personal pensions in the U.K. are individual pension schemes, usually defined contribution plans, available to anyone, including those who are self-employed. They are designed to help individuals save money for retirement and offer flexibility in terms of contributions and investment options. These are private pension schemes that you can set up independently of an employer, or through some workplaces. They are typically managed by insurance companies, banks, or investment firms. You can choose from various investment options, and the eventual pension payout depends on the contributions made and investment performance. Personal pensions generally include: Stakeholder pensions: These are low-fee, flexible personal pensions with minimum standards set by the government.Self-invested personal pensions (SIPPs): These offer a wider range of investment options compared with traditional personal pensions, allowing you greater control over your pension investments. Setting Up a Pension in the U.K. Setting up a pension in the U.K. typically involves the following steps: Check eligibility: Confirm if you’re eligible for the State Pension, workplace pensions, or personal pensions based on age, employment, and residency. Enroll in a workplace pension: Employers automatically enroll eligible employees into a pension scheme and contribute on their behalf. Choose a personal pension: Self-employed individuals or those seeking additional savings can set up a personal pension. Make sure to compare providers, fees, and investment options. Make regular contributions: Fund your pension through salary deductions for workplace pensions or direct payments for personal pensions. The State Pension relies on National Insurance contributions. Monitor investments: Review and adjust your investments in defined contribution workplace pensions and personal pensions to align with your retirement goals. Seek financial advice: Consult a financial advisor for personalized guidance on pension options, investments, and tax implications to maximize your retirement savings. Remember that setting up a pension is an ongoing process that requires regular monitoring, adjustments, and contributions throughout your working life to ensure a comfortable retirement. Retirement savings are the funds that an individual sets aside during their working years to provide financial security during retirement. These savings can come from various sources, such as employer-sponsored plans, personal savings accounts, or other investment vehicles designed to help individuals save money for their future. Who Is Eligible for a Pension in the U.K.? Eligibility for pensions in the U.K. depends on the type of pension scheme. Here’s a breakdown of eligibility criteria for the main pension types: State Pension: You must have reached the State Pension age, which is currently 66 for both men and women. You need to have made sufficient National Insurance (NI) contributions or have received NI credits. For the new State Pension, you typically need at least 10 qualifying years on your NI record to receive any payment. The years don’t need to be consecutive. Workplace pensions: You must be employed by a company that offers a workplace pension scheme. Automatic enrollment criteria: Age from 22 to the State Pension age, earning more than £10,000 per year, and working in the U.K. Employees not meeting these criteria may still be eligible to join the scheme voluntarily. Personal pensions: There are no specific eligibility criteria for personal pensions, as they are open to anyone looking to save for retirement. Both employed and self-employed individuals can set up a personal pension. Age restrictions may apply, depending on the pension provider and their terms. It’s essential to understand the eligibility criteria for different pension schemes to plan your retirement effectively. If you’re unsure about your eligibility, consider seeking professional financial advice. Do All British Citizens Get a Pension? No, not all British citizens get a pension. Eligibility for different pension types depends on factors like age, National Insurance contributions, and employment status. How Many Years Do I Have to Work in the U.K. to Get a Pension? For the new State Pension, you typically need at least 10 qualifying years on your National Insurance record to receive any payment. How Much Is the State Pension in England? The (full new) State Pension in England as of June 2023 is £203.85 per week. Can I Still Get My Pension If I Live Outside the U.K.? Yes, you can still receive your pension while living abroad, but the payment rules and annual increases may vary depending on the country and the type of pension. The Bottom Line U.K. pension schemes help secure financial stability during retirement. The three main types are the State Pension, funded by National Insurance contributions; workplace pensions, where employers are required to enroll and contribute for eligible employees; and personal pensions, available to anyone, including self-employed individuals. Understanding eligibility criteria and contribution requirements is essential for effective retirement planning.

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

Retrocession: Definition, Types, Example, Criticisms

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-retrocession"></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 Retrocession? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Retrocession refers to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/k/kickback.asp" rel="noopener noreferrer">kickbacks</a>, trailer fees or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/finders-fee.asp" rel="noopener noreferrer">finders fees</a> that asset managers pay to advisers or distributors. These payments are often done discreetly and are not disclosed to clients, although they use client funds to pay the fees. </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"> Retrocession commission is a heavily criticized fee-sharing arrangement in the financial industry because money flows back to marketers for their efforts in raising interest for a particular product. Therefore, this raises the question of impartiality and favoritism on the part of the advisor. The system would seem to encourage advisors to promote funds or products because they will receive a fee for doing so, not because the products are the best option for the client. </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>Retrocession fees are kickbacks to wealth managers or other money managers that are provided by a third party.</li><li>Retrocession commission is controversial in the financial world because money is going back to marketers for advocating specific products.</li><li>Retrocession fees are typically recurring, with one-time kickbacks usually called a finder's fee, referral fee, or acquisition commission.</li><li>Types of retrocession fees include custody banking, trading, and financial product purchases.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-retrocession"></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 Retrocession </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Retrocession fees are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commission.asp" rel="noopener noreferrer">commissions</a> paid to a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wealthmanagement.asp" rel="noopener noreferrer">wealth manager</a> or other new money manager by a third party. For example, banks often pay retrocession fees to wealth managers who partner with them. The bank will encourage and compensate the managers for bringing business to the bank. Banks may also receive retrocession fees from third parties, such as investment funds, for distributing or promoting specific financial products. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Some consider retrocession fees a dubious compensation model because they can influence a bank or wealth manager’s decision to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investment-advice.asp" rel="noopener noreferrer">recommend products</a> that may not be in the best interest of their clients. This suggestion of an investment product where the advisor receives retrocession appears inherently problematic. However, the suggested product is usually suited for the client, as they are mostly high-quality investment products, such as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualfund.asp" rel="noopener noreferrer">mutual funds</a>. But the issue remains of motivation and agenda, when two roughly equal products are available, one with compensation attached and one without, where some advisors may find themselves unduly influenced. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <span class="heading-toc" id="toc-types-of-retrocession"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> Types of Retrocession </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Retrocession fees typically refer to recurring compensations, as opposed to a one-time deal. A one-off payment is generally called a finder’s fee, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-advisors/081315/top-referral-tips-financial-advisors.asp" rel="noopener noreferrer">referral fee</a> or acquisition commission. </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 three types of retrocession fees: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> <li><strong>Custody banking retrocession fees </strong>are<strong> </strong>where a<strong> </strong>wealth manager receives compensation for attracting a new customer who brings that customer's investment funds into the custody institution. With frequent changes in the service provider association, a wealth manager can generate retrocession fees that benefit them financially but do not necessarily benefit their client.</li> <li><strong>Trading retrocession fees </strong>are compensation for various trading transactions, such as buying and selling securities. The more sales that occur, the higher the retrocession fees become. Because most trades include a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/brokerage-fee.asp" rel="noopener noreferrer">brokerage fee</a> for the transaction, which the customer must pay, this again may benefit the money manager.</li> <li><strong>Financial product purchase retrocession fees </strong>are part of the recurring <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/ter.asp" rel="noopener noreferrer">total expense ratio (TER)</a>, which customers must pay and are typical with investment funds. These recurring sums flow back to the client acquirer. Because the total expense ratio is charged to the customer each year, the acquirer receives retrocession fees every year as recurring commissions.</li> </ol> <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-real-world-example"></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"> Real World Example </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> In 2015, JP Morgan settled a case with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sec.asp" rel="noopener noreferrer">Securities and Exchange Commission (SEC)</a> for $267 million. The SEC stated that JP Morgan selected third-party hedge funds based on hedge fund managers' willingness to provide fees to a bank affiliate. In these instances, the bank did not inform clients it suggested and preferred the mutual funds willing to share their royalties and instead implied no particular partiality.<span class="ql-inline-citation" data-cite="1"></span> According to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.forbes.com/sites/edwardsiedle/2018/02/09/jp-morgan-asset-management-sec-settlement-exposes-hedge-fund-retrocessions/#6a19bb085c77" rel="noopener noreferrer"><em>Forbes</em></a>, the JP Morgan settlement was the first time the term retrocession was introduced to U.S. investors. </p></div>

## What Is Retrocession? Retrocession refers to [kickbacks](https://www.investopedia.com/terms/k/kickback.asp), trailer fees or [finders fees](https://www.investopedia.com/terms/f/finders-fee.asp) that asset managers pay to advisers or distributors. These payments are often done discreetly and are not disclosed to clients, although they use client funds to pay the fees. Retrocession commission is a heavily criticized fee-sharing arrangement in the financial industry because money flows back to marketers for their efforts in raising interest for a particular product. Therefore, this raises the question of impartiality and favoritism on the part of the advisor. The system would seem to encourage advisors to promote funds or products because they will receive a fee for doing so, not because the products are the best option for the client. ### Key Takeaways * Retrocession fees are kickbacks to wealth managers or other money managers that are provided by a third party. * Retrocession commission is controversial in the financial world because money is going back to marketers for advocating specific products. * Retrocession fees are typically recurring, with one-time kickbacks usually called a finder's fee, referral fee, or acquisition commission. * Types of retrocession fees include custody banking, trading, and financial product purchases. ## Understanding Retrocession Retrocession fees are [commissions](https://www.investopedia.com/terms/c/commission.asp) paid to a [wealth manager](https://www.investopedia.com/terms/w/wealthmanagement.asp) or other new money manager by a third party. For example, banks often pay retrocession fees to wealth managers who partner with them. The bank will encourage and compensate the managers for bringing business to the bank. Banks may also receive retrocession fees from third parties, such as investment funds, for distributing or promoting specific financial products. Some consider retrocession fees a dubious compensation model because they can influence a bank or wealth manager’s decision to [recommend products](https://www.investopedia.com/terms/i/investment-advice.asp) that may not be in the best interest of their clients. This suggestion of an investment product where the advisor receives retrocession appears inherently problematic. However, the suggested product is usually suited for the client, as they are mostly high-quality investment products, such as [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp). But the issue remains of motivation and agenda, when two roughly equal products are available, one with compensation attached and one without, where some advisors may find themselves unduly influenced. ## Types of Retrocession Retrocession fees typically refer to recurring compensations, as opposed to a one-time deal. A one-off payment is generally called a finder’s fee, [referral fee](https://www.investopedia.com/articles/financial-advisors/081315/top-referral-tips-financial-advisors.asp) or acquisition commission. There are three types of retrocession fees: 1. **Custody banking retrocession fees**arewhere awealth manager receives compensation for attracting a new customer who brings that customer's investment funds into the custody institution. With frequent changes in the service provider association, a wealth manager can generate retrocession fees that benefit them financially but do not necessarily benefit their client. 2. **Trading retrocession fees**are compensation for various trading transactions, such as buying and selling securities. The more sales that occur, the higher the retrocession fees become. Because most trades include a [brokerage fee](https://www.investopedia.com/terms/b/brokerage-fee.asp) for the transaction, which the customer must pay, this again may benefit the money manager. 3. **Financial product purchase retrocession fees**are part of the recurring [total expense ratio (TER)](https://www.investopedia.com/terms/t/ter.asp), which customers must pay and are typical with investment funds. These recurring sums flow back to the client acquirer. Because the total expense ratio is charged to the customer each year, the acquirer receives retrocession fees every year as recurring commissions. ## Real World Example In 2015, JP Morgan settled a case with the [Securities and Exchange Commission (SEC)](https://www.investopedia.com/terms/s/sec.asp) for $267 million. The SEC stated that JP Morgan selected third-party hedge funds based on hedge fund managers' willingness to provide fees to a bank affiliate. In these instances, the bank did not inform clients it suggested and preferred the mutual funds willing to share their royalties and instead implied no particular partiality. According to [*Forbes*](https://www.forbes.com/sites/edwardsiedle/2018/02/09/jp-morgan-asset-management-sec-settlement-exposes-hedge-fund-retrocessions/#6a19bb085c77), the JP Morgan settlement was the first time the term retrocession was introduced to U.S. investors.

What Is Retrocession? Retrocession refers to kickbacks, trailer fees or finders fees that asset managers pay to advisers or distributors. These payments are often done discreetly and are not disclosed to clients, although they use client funds to pay the fees. Retrocession commission is a heavily criticized fee-sharing arrangement in the financial industry because money flows back to marketers for their efforts in raising interest for a particular product. Therefore, this raises the question of impartiality and favoritism on the part of the advisor. The system would seem to encourage advisors to promote funds or products because they will receive a fee for doing so, not because the products are the best option for the client. Key Takeaways Retrocession fees are kickbacks to wealth managers or other money managers that are provided by a third party.Retrocession commission is controversial in the financial world because money is going back to marketers for advocating specific products.Retrocession fees are typically recurring, with one-time kickbacks usually called a finder's fee, referral fee, or acquisition commission.Types of retrocession fees include custody banking, trading, and financial product purchases. Understanding Retrocession Retrocession fees are commissions paid to a wealth manager or other new money manager by a third party. For example, banks often pay retrocession fees to wealth managers who partner with them. The bank will encourage and compensate the managers for bringing business to the bank. Banks may also receive retrocession fees from third parties, such as investment funds, for distributing or promoting specific financial products. Some consider retrocession fees a dubious compensation model because they can influence a bank or wealth manager’s decision to recommend products that may not be in the best interest of their clients. This suggestion of an investment product where the advisor receives retrocession appears inherently problematic. However, the suggested product is usually suited for the client, as they are mostly high-quality investment products, such as mutual funds. But the issue remains of motivation and agenda, when two roughly equal products are available, one with compensation attached and one without, where some advisors may find themselves unduly influenced. Types of Retrocession Retrocession fees typically refer to recurring compensations, as opposed to a one-time deal. A one-off payment is generally called a finder’s fee, referral fee or acquisition commission. There are three types of retrocession fees: Custody banking retrocession fees are where a wealth manager receives compensation for attracting a new customer who brings that customer's investment funds into the custody institution. With frequent changes in the service provider association, a wealth manager can generate retrocession fees that benefit them financially but do not necessarily benefit their client. Trading retrocession fees are compensation for various trading transactions, such as buying and selling securities. The more sales that occur, the higher the retrocession fees become. Because most trades include a brokerage fee for the transaction, which the customer must pay, this again may benefit the money manager. Financial product purchase retrocession fees are part of the recurring total expense ratio (TER), which customers must pay and are typical with investment funds. These recurring sums flow back to the client acquirer. Because the total expense ratio is charged to the customer each year, the acquirer receives retrocession fees every year as recurring commissions. Real World Example In 2015, JP Morgan settled a case with the Securities and Exchange Commission (SEC) for $267 million. The SEC stated that JP Morgan selected third-party hedge funds based on hedge fund managers' willingness to provide fees to a bank affiliate. In these instances, the bank did not inform clients it suggested and preferred the mutual funds willing to share their royalties and instead implied no particular partiality. According to Forbes, the JP Morgan settlement was the first time the term retrocession was introduced to U.S. investors.

https://www.investopedia.com/netflix-rough-week-had-minimal-impact-on-exposed-etfs-7970456

Netflix’s Rough Week Had Minimal Impact on Exposed 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"> Netflix (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NFLX">NFLX</a>) had a tough week as shares dropped more than 10%, though the dip seemed to have minimal impact on popular <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> that are exposed to the streaming giant. </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>Shares of Netflix lost more than 10% this week after CFO Spencer Newmann warned of softer margins as the business adjusts to new initiatives.</li> <li>The drop in stock price had little impact on popular ETFs with exposure to the company. </li> <li>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 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 owns 1.1% of all Netflix shares, dipped 0.5%. </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"> Netflix’s top ownership includes two major ETFs, according to Morningstar.<span class="ql-inline-citation" data-cite="11"></span> 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 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>) is a popular <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/090414/sp-500-etfs-what-every-investor-should-know.asp">ETF that tracks the performance of the S&amp;P 500</a> and owns 1.1% of Netflix shares. It dipped 0.5% this week.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Another ETF holding a large portion of Netflix shares is the iShares Core S&amp;P 500 ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.ishares.com/us/products/239726/ishares-core-sp-500-etf">IVV</a>), which owns 0.94% and was 0.1% lower for the week.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> Of the major ETFs, Invesco Next Gen Media Gaming ETF (GGME) may have the greatest exposure as Netflix accounts for 7.67% of its portfolio weight.<span class="ql-inline-citation" data-cite="4"></span> GGME fell 1.6% this week.<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_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/communication-industry-etf.asp">ETFs in the communication sector</a> with exposure to Netflix saw positive returns despite the company’s poor performance this week.  </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"> Netflix makes up 5.52% of the Fidelity Disruptive Communications ETF (FDCF) and FDCF saw a nearly 0.4% increase this week.<span class="ql-inline-citation" data-cite="6"></span> The Vanguard Communication Services ETF (VOX) went up 0.6%, even though Netflix accounts for 4.62% of the portfolio.<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_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Netflix shares had slumped after CFO Spencer Newmann spoke at a Bank of America conference on Wednesday, where he warned of softer margins as the business adjusts to new revenue initiatives. Netflix introduced <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/netflix-nixes-its-basic-ad-free-plan-for-new-subscribers-7563120">an ad-supported subscription</a> and began enforcing a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/netflix-password-sharing-crackdown-and-lower-price-plan-drive-subscription-surge-7563328">crackdown on password sharing</a> in July of this year. Neumann also mentioned the SAG-AFTRA strike is “not good for the business."<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_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Despite this week's losses, shares of Netflix have gained close to 35% year-to-date.<br> </br></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:72.5%;"> <img alt="NFLX_SPY_IVV_GGME_FDCF_VOX" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/vz0TlNUXD20qhTrqZUzo6Ny5SlM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/NFLX_SPY_IVV_GGME_FDCF_VOX_chart3-5e80bb7a11b2448a99ee8aecfadfcc1a.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/vz0TlNUXD20qhTrqZUzo6Ny5SlM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/NFLX_SPY_IVV_GGME_FDCF_VOX_chart3-5e80bb7a11b2448a99ee8aecfadfcc1a.png" data-srcset="https://www.investopedia.com/thmb/_pAiPikl9OVHOoFSz9lgjWmHmLQ=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/NFLX_SPY_IVV_GGME_FDCF_VOX_chart3-5e80bb7a11b2448a99ee8aecfadfcc1a.png 750w" data-tracking-container="true" height="1451" id="mntl-sc-block-image_1-0" width="2000"/> <noscript> <img alt="NFLX_SPY_IVV_GGME_FDCF_VOX" class="img--noscript universal-image__image" height="1451" sizes="750px" src="https://www.investopedia.com/thmb/vz0TlNUXD20qhTrqZUzo6Ny5SlM=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/NFLX_SPY_IVV_GGME_FDCF_VOX_chart3-5e80bb7a11b2448a99ee8aecfadfcc1a.png" srcset="https://www.investopedia.com/thmb/_pAiPikl9OVHOoFSz9lgjWmHmLQ=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/NFLX_SPY_IVV_GGME_FDCF_VOX_chart3-5e80bb7a11b2448a99ee8aecfadfcc1a.png 750w" width="2000"/> </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>YCharts</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>

Netflix ([NFLX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NFLX)) had a tough week as shares dropped more than 10%, though the dip seemed to have minimal impact on popular [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp) that are exposed to the streaming giant. ### Key Takeaways * Shares of Netflix lost more than 10% this week after CFO Spencer Newmann warned of softer margins as the business adjusts to new initiatives. * The drop in stock price had little impact on popular ETFs with exposure to the company. * The [SPDR S&P 500 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 owns 1.1% of all Netflix shares, dipped 0.5%. Netflix’s top ownership includes two major ETFs, according to Morningstar. The [SPDR S&P 500 Trust](https://www.investopedia.com/articles/investing/122215/spy-spdr-sp-500-trust-etf.asp) ([SPY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPY)) is a popular [ETF that tracks the performance of the S&P 500](https://www.investopedia.com/articles/investing/090414/sp-500-etfs-what-every-investor-should-know.asp) and owns 1.1% of Netflix shares. It dipped 0.5% this week. Another ETF holding a large portion of Netflix shares is the iShares Core S&P 500 ETF ([IVV](https://www.ishares.com/us/products/239726/ishares-core-sp-500-etf)), which owns 0.94% and was 0.1% lower for the week. Of the major ETFs, Invesco Next Gen Media Gaming ETF (GGME) may have the greatest exposure as Netflix accounts for 7.67% of its portfolio weight. GGME fell 1.6% this week. Other [ETFs in the communication sector](https://www.investopedia.com/terms/c/communication-industry-etf.asp) with exposure to Netflix saw positive returns despite the company’s poor performance this week.  Netflix makes up 5.52% of the Fidelity Disruptive Communications ETF (FDCF) and FDCF saw a nearly 0.4% increase this week. The Vanguard Communication Services ETF (VOX) went up 0.6%, even though Netflix accounts for 4.62% of the portfolio. Netflix shares had slumped after CFO Spencer Newmann spoke at a Bank of America conference on Wednesday, where he warned of softer margins as the business adjusts to new revenue initiatives. Netflix introduced [an ad-supported subscription](https://www.investopedia.com/netflix-nixes-its-basic-ad-free-plan-for-new-subscribers-7563120) and began enforcing a [crackdown on password sharing](https://www.investopedia.com/netflix-password-sharing-crackdown-and-lower-price-plan-drive-subscription-surge-7563328) in July of this year. Neumann also mentioned the SAG-AFTRA strike is “not good for the business." Despite this week's losses, shares of Netflix have gained close to 35% year-to-date. ![NFLX_SPY_IVV_GGME_FDCF_VOX]() :max_bytes(150000):strip_icc()/NFLX_SPY_IVV_GGME_FDCF_VOX_chart3-5e80bb7a11b2448a99ee8aecfadfcc1a.png) YCharts Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Netflix (NFLX) had a tough week as shares dropped more than 10%, though the dip seemed to have minimal impact on popular exchange-traded funds (ETFs) that are exposed to the streaming giant. Key Takeaways Shares of Netflix lost more than 10% this week after CFO Spencer Newmann warned of softer margins as the business adjusts to new initiatives. The drop in stock price had little impact on popular ETFs with exposure to the company.  The SPDR S&P 500 Trust (SPY), which owns 1.1% of all Netflix shares, dipped 0.5%.  Netflix’s top ownership includes two major ETFs, according to Morningstar. The SPDR S&P 500 Trust (SPY) is a popular ETF that tracks the performance of the S&P 500 and owns 1.1% of Netflix shares. It dipped 0.5% this week. Another ETF holding a large portion of Netflix shares is the iShares Core S&P 500 ETF (IVV), which owns 0.94% and was 0.1% lower for the week. Of the major ETFs, Invesco Next Gen Media Gaming ETF (GGME) may have the greatest exposure as Netflix accounts for 7.67% of its portfolio weight. GGME fell 1.6% this week. Other ETFs in the communication sector with exposure to Netflix saw positive returns despite the company’s poor performance this week.  Netflix makes up 5.52% of the Fidelity Disruptive Communications ETF (FDCF) and FDCF saw a nearly 0.4% increase this week. The Vanguard Communication Services ETF (VOX) went up 0.6%, even though Netflix accounts for 4.62% of the portfolio. Netflix shares had slumped after CFO Spencer Newmann spoke at a Bank of America conference on Wednesday, where he warned of softer margins as the business adjusts to new revenue initiatives. Netflix introduced an ad-supported subscription and began enforcing a crackdown on password sharing in July of this year. Neumann also mentioned the SAG-AFTRA strike is “not good for the business." Despite this week's losses, shares of Netflix have gained close to 35% year-to-date. YCharts Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/financial-edge/0912/the-differences-between-bribery-and-lobbying.aspx

Bribery vs. Lobbying: 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-bribery-vs-lobbying-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"> Bribery vs. Lobbying: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Bribery and lobbying are often conjoined in the public mind: Critics of lobbying suggest that it's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0512/the-biggest-bribe-cases-in-business-history.aspx">bribery in a suit</a>. While both seek a favorable outcome, the two remain distinct practices. Bribery is considered an effort to buy power; paying to guarantee a certain result; lobbying is considered an effort to influence power, often by offering contributions. </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"> One key difference is that bribery is considered illegal, while lobbying is not. </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>Lobbying is the organizing of a group of like-minded people, industries, or entities to influence an authoritative body or lawmaking individual, often through financial contributions.</li><li>Bribery involves the payment of something—either money or goods or an intangible favor—in the subversion of normal practices, for gain or special treatment, or in order to get an advantage.</li><li>In the U.S., lobbying is legal, while bribery is not.</li><li>Bribery is an effort to buy power, while lobbying is just an effort to influence it; but admittedly, the distinction between the two can be opaque.</li></ul></div></div></div> <span class="heading-toc" id="toc-lobbying"></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"> Lobbying </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lobby.asp">Lobbyists</a> try to shape laws, legislation, and public policy to the benefit of the group or entity that employs them. Their campaigns (which are legal) can sometimes be public ones (or fed to the media to influence the public), but they more typically target politicians, elected officials, legislators, and government agency employees; the movers and shakers on Capitol Hill and in state capitals too. </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"> Lobbyists—the term referring to both individuals and organizations—have existed as long as governments; they traditionally have been considered "information givers," a valuable source of facts and data, though admittedly in support of their cause or industry. Lobbyists systematically build up support for their causes, over years and decades. Often, they fund a study, survey, or research that might sway a politician's opinion or their constituency's opinion. </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>Lobbyists are required to register with the Secretary of the Senate and the Clerk of the House, and to file disclosures of their activities and expenditures, according to the Lobbying Disclosure Act of 1995.<span class="ql-inline-citation" data-cite="5"></span></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> More often, though, they act more directly—by giving money. Increasingly, lobbyists are ensuring contributions are made from the grassroots up to influence decision-makers at all stages. These contributions aren't directly paid to any official or lawmaker. But they might go to that person's election or re-election campaign—purchase advertising, finance a fundraiser—or to a politician's favorite cause, charity, hometown, or state project. </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"> Among lobbyists, there's a tacit understanding, if not an outright quid pro quo: We supported you and your interests; in return, you support us and ours—by voting for (or against) this bill, by funding that subsidy, by extending this exemption, or by loosening that regulation. </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"> But if they have existed forever, why are lobbyists reaping such scorn of late? It's partly due to their higher profile. In the past, they tended to operate quietly, behind the scenes, and away from the public eye. In the last few decades, however, they have become bigger and bolder, operating quite openly as a profession. (In Washington D.C., "K Street" is shorthand for the lobbying field, since so many are centered there, the way "Wall Street" in NYC symbolizes the finance industry). Not a month goes by without the public announcement of some former politician joining a lobbying firm, leveraging their knowledge of how the government machine works. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_21-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_22-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_3-0">$3.77 billion</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>The money involved—both what lobbyists make and what they disburse—just keeps increasing. The total spending on lobbying has grown from $1.44 billion in 1998 to a record $3.77 billion in 2021.<span class="ql-inline-citation" data-cite="3"></span> The top three spenders in 2021 were the U.S. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/chamber-of-commerce.asp">Chamber of Commerce </a>($66 million), the National Association of Realtors ($44 million), and the Pharmaceutical Research &amp; Manufacturers of America ($30 million), according to OpenSecrets.org.<span class="ql-inline-citation" data-cite="2"></span></p></div></div></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-subheading__text"> How Lobbyists Work </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> For example, cigar lobbyists have campaigned for cigars not to be grouped with cigarettes. They lobbied for years to avoid government scrutiny and to propagate an image that cigars were not harmful, when in fact cigars are as dangerous as cigarettes. </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"> Or take the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial_sector.asp">financial sector. </a>Securities and investment firms spent $104 million in 2020. This amount is in line with prior years. In the aftermath of the Great Recession, 2010 and 2011, this sector was spending $103 million annually.<span class="ql-inline-citation" data-cite="1"></span> Most of this money was spent to ensure that the government did not regulate the<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedgefund.asp"> hedge fund</a> industry. </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 impact of lobbying is massive. It affects policy by influencing policymakers and therefore citizens, rather than just individuals. Whether made directly by entities or through professional lobbying firms, the contributions—this "special interest money" as it's imaginatively known—lead the act of lobbying to be associated with bribery. </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-bribery"></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"> Bribery </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> In contrast, a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bribe.asp">bribe</a> usually occurs on an individual level. And it is anything but public. A bribe giver usually gives an offer of money "under the table" in order to subvert standard processes. This could be paying a tax officer to clear reports with under-reported revenue or sending goods without an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/invoice.asp">invoice</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> The bribe may be in the form of a donation or favor in kind. A company's purchase manager may award an order to a supplier in return for undue favor in the form of money, against his company's policy of awarding orders based on criteria of quality and price. Public officers are offered bribes to enable evasion of taxes and the corresponding liabilities at an individual or company level. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> However it's done, a bribe—along with its cousin, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/k/kickback.asp">kickback</a>—results in an unfair advantage for the bribe giver. Bribes may seem like small amounts compared to lobbying contributions, but therein lies the problem: They often cannot be accounted for. </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"> Bribery is the first step of subversion of the economic system. Slowly but steadily, a corrupt, parallel system is formed. It creates inefficiencies and obstacles in the short term; over time, it erodes the economic foundation of the country, hurting the most vulnerable members of the society and filling the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/middle-class.asp">middle class</a> with a sense of hopelessness and cynicism. </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-real-world-example-of-corporate-bribery"></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"> Real-World Example of Corporate Bribery </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> In 2020, European airplane manufacturer, Airbus, agreed to pay $4 billion in fines over accusations of bribery and corruption that dated back 15 years. The company reached a plea bargain with prosecutors in Britain, France, and the United Kingdom.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> The scandal involved using third-party business agents to bribe government officials and airline executives, as well as resolving Airbus's violation of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR).<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <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_44-0"> <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_45-0"> Bribery seems to have no morally redeeming features at all: It is a direct purchase of favor or advantage. Lobbying, on the other hand, is also used by civil rights and environmental support groups in their battles against commercial and for-profit interests. In that sense, lobbying becomes a critical and important tool in influencing public policy and evening the scales between different groups. </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"> But all too often, the border where lobbying's influence ends, and outright bribery begins, can be hard to fathom. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_48-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_49-0"><span class="heading-toc" id="toc-what-is-the-difference-between-a-gift-and-a-bribe"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between a Gift and a Bribe?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The primary difference between a gift and a bribe is that a gift comes with no expectations, meaning, no strings attached. A gift is given freely out of goodwill as opposed to with the intention of receiving something in return to better the position of the giver. Often, a bribe can be directly related to some future action whereas a gift may not necessarily imply such action.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_51-0"><span class="heading-toc" id="toc-what-kind-of-crime-is-a-bribe"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Kind of Crime Is a Bribe?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Bribery is considered to be a felony. This applies to both the bribe giver and the bribe receiver. If convicted of bribery, an individual most often has to complete a state prison sentence of at least one year. Commercial bribery cases are often classified as misdemeanors.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_53-0"><span class="heading-toc" id="toc-what-are-the-3-main-types-of-bribes"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the 3 Main Types of Bribes?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The three main types of bribes are active bribes, passive bribes, and facilitation payments. Active bribery is when the individual that gives the bribe performs the offensive act. Passive bribery is when the receiver of the bribe performs the offensive act. Facilitation payments are made to retain business or for other improper actions.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_55-0"><span class="heading-toc" id="toc-what-are-examples-of-lobbying"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Examples of Lobbying?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Lobbying examples include meetings and discussions with government representatives, influencing legislation by negotiating the details of a bill, and pushing for presidential vetoes.</p></div> </div></div>

## Bribery vs. Lobbying: An Overview Bribery and lobbying are often conjoined in the public mind: Critics of lobbying suggest that it's [bribery in a suit](https://www.investopedia.com/financial-edge/0512/the-biggest-bribe-cases-in-business-history.aspx). While both seek a favorable outcome, the two remain distinct practices. Bribery is considered an effort to buy power; paying to guarantee a certain result; lobbying is considered an effort to influence power, often by offering contributions. One key difference is that bribery is considered illegal, while lobbying is not. ### Key Takeaways * Lobbying is the organizing of a group of like-minded people, industries, or entities to influence an authoritative body or lawmaking individual, often through financial contributions. * Bribery involves the payment of something—either money or goods or an intangible favor—in the subversion of normal practices, for gain or special treatment, or in order to get an advantage. * In the U.S., lobbying is legal, while bribery is not. * Bribery is an effort to buy power, while lobbying is just an effort to influence it; but admittedly, the distinction between the two can be opaque. ## Lobbying [Lobbyists](https://www.investopedia.com/terms/l/lobby.asp) try to shape laws, legislation, and public policy to the benefit of the group or entity that employs them. Their campaigns (which are legal) can sometimes be public ones (or fed to the media to influence the public), but they more typically target politicians, elected officials, legislators, and government agency employees; the movers and shakers on Capitol Hill and in state capitals too. Lobbyists—the term referring to both individuals and organizations—have existed as long as governments; they traditionally have been considered "information givers," a valuable source of facts and data, though admittedly in support of their cause or industry. Lobbyists systematically build up support for their causes, over years and decades. Often, they fund a study, survey, or research that might sway a politician's opinion or their constituency's opinion. ### Lobbyists are required to register with the Secretary of the Senate and the Clerk of the House, and to file disclosures of their activities and expenditures, according to the Lobbying Disclosure Act of 1995. More often, though, they act more directly—by giving money. Increasingly, lobbyists are ensuring contributions are made from the grassroots up to influence decision-makers at all stages. These contributions aren't directly paid to any official or lawmaker. But they might go to that person's election or re-election campaign—purchase advertising, finance a fundraiser—or to a politician's favorite cause, charity, hometown, or state project. Among lobbyists, there's a tacit understanding, if not an outright quid pro quo: We supported you and your interests; in return, you support us and ours—by voting for (or against) this bill, by funding that subsidy, by extending this exemption, or by loosening that regulation. But if they have existed forever, why are lobbyists reaping such scorn of late? It's partly due to their higher profile. In the past, they tended to operate quietly, behind the scenes, and away from the public eye. In the last few decades, however, they have become bigger and bolder, operating quite openly as a profession. (In Washington D.C., "K Street" is shorthand for the lobbying field, since so many are centered there, the way "Wall Street" in NYC symbolizes the finance industry). Not a month goes by without the public announcement of some former politician joining a lobbying firm, leveraging their knowledge of how the government machine works. ### $3.77 billion The money involved—both what lobbyists make and what they disburse—just keeps increasing. The total spending on lobbying has grown from $1.44 billion in 1998 to a record $3.77 billion in 2021. The top three spenders in 2021 were the U.S. [Chamber of Commerce](https://www.investopedia.com/terms/c/chamber-of-commerce.asp) ($66 million), the National Association of Realtors ($44 million), and the Pharmaceutical Research & Manufacturers of America ($30 million), according to OpenSecrets.org. ### How Lobbyists Work For example, cigar lobbyists have campaigned for cigars not to be grouped with cigarettes. They lobbied for years to avoid government scrutiny and to propagate an image that cigars were not harmful, when in fact cigars are as dangerous as cigarettes. Or take the [financial sector.](https://www.investopedia.com/terms/f/financial_sector.asp) Securities and investment firms spent $104 million in 2020. This amount is in line with prior years. In the aftermath of the Great Recession, 2010 and 2011, this sector was spending $103 million annually. Most of this money was spent to ensure that the government did not regulate the [hedge fund](https://www.investopedia.com/terms/h/hedgefund.asp) industry. The impact of lobbying is massive. It affects policy by influencing policymakers and therefore citizens, rather than just individuals. Whether made directly by entities or through professional lobbying firms, the contributions—this "special interest money" as it's imaginatively known—lead the act of lobbying to be associated with bribery. ## Bribery In contrast, a [bribe](https://www.investopedia.com/terms/b/bribe.asp) usually occurs on an individual level. And it is anything but public. A bribe giver usually gives an offer of money "under the table" in order to subvert standard processes. This could be paying a tax officer to clear reports with under-reported revenue or sending goods without an [invoice](https://www.investopedia.com/terms/i/invoice.asp). The bribe may be in the form of a donation or favor in kind. A company's purchase manager may award an order to a supplier in return for undue favor in the form of money, against his company's policy of awarding orders based on criteria of quality and price. Public officers are offered bribes to enable evasion of taxes and the corresponding liabilities at an individual or company level. However it's done, a bribe—along with its cousin, the [kickback](https://www.investopedia.com/terms/k/kickback.asp)—results in an unfair advantage for the bribe giver. Bribes may seem like small amounts compared to lobbying contributions, but therein lies the problem: They often cannot be accounted for. Bribery is the first step of subversion of the economic system. Slowly but steadily, a corrupt, parallel system is formed. It creates inefficiencies and obstacles in the short term; over time, it erodes the economic foundation of the country, hurting the most vulnerable members of the society and filling the [middle class](https://www.investopedia.com/terms/m/middle-class.asp) with a sense of hopelessness and cynicism. ## Real-World Example of Corporate Bribery In 2020, European airplane manufacturer, Airbus, agreed to pay $4 billion in fines over accusations of bribery and corruption that dated back 15 years. The company reached a plea bargain with prosecutors in Britain, France, and the United Kingdom. The scandal involved using third-party business agents to bribe government officials and airline executives, as well as resolving Airbus's violation of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR). ## Special Considerations Bribery seems to have no morally redeeming features at all: It is a direct purchase of favor or advantage. Lobbying, on the other hand, is also used by civil rights and environmental support groups in their battles against commercial and for-profit interests. In that sense, lobbying becomes a critical and important tool in influencing public policy and evening the scales between different groups. But all too often, the border where lobbying's influence ends, and outright bribery begins, can be hard to fathom. ## What Is the Difference Between a Gift and a Bribe? The primary difference between a gift and a bribe is that a gift comes with no expectations, meaning, no strings attached. A gift is given freely out of goodwill as opposed to with the intention of receiving something in return to better the position of the giver. Often, a bribe can be directly related to some future action whereas a gift may not necessarily imply such action. ## What Kind of Crime Is a Bribe? Bribery is considered to be a felony. This applies to both the bribe giver and the bribe receiver. If convicted of bribery, an individual most often has to complete a state prison sentence of at least one year. Commercial bribery cases are often classified as misdemeanors. ## What Are the 3 Main Types of Bribes? The three main types of bribes are active bribes, passive bribes, and facilitation payments. Active bribery is when the individual that gives the bribe performs the offensive act. Passive bribery is when the receiver of the bribe performs the offensive act. Facilitation payments are made to retain business or for other improper actions. ## What Are Examples of Lobbying? Lobbying examples include meetings and discussions with government representatives, influencing legislation by negotiating the details of a bill, and pushing for presidential vetoes.

Bribery vs. Lobbying: An Overview Bribery and lobbying are often conjoined in the public mind: Critics of lobbying suggest that it's bribery in a suit. While both seek a favorable outcome, the two remain distinct practices. Bribery is considered an effort to buy power; paying to guarantee a certain result; lobbying is considered an effort to influence power, often by offering contributions. One key difference is that bribery is considered illegal, while lobbying is not. Key Takeaways Lobbying is the organizing of a group of like-minded people, industries, or entities to influence an authoritative body or lawmaking individual, often through financial contributions.Bribery involves the payment of something—either money or goods or an intangible favor—in the subversion of normal practices, for gain or special treatment, or in order to get an advantage.In the U.S., lobbying is legal, while bribery is not.Bribery is an effort to buy power, while lobbying is just an effort to influence it; but admittedly, the distinction between the two can be opaque. Lobbying Lobbyists try to shape laws, legislation, and public policy to the benefit of the group or entity that employs them. Their campaigns (which are legal) can sometimes be public ones (or fed to the media to influence the public), but they more typically target politicians, elected officials, legislators, and government agency employees; the movers and shakers on Capitol Hill and in state capitals too. Lobbyists—the term referring to both individuals and organizations—have existed as long as governments; they traditionally have been considered "information givers," a valuable source of facts and data, though admittedly in support of their cause or industry. Lobbyists systematically build up support for their causes, over years and decades. Often, they fund a study, survey, or research that might sway a politician's opinion or their constituency's opinion. Lobbyists are required to register with the Secretary of the Senate and the Clerk of the House, and to file disclosures of their activities and expenditures, according to the Lobbying Disclosure Act of 1995. More often, though, they act more directly—by giving money. Increasingly, lobbyists are ensuring contributions are made from the grassroots up to influence decision-makers at all stages. These contributions aren't directly paid to any official or lawmaker. But they might go to that person's election or re-election campaign—purchase advertising, finance a fundraiser—or to a politician's favorite cause, charity, hometown, or state project. Among lobbyists, there's a tacit understanding, if not an outright quid pro quo: We supported you and your interests; in return, you support us and ours—by voting for (or against) this bill, by funding that subsidy, by extending this exemption, or by loosening that regulation. But if they have existed forever, why are lobbyists reaping such scorn of late? It's partly due to their higher profile. In the past, they tended to operate quietly, behind the scenes, and away from the public eye. In the last few decades, however, they have become bigger and bolder, operating quite openly as a profession. (In Washington D.C., "K Street" is shorthand for the lobbying field, since so many are centered there, the way "Wall Street" in NYC symbolizes the finance industry). Not a month goes by without the public announcement of some former politician joining a lobbying firm, leveraging their knowledge of how the government machine works. $3.77 billion The money involved—both what lobbyists make and what they disburse—just keeps increasing. The total spending on lobbying has grown from $1.44 billion in 1998 to a record $3.77 billion in 2021. The top three spenders in 2021 were the U.S. Chamber of Commerce ($66 million), the National Association of Realtors ($44 million), and the Pharmaceutical Research & Manufacturers of America ($30 million), according to OpenSecrets.org. How Lobbyists Work For example, cigar lobbyists have campaigned for cigars not to be grouped with cigarettes. They lobbied for years to avoid government scrutiny and to propagate an image that cigars were not harmful, when in fact cigars are as dangerous as cigarettes. Or take the financial sector. Securities and investment firms spent $104 million in 2020. This amount is in line with prior years. In the aftermath of the Great Recession, 2010 and 2011, this sector was spending $103 million annually. Most of this money was spent to ensure that the government did not regulate the hedge fund industry. The impact of lobbying is massive. It affects policy by influencing policymakers and therefore citizens, rather than just individuals. Whether made directly by entities or through professional lobbying firms, the contributions—this "special interest money" as it's imaginatively known—lead the act of lobbying to be associated with bribery. Bribery In contrast, a bribe usually occurs on an individual level. And it is anything but public. A bribe giver usually gives an offer of money "under the table" in order to subvert standard processes. This could be paying a tax officer to clear reports with under-reported revenue or sending goods without an invoice. The bribe may be in the form of a donation or favor in kind. A company's purchase manager may award an order to a supplier in return for undue favor in the form of money, against his company's policy of awarding orders based on criteria of quality and price. Public officers are offered bribes to enable evasion of taxes and the corresponding liabilities at an individual or company level. However it's done, a bribe—along with its cousin, the kickback—results in an unfair advantage for the bribe giver. Bribes may seem like small amounts compared to lobbying contributions, but therein lies the problem: They often cannot be accounted for. Bribery is the first step of subversion of the economic system. Slowly but steadily, a corrupt, parallel system is formed. It creates inefficiencies and obstacles in the short term; over time, it erodes the economic foundation of the country, hurting the most vulnerable members of the society and filling the middle class with a sense of hopelessness and cynicism. Real-World Example of Corporate Bribery In 2020, European airplane manufacturer, Airbus, agreed to pay $4 billion in fines over accusations of bribery and corruption that dated back 15 years. The company reached a plea bargain with prosecutors in Britain, France, and the United Kingdom. The scandal involved using third-party business agents to bribe government officials and airline executives, as well as resolving Airbus's violation of the Arms Export Control Act (AECA) and the International Traffic in Arms Regulations (ITAR). Special Considerations Bribery seems to have no morally redeeming features at all: It is a direct purchase of favor or advantage. Lobbying, on the other hand, is also used by civil rights and environmental support groups in their battles against commercial and for-profit interests. In that sense, lobbying becomes a critical and important tool in influencing public policy and evening the scales between different groups. But all too often, the border where lobbying's influence ends, and outright bribery begins, can be hard to fathom. What Is the Difference Between a Gift and a Bribe? The primary difference between a gift and a bribe is that a gift comes with no expectations, meaning, no strings attached. A gift is given freely out of goodwill as opposed to with the intention of receiving something in return to better the position of the giver. Often, a bribe can be directly related to some future action whereas a gift may not necessarily imply such action. What Kind of Crime Is a Bribe? Bribery is considered to be a felony. This applies to both the bribe giver and the bribe receiver. If convicted of bribery, an individual most often has to complete a state prison sentence of at least one year. Commercial bribery cases are often classified as misdemeanors. What Are the 3 Main Types of Bribes? The three main types of bribes are active bribes, passive bribes, and facilitation payments. Active bribery is when the individual that gives the bribe performs the offensive act. Passive bribery is when the receiver of the bribe performs the offensive act. Facilitation payments are made to retain business or for other improper actions. What Are Examples of Lobbying? Lobbying examples include meetings and discussions with government representatives, influencing legislation by negotiating the details of a bill, and pushing for presidential vetoes.

https://www.investopedia.com/terms/d/digital-transaction-management-dtm.asp

Digital Transaction Management: 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-digital-transaction-management-dtm"></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 Digital Transaction Management (DTM)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Digital Transaction Management (DTM) is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cloud-computing.asp" rel="noopener noreferrer">cloud computing</a> service that allows users to digitally manage document-based transactions. DTM services aim to speed up the signing of business agreements and contracts by digitizing the process in a way that is fast, accurate and secure. </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 addition to faster execution, other benefits to DTM technology include fewer mistakes and lower operating costs, as documents can be signed and transmitted instantly online rather than printed, physically signed, scanned and emailed, or returned by post. Providers of DTM services include DocuSign (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=docu" rel="noopener noreferrer">DOCU</a>), Adobe (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=adbe" rel="noopener noreferrer">ADBE</a>) and OneSpan (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ospn" rel="noopener noreferrer">OSPN</a>).<span class="ql-inline-citation" data-cite="7"></span> <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_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>Digital Transaction Management (DTM) refers to the online facilitation of secure document signing and processing.</li><li>Companies that replace paper-based workflows with DTM systems can reduce costs and errors while increasing productivity and transaction times. </li><li>DTM services are cloud-based, meaning workers can access key company documents from any device with an internet connection.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-digital-transaction-management"></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 Digital Transaction Management </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> DTM technology creates digital signatures that are highly secure and authenticated which, according to DocuSign, makes them more legally enforceable than traditional signatures.<span class="ql-inline-citation" data-cite="7"></span> Furthermore, because DTM services are cloud based, the technology allows businesses to access key documents and do business anytime, anywhere, on any device. </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"> Proponents say businesses can more easily adopt DTM if they switch existing paper workflows to a completely digital process from start to finish. They also argue that paper-based processes, while more familiar and comfortable for many users, are not as safe or reliable as many think. Paper documents can be lost, aren't as secure and can be difficult to control. A business choosing to implement DTM can start in a single department or make the switch company-wide. </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"> DTM benefits organizations by reducing transaction times and improving the customer experience. The xDTM Standard sets requirements for DTM providers, which must address security, assurance, privacy, validity, availability, scalability, universality and interoperability.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <span class="heading-toc" id="toc-digital-transaction-management-benefits"></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"> Digital Transaction Management Benefits </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> DTM requires industry experts to create and implement <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/best_practices.asp" rel="noopener noreferrer">best practices</a> for practitioners in different fields, from doctors to lawyers to government workers. For example, when DTM is used in a healthcare setting, the privacy standard might be paramount, whereas in finance the security standard might be more important. Every aspect of a business can reap the benefits of DTM. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> <li><strong>Sales</strong>. DTM can be used for compensation agreements, referral agreements, new customer signups, and terms and conditions agreements.</li> <li><strong>Human Resources</strong>. Companies can use DTM for onboarding new workers, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nda.asp">nondisclosure agreements</a>, and payroll forms.</li> <li><strong>Finance</strong>. DTM makes it easier to manage invoices, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/transfer.asp">asset transfers</a>, and retirement accounts.</li> <li><strong>Information Technology</strong>. Companies can use DTM for access management and maintenance authorization.</li> <li><strong>Legal</strong>. <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-contract-management-software-5086406">Contract management</a> and internal compliance can be handled via DTM.</li> <li><strong>Procurement</strong>. DTM can be used to process purchase orders and statements of work.</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-digital-transaction-management-in-practice"></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"> Digital Transaction Management in Practice </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> DocuSign, Adobe and OneSpan (formerly VASCO Data Security International) are three major players in the DTM market and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-electronic-signature-software-5180395">specialize in digital signatures</a>. Other major DTM companies include Box (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=box">BOX</a>), which provides <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cloud-storage.asp">cloud storage</a>, team collaboration, and workflow automation for businesses;<span class="ql-inline-citation" data-cite="11"></span> Fluix, which stores files, facilitates document collaboration, and converts paper documents to digital files, in addition to offering e-signatures;<span class="ql-inline-citation" data-cite="12"></span> and Mi-Corporation, which provides mobile-based solutions to help employees collect data, GPS, photos, barcodes and signatures in the field.<span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> There are a number of other DTM companies, so potential users should perform a comparison of costs and features, which change frequently. Some companies cater to small businesses while others focus on enterprise-level solutions. </p></div>

## What Is Digital Transaction Management (DTM)? Digital Transaction Management (DTM) is a [cloud computing](https://www.investopedia.com/terms/c/cloud-computing.asp) service that allows users to digitally manage document-based transactions. DTM services aim to speed up the signing of business agreements and contracts by digitizing the process in a way that is fast, accurate and secure. In addition to faster execution, other benefits to DTM technology include fewer mistakes and lower operating costs, as documents can be signed and transmitted instantly online rather than printed, physically signed, scanned and emailed, or returned by post. Providers of DTM services include DocuSign ([DOCU](https://www.investopedia.com/markets/quote?tvwidgetsymbol=docu)), Adobe ([ADBE](https://www.investopedia.com/markets/quote?tvwidgetsymbol=adbe)) and OneSpan ([OSPN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ospn)).   ### Key Takeaways * Digital Transaction Management (DTM) refers to the online facilitation of secure document signing and processing. * Companies that replace paper-based workflows with DTM systems can reduce costs and errors while increasing productivity and transaction times. * DTM services are cloud-based, meaning workers can access key company documents from any device with an internet connection. ## Understanding Digital Transaction Management DTM technology creates digital signatures that are highly secure and authenticated which, according to DocuSign, makes them more legally enforceable than traditional signatures. Furthermore, because DTM services are cloud based, the technology allows businesses to access key documents and do business anytime, anywhere, on any device. Proponents say businesses can more easily adopt DTM if they switch existing paper workflows to a completely digital process from start to finish. They also argue that paper-based processes, while more familiar and comfortable for many users, are not as safe or reliable as many think. Paper documents can be lost, aren't as secure and can be difficult to control. A business choosing to implement DTM can start in a single department or make the switch company-wide. DTM benefits organizations by reducing transaction times and improving the customer experience. The xDTM Standard sets requirements for DTM providers, which must address security, assurance, privacy, validity, availability, scalability, universality and interoperability. ## Digital Transaction Management Benefits DTM requires industry experts to create and implement [best practices](https://www.investopedia.com/terms/b/best_practices.asp) for practitioners in different fields, from doctors to lawyers to government workers. For example, when DTM is used in a healthcare setting, the privacy standard might be paramount, whereas in finance the security standard might be more important. Every aspect of a business can reap the benefits of DTM. * **Sales**. DTM can be used for compensation agreements, referral agreements, new customer signups, and terms and conditions agreements. * **Human Resources**. Companies can use DTM for onboarding new workers, [nondisclosure agreements](https://www.investopedia.com/terms/n/nda.asp), and payroll forms. * **Finance**. DTM makes it easier to manage invoices, [asset transfers](https://www.investopedia.com/terms/t/transfer.asp), and retirement accounts. * **Information Technology**. Companies can use DTM for access management and maintenance authorization. * **Legal**. [Contract management](https://www.investopedia.com/best-contract-management-software-5086406) and internal compliance can be handled via DTM. * **Procurement**. DTM can be used to process purchase orders and statements of work. ## Digital Transaction Management in Practice DocuSign, Adobe and OneSpan (formerly VASCO Data Security International) are three major players in the DTM market and [specialize in digital signatures](https://www.investopedia.com/best-electronic-signature-software-5180395). Other major DTM companies include Box ([BOX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=box)), which provides [cloud storage](https://www.investopedia.com/terms/c/cloud-storage.asp), team collaboration, and workflow automation for businesses; Fluix, which stores files, facilitates document collaboration, and converts paper documents to digital files, in addition to offering e-signatures; and Mi-Corporation, which provides mobile-based solutions to help employees collect data, GPS, photos, barcodes and signatures in the field. There are a number of other DTM companies, so potential users should perform a comparison of costs and features, which change frequently. Some companies cater to small businesses while others focus on enterprise-level solutions.

What Is Digital Transaction Management (DTM)? Digital Transaction Management (DTM) is a cloud computing service that allows users to digitally manage document-based transactions. DTM services aim to speed up the signing of business agreements and contracts by digitizing the process in a way that is fast, accurate and secure. In addition to faster execution, other benefits to DTM technology include fewer mistakes and lower operating costs, as documents can be signed and transmitted instantly online rather than printed, physically signed, scanned and emailed, or returned by post. Providers of DTM services include DocuSign (DOCU), Adobe (ADBE) and OneSpan (OSPN).   Key Takeaways Digital Transaction Management (DTM) refers to the online facilitation of secure document signing and processing.Companies that replace paper-based workflows with DTM systems can reduce costs and errors while increasing productivity and transaction times. DTM services are cloud-based, meaning workers can access key company documents from any device with an internet connection. Understanding Digital Transaction Management DTM technology creates digital signatures that are highly secure and authenticated which, according to DocuSign, makes them more legally enforceable than traditional signatures. Furthermore, because DTM services are cloud based, the technology allows businesses to access key documents and do business anytime, anywhere, on any device. Proponents say businesses can more easily adopt DTM if they switch existing paper workflows to a completely digital process from start to finish. They also argue that paper-based processes, while more familiar and comfortable for many users, are not as safe or reliable as many think. Paper documents can be lost, aren't as secure and can be difficult to control. A business choosing to implement DTM can start in a single department or make the switch company-wide. DTM benefits organizations by reducing transaction times and improving the customer experience. The xDTM Standard sets requirements for DTM providers, which must address security, assurance, privacy, validity, availability, scalability, universality and interoperability. Digital Transaction Management Benefits DTM requires industry experts to create and implement best practices for practitioners in different fields, from doctors to lawyers to government workers. For example, when DTM is used in a healthcare setting, the privacy standard might be paramount, whereas in finance the security standard might be more important. Every aspect of a business can reap the benefits of DTM. Sales. DTM can be used for compensation agreements, referral agreements, new customer signups, and terms and conditions agreements. Human Resources. Companies can use DTM for onboarding new workers, nondisclosure agreements, and payroll forms. Finance. DTM makes it easier to manage invoices, asset transfers, and retirement accounts. Information Technology. Companies can use DTM for access management and maintenance authorization. Legal. Contract management and internal compliance can be handled via DTM. Procurement. DTM can be used to process purchase orders and statements of work. Digital Transaction Management in Practice DocuSign, Adobe and OneSpan (formerly VASCO Data Security International) are three major players in the DTM market and specialize in digital signatures. Other major DTM companies include Box (BOX), which provides cloud storage, team collaboration, and workflow automation for businesses; Fluix, which stores files, facilitates document collaboration, and converts paper documents to digital files, in addition to offering e-signatures; and Mi-Corporation, which provides mobile-based solutions to help employees collect data, GPS, photos, barcodes and signatures in the field. There are a number of other DTM companies, so potential users should perform a comparison of costs and features, which change frequently. Some companies cater to small businesses while others focus on enterprise-level solutions.

https://www.investopedia.com/articles/active-trading/110415/how-trade-dow-jones-future-contracts.asp

How to Trade Dow Jones Index Futures

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Futures contracts such as the E-mini Dow enable just about anyone to trade or invest in 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>, the most iconic stock index in the world. The Dow tracks 30 blue-chip U.S. stocks from nine sectors, ranging from industrials to healthcare to consumer staples.<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> The Dow is often considered synonymous with "the stock market," though the S&amp;P 500 Index, which is comprised of at least 500 constituents, more broadly represents the U.S. equities market. Still, Dow <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/indexfutures.asp">index futures</a> are a popular tool for getting broad-based exposure to U.S. equity or hedging such positions.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_5-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_6-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Dow Jones futures contracts enable just about anyone to speculate on whether the broader stock market will rise or fall.</li><li>Dow futures contracts can be traded on leverage, meaning you only need to put up a fraction of the value of the contract.</li><li>Dow futures markets make it much simpler to short-sell the broader stock market than individual stocks.</li></ul></div></div></div> <span class="heading-toc" id="toc-futures-trading-basics"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Futures Trading Basics </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> A futures contract is a legally binding agreement between two parties in which they agree to buy or sell an underlying asset at a predetermined price in the future. The buyer assumes the obligation to buy and the seller to sell. And the value of the underlying asset—in this case, the Dow—will usually change in the meantime, creating the opportunity for profits or losses.<span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Some commodity futures contracts still require actual physical delivery of the underlying product in question, such as bushels of corn, but that is not the case with Dow and other financial market futures, which were created to allow traders to easily hedge risk and speculate for profit. They can be settled for cash.<span class="ql-inline-citation" data-cite="14"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-trading-the-dow-with-futures-contracts"></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"> Trading the Dow With Futures Contracts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Put simply, DJIA futures contracts enable traders and investors to bet on the direction in which they believe the index, representing the broader market, will move. That simplicity, the high trading volumes, and the leverage available have made Dow futures a popular way to trade the overall U.S. stock market. About 140,000 E-mini Dow contracts change hands every day.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> There are now two Dow futures contract sizes available, both of which trade on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cbot.asp">Chicago Board of Trade (CBOT)</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cme.asp">Chicago Mercantile Exchange (CME)</a>. The <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/emini.asp">E-mini</a>, or mini-Dow, contract, as noted above, represents $5 per tick on the DJIA. The Micro E-mini is one-tenth the size of the E-mini, and represents 50 cents per point with a margin requirement of about $800, as of September 2023.<span class="ql-inline-citation" data-cite="10"></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_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> In addition to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/front-month-contract.asp">front month</a>, Dow futures are listed quarterly, with <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expirationdate.asp">expirations</a> in March, June, September, and December. These contracts are <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashsettlement.asp">cash-settled</a>, meaning that delivery is made in the equivalent value of the index rather than in the stocks that make up the index itself.<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_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"> Trading Hours </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Unlike the stock market, financial futures trade six days a week, Sunday through Friday, and nearly around the clock.<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_21-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> <li>During regular U.S. stock market trading hours, the DJIA futures contract price very closely tracks the index value.</li><li>When the U.S. stock markets are closed, these index futures may continue to trade in after-hours sessions. These prices, which continue even while the underlying component stocks are closed, can be influenced by economic data releases or monetary policy decisions in other countries, or geopolitical events.</li><li>Components in the Dow can be traded during the following hours: 8:30 a.m. to 3:00 p.m.; trading halt from 3:15 p.m. to 3:30 p.m.; CME Globex Trading resumes 3:30 p.m. to 4:15 p.m.; Trading resumes on CME Globex 5:00 p.m. to 8:30 a.m.<span class="ql-inline-citation" data-cite="9"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Using Leverage in Trading </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> One of the most attractive features of futures contracts 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>. A trader can buy an E-mini Dow contract for about $5,500—and that futures contract is worth $5 for every point on the DJIA. So if you buy when the index itself is at 29,000, and sell when it hits 30,000, you've made $5,000 on the trade, nearly doubling your money.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Beware, though, that leverage cuts both ways, magnifying losses as well as gains. A drop of 1,000 points on the Dow would nearly wipe out your $5,500. </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"> Opening a Futures Trading Account </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/optioninvestor/09/get-started-with-futures.asp">first step to trading Dow futures</a> is to open a trading account or, if you already have a stock trading account, to request permission from your brokerage to trade futures. Most major brokerages such as E*Trade, TD Ameritrade, and Interactive Brokers offer stock index futures. They generally charge a commission when a position is opened and closed. </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"> Key considerations when choosing a broker are the ease of the trading platform, commission charges, customer service, features such as news and data feeds, and analytical tools such as charts. </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"> Selecting a Futures Trading Strategy </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> After selecting a broker and depositing funds into a trading account, the next step is to download the broker's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trading-platform.asp" rel="noopener noreferrer">trading platform</a> and learn how to use it. You don't want to get caught attempting to make quick trading decisions in a volatile market before you are proficient in using your trading software. </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_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Investors seeking exposure to the DJIA can also purchase exchange-traded funds (ETFs) that track the index.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Once you know your trading platform, select a trading strategy and test it using a demo or trade simulator account. Only begin live trading with real money after you have a strategy that is consistently profitable in simulated trading. This is even more important when trading with highly leveraged instruments such as futures. </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"> With futures trading, you can buy long or sell short with equal ease. Futures markets aren't burdened with the same short-selling regulations as stock markets. If you expect the DJIA to go up, buy a futures contract; if you expect the index to decline, sell one short. Take a position in the futures contract trading month you want to trade—the one with the closest expiration date will be the most heavily traded. </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"> Futures Margin Requirements </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> When you open a position, the broker will set aside the required initial margin amount in your account. To hold the position, you must maintain sufficient capital in your account to cover the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maintenancemargin.asp">maintenance margin</a>. The maintenance margin is lower than the initial margin requirement. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> If your account value dips below the maintenance margin level, you will receive a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/margincall.asp">margin call</a> from your brokerage that will require you to liquidate trade positions or deposit additional funds to bring the account back up to the required level.<span class="ql-inline-citation" data-cite="18"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <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"> Closing a Position </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> Close an open trade simply by entering an opposite order. For example, if you opened the trade by buying five E-mini Dow contracts, you would close the trade by selling them with the same futures contract expiration date. If you opened by selling five contracts short, you would need to buy five to close the trade. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> It is also possible to partially close out of a position if you have more than one contract—for example, selling three of five contracts originally bought, leaving a position of two contracts open. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_53-0"><span class="heading-toc" id="toc-what-is-the-difference-between-the-dow-jones-and-dow-jones-futures"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between the Dow Jones and Dow Jones Futures?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The Dow Jones is the stock market index; the Dow Jones Industrial Average (DJIA), which tracks 30 of the most prominent companies that trade on U.S. stock exchanges. Dow Jones futures are simply futures contracts that can be purchased to hedge or speculate against components in the DJIA. The futures are instruments derived from the index known as E-mini Dow futures.</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-is-it-better-to-invest-in-the-dow-jones-or-the-sp-500"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is It Better to Invest in the Dow Jones or the S&amp;P 500?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Whether it is better to invest in the Dow Jones or the S&amp;P 500 will depend on the specific investor, their investment goals, and their risk tolerance. The Dow Jones consists of 30 companies while the S&amp;P 500 consists of 500 companies, so there is more diversification in the S&amp;P 500. In regards to performance, depending on the time frame evaluated, one will perform better than the other.<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_56-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_57-0"><span class="heading-toc" id="toc-what-is-the-difference-between-an-index-and-index-futures"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between an Index and Index Futures?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>An index tracks and measures the price of a collection of assets, such as a group of stocks. You cannot invest directly in an index. Index futures are derivative financial contracts, meaning they derive their value from an underlying asset, in this case, the index. Index futures can be bought and sold and their value changes with the value of the index.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_59-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> Futures are a much more complex financial instrument than stocks and bonds and should only be traded by experienced investors. Futures can certainly help an investor realize profits but should be traded with care. </p></div>

Futures contracts such as the E-mini Dow enable just about anyone to trade or invest in the [Dow Jones Industrial Average (DJIA)](https://www.investopedia.com/terms/d/djia.asp), the most iconic stock index in the world. The Dow tracks 30 blue-chip U.S. stocks from nine sectors, ranging from industrials to healthcare to consumer staples. The Dow is often considered synonymous with "the stock market," though the S&P 500 Index, which is comprised of at least 500 constituents, more broadly represents the U.S. equities market. Still, Dow [index futures](https://www.investopedia.com/terms/i/indexfutures.asp) are a popular tool for getting broad-based exposure to U.S. equity or hedging such positions. ### Key Takeaways * Dow Jones futures contracts enable just about anyone to speculate on whether the broader stock market will rise or fall. * Dow futures contracts can be traded on leverage, meaning you only need to put up a fraction of the value of the contract. * Dow futures markets make it much simpler to short-sell the broader stock market than individual stocks. ## Futures Trading Basics A futures contract is a legally binding agreement between two parties in which they agree to buy or sell an underlying asset at a predetermined price in the future. The buyer assumes the obligation to buy and the seller to sell. And the value of the underlying asset—in this case, the Dow—will usually change in the meantime, creating the opportunity for profits or losses. Some commodity futures contracts still require actual physical delivery of the underlying product in question, such as bushels of corn, but that is not the case with Dow and other financial market futures, which were created to allow traders to easily hedge risk and speculate for profit. They can be settled for cash. ## Trading the Dow With Futures Contracts Put simply, DJIA futures contracts enable traders and investors to bet on the direction in which they believe the index, representing the broader market, will move. That simplicity, the high trading volumes, and the leverage available have made Dow futures a popular way to trade the overall U.S. stock market. About 140,000 E-mini Dow contracts change hands every day. There are now two Dow futures contract sizes available, both of which trade on the [Chicago Board of Trade (CBOT)](https://www.investopedia.com/terms/c/cbot.asp) and [Chicago Mercantile Exchange (CME)](https://www.investopedia.com/terms/c/cme.asp). The [E-mini](https://www.investopedia.com/terms/e/emini.asp), or mini-Dow, contract, as noted above, represents $5 per tick on the DJIA. The Micro E-mini is one-tenth the size of the E-mini, and represents 50 cents per point with a margin requirement of about $800, as of September 2023. In addition to the [front month](https://www.investopedia.com/terms/f/front-month-contract.asp), Dow futures are listed quarterly, with [expirations](https://www.investopedia.com/terms/e/expirationdate.asp) in March, June, September, and December. These contracts are [cash-settled](https://www.investopedia.com/terms/c/cashsettlement.asp), meaning that delivery is made in the equivalent value of the index rather than in the stocks that make up the index itself. ### Trading Hours Unlike the stock market, financial futures trade six days a week, Sunday through Friday, and nearly around the clock. * During regular U.S. stock market trading hours, the DJIA futures contract price very closely tracks the index value. * When the U.S. stock markets are closed, these index futures may continue to trade in after-hours sessions. These prices, which continue even while the underlying component stocks are closed, can be influenced by economic data releases or monetary policy decisions in other countries, or geopolitical events. * Components in the Dow can be traded during the following hours: 8:30 a.m. to 3:00 p.m.; trading halt from 3:15 p.m. to 3:30 p.m.; CME Globex Trading resumes 3:30 p.m. to 4:15 p.m.; Trading resumes on CME Globex 5:00 p.m. to 8:30 a.m. ### Using Leverage in Trading One of the most attractive features of futures contracts is [leverage](https://www.investopedia.com/terms/l/leverage.asp). A trader can buy an E-mini Dow contract for about $5,500—and that futures contract is worth $5 for every point on the DJIA. So if you buy when the index itself is at 29,000, and sell when it hits 30,000, you've made $5,000 on the trade, nearly doubling your money. Beware, though, that leverage cuts both ways, magnifying losses as well as gains. A drop of 1,000 points on the Dow would nearly wipe out your $5,500. ### Opening a Futures Trading Account The [first step to trading Dow futures](https://www.investopedia.com/articles/optioninvestor/09/get-started-with-futures.asp) is to open a trading account or, if you already have a stock trading account, to request permission from your brokerage to trade futures. Most major brokerages such as E\*Trade, TD Ameritrade, and Interactive Brokers offer stock index futures. They generally charge a commission when a position is opened and closed. Key considerations when choosing a broker are the ease of the trading platform, commission charges, customer service, features such as news and data feeds, and analytical tools such as charts. ### Selecting a Futures Trading Strategy After selecting a broker and depositing funds into a trading account, the next step is to download the broker's [trading platform](https://www.investopedia.com/terms/t/trading-platform.asp) and learn how to use it. You don't want to get caught attempting to make quick trading decisions in a volatile market before you are proficient in using your trading software. ### Investors seeking exposure to the DJIA can also purchase exchange-traded funds (ETFs) that track the index. Once you know your trading platform, select a trading strategy and test it using a demo or trade simulator account. Only begin live trading with real money after you have a strategy that is consistently profitable in simulated trading. This is even more important when trading with highly leveraged instruments such as futures. With futures trading, you can buy long or sell short with equal ease. Futures markets aren't burdened with the same short-selling regulations as stock markets. If you expect the DJIA to go up, buy a futures contract; if you expect the index to decline, sell one short. Take a position in the futures contract trading month you want to trade—the one with the closest expiration date will be the most heavily traded. ### Futures Margin Requirements When you open a position, the broker will set aside the required initial margin amount in your account. To hold the position, you must maintain sufficient capital in your account to cover the [maintenance margin](https://www.investopedia.com/terms/m/maintenancemargin.asp). The maintenance margin is lower than the initial margin requirement. If your account value dips below the maintenance margin level, you will receive a [margin call](https://www.investopedia.com/terms/m/margincall.asp) from your brokerage that will require you to liquidate trade positions or deposit additional funds to bring the account back up to the required level. ### Closing a Position Close an open trade simply by entering an opposite order. For example, if you opened the trade by buying five E-mini Dow contracts, you would close the trade by selling them with the same futures contract expiration date. If you opened by selling five contracts short, you would need to buy five to close the trade. It is also possible to partially close out of a position if you have more than one contract—for example, selling three of five contracts originally bought, leaving a position of two contracts open. ## What Is the Difference Between the Dow Jones and Dow Jones Futures? The Dow Jones is the stock market index; the Dow Jones Industrial Average (DJIA), which tracks 30 of the most prominent companies that trade on U.S. stock exchanges. Dow Jones futures are simply futures contracts that can be purchased to hedge or speculate against components in the DJIA. The futures are instruments derived from the index known as E-mini Dow futures. ## Is It Better to Invest in the Dow Jones or the S&P 500? Whether it is better to invest in the Dow Jones or the S&P 500 will depend on the specific investor, their investment goals, and their risk tolerance. The Dow Jones consists of 30 companies while the S&P 500 consists of 500 companies, so there is more diversification in the S&P 500. In regards to performance, depending on the time frame evaluated, one will perform better than the other. ## What Is the Difference Between an Index and Index Futures? An index tracks and measures the price of a collection of assets, such as a group of stocks. You cannot invest directly in an index. Index futures are derivative financial contracts, meaning they derive their value from an underlying asset, in this case, the index. Index futures can be bought and sold and their value changes with the value of the index. ## The Bottom Line Futures are a much more complex financial instrument than stocks and bonds and should only be traded by experienced investors. Futures can certainly help an investor realize profits but should be traded with care.

Futures contracts such as the E-mini Dow enable just about anyone to trade or invest in the Dow Jones Industrial Average (DJIA), the most iconic stock index in the world. The Dow tracks 30 blue-chip U.S. stocks from nine sectors, ranging from industrials to healthcare to consumer staples. The Dow is often considered synonymous with "the stock market," though the S&P 500 Index, which is comprised of at least 500 constituents, more broadly represents the U.S. equities market. Still, Dow index futures are a popular tool for getting broad-based exposure to U.S. equity or hedging such positions. Key Takeaways Dow Jones futures contracts enable just about anyone to speculate on whether the broader stock market will rise or fall.Dow futures contracts can be traded on leverage, meaning you only need to put up a fraction of the value of the contract.Dow futures markets make it much simpler to short-sell the broader stock market than individual stocks. Futures Trading Basics A futures contract is a legally binding agreement between two parties in which they agree to buy or sell an underlying asset at a predetermined price in the future. The buyer assumes the obligation to buy and the seller to sell. And the value of the underlying asset—in this case, the Dow—will usually change in the meantime, creating the opportunity for profits or losses. Some commodity futures contracts still require actual physical delivery of the underlying product in question, such as bushels of corn, but that is not the case with Dow and other financial market futures, which were created to allow traders to easily hedge risk and speculate for profit. They can be settled for cash. Trading the Dow With Futures Contracts Put simply, DJIA futures contracts enable traders and investors to bet on the direction in which they believe the index, representing the broader market, will move. That simplicity, the high trading volumes, and the leverage available have made Dow futures a popular way to trade the overall U.S. stock market. About 140,000 E-mini Dow contracts change hands every day. There are now two Dow futures contract sizes available, both of which trade on the Chicago Board of Trade (CBOT) and Chicago Mercantile Exchange (CME). The E-mini, or mini-Dow, contract, as noted above, represents $5 per tick on the DJIA. The Micro E-mini is one-tenth the size of the E-mini, and represents 50 cents per point with a margin requirement of about $800, as of September 2023. In addition to the front month, Dow futures are listed quarterly, with expirations in March, June, September, and December. These contracts are cash-settled, meaning that delivery is made in the equivalent value of the index rather than in the stocks that make up the index itself. Trading Hours Unlike the stock market, financial futures trade six days a week, Sunday through Friday, and nearly around the clock. During regular U.S. stock market trading hours, the DJIA futures contract price very closely tracks the index value.When the U.S. stock markets are closed, these index futures may continue to trade in after-hours sessions. These prices, which continue even while the underlying component stocks are closed, can be influenced by economic data releases or monetary policy decisions in other countries, or geopolitical events.Components in the Dow can be traded during the following hours: 8:30 a.m. to 3:00 p.m.; trading halt from 3:15 p.m. to 3:30 p.m.; CME Globex Trading resumes 3:30 p.m. to 4:15 p.m.; Trading resumes on CME Globex 5:00 p.m. to 8:30 a.m. Using Leverage in Trading One of the most attractive features of futures contracts is leverage. A trader can buy an E-mini Dow contract for about $5,500—and that futures contract is worth $5 for every point on the DJIA. So if you buy when the index itself is at 29,000, and sell when it hits 30,000, you've made $5,000 on the trade, nearly doubling your money. Beware, though, that leverage cuts both ways, magnifying losses as well as gains. A drop of 1,000 points on the Dow would nearly wipe out your $5,500. Opening a Futures Trading Account The first step to trading Dow futures is to open a trading account or, if you already have a stock trading account, to request permission from your brokerage to trade futures. Most major brokerages such as E*Trade, TD Ameritrade, and Interactive Brokers offer stock index futures. They generally charge a commission when a position is opened and closed. Key considerations when choosing a broker are the ease of the trading platform, commission charges, customer service, features such as news and data feeds, and analytical tools such as charts. Selecting a Futures Trading Strategy After selecting a broker and depositing funds into a trading account, the next step is to download the broker's trading platform and learn how to use it. You don't want to get caught attempting to make quick trading decisions in a volatile market before you are proficient in using your trading software. Investors seeking exposure to the DJIA can also purchase exchange-traded funds (ETFs) that track the index. Once you know your trading platform, select a trading strategy and test it using a demo or trade simulator account. Only begin live trading with real money after you have a strategy that is consistently profitable in simulated trading. This is even more important when trading with highly leveraged instruments such as futures. With futures trading, you can buy long or sell short with equal ease. Futures markets aren't burdened with the same short-selling regulations as stock markets. If you expect the DJIA to go up, buy a futures contract; if you expect the index to decline, sell one short. Take a position in the futures contract trading month you want to trade—the one with the closest expiration date will be the most heavily traded. Futures Margin Requirements When you open a position, the broker will set aside the required initial margin amount in your account. To hold the position, you must maintain sufficient capital in your account to cover the maintenance margin. The maintenance margin is lower than the initial margin requirement. If your account value dips below the maintenance margin level, you will receive a margin call from your brokerage that will require you to liquidate trade positions or deposit additional funds to bring the account back up to the required level. Closing a Position Close an open trade simply by entering an opposite order. For example, if you opened the trade by buying five E-mini Dow contracts, you would close the trade by selling them with the same futures contract expiration date. If you opened by selling five contracts short, you would need to buy five to close the trade. It is also possible to partially close out of a position if you have more than one contract—for example, selling three of five contracts originally bought, leaving a position of two contracts open. What Is the Difference Between the Dow Jones and Dow Jones Futures? The Dow Jones is the stock market index; the Dow Jones Industrial Average (DJIA), which tracks 30 of the most prominent companies that trade on U.S. stock exchanges. Dow Jones futures are simply futures contracts that can be purchased to hedge or speculate against components in the DJIA. The futures are instruments derived from the index known as E-mini Dow futures. Is It Better to Invest in the Dow Jones or the S&P 500? Whether it is better to invest in the Dow Jones or the S&P 500 will depend on the specific investor, their investment goals, and their risk tolerance. The Dow Jones consists of 30 companies while the S&P 500 consists of 500 companies, so there is more diversification in the S&P 500. In regards to performance, depending on the time frame evaluated, one will perform better than the other. What Is the Difference Between an Index and Index Futures? An index tracks and measures the price of a collection of assets, such as a group of stocks. You cannot invest directly in an index. Index futures are derivative financial contracts, meaning they derive their value from an underlying asset, in this case, the index. Index futures can be bought and sold and their value changes with the value of the index. The Bottom Line Futures are a much more complex financial instrument than stocks and bonds and should only be traded by experienced investors. Futures can certainly help an investor realize profits but should be traded with care.

https://www.investopedia.com/ask/answers/030915/how-do-i-determine-where-set-my-stop-loss.asp

Determining Where to Set Your Stop-Loss

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> No one wants to lose money when they're playing the market. That's why it's important to set a floor for your position in a security. That's where stop-loss orders come in. But many investors have a tough time determining where to set their levels. Setting them up too far away may result in big losses if the market makes a move in the opposite direction. Set your stop-losses too close, and you can get out of a position too quickly. </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"> So how can you tell where to set your stop-loss order? Read on to find out more. </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>Stop-loss orders are placed with brokers to sell securities when they reach a specific price.</li><li>Figuring out where to place your stop-loss depends on your risk threshold—the price should minimize and limit your loss.</li><li>The percentage method limits the stop-loss at a specific percentage.</li><li>In the support method, an investor determines the most recent support level of the stock and places the stop-loss just below that level.</li><li>The moving average method sees the stop-loss placed just below a longer-term moving average price.</li></ul></div></div></div> <span class="heading-toc" id="toc-what-is-a-stop-loss-order"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> What Is a Stop-Loss Order? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> A stop-loss order is placed with a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/broker.asp">broker</a> to sell securities when they reach a specific price.<span class="ql-inline-citation" data-cite="1"></span> These orders help minimize the loss an investor may incur in a security position. So if you set the stop-loss order at 10% below the price at which you purchased the security, your loss will be limited to 10%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> For example, if you buy Company X's stock for $25 per share, you can enter a stop-loss order for $22.50. This will keep your loss to 10%. But if Company X's stock drops below $22.50, your shares will be sold at the current price. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_12-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_13-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/slippage.asp">Slippage</a> refers to the point when you can't find a buyer at your limit and you end up with a lower price than expected.<span class="ql-inline-citation" data-cite="3"></span></p></div></div></div> <span class="heading-toc" id="toc-determining-stop-loss-order"></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"> Determining Stop-Loss Order </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Determining <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 order</a> placement is all about targeting an allowable risk threshold. This price should be strategically derived with the intention of limiting loss. For example, if a stock is purchased at $30 and the stop-loss is placed at $24, the stop-loss is limiting downside capture to 20% of the original position. If the 20% threshold is where you are comfortable, place a trailing stop-loss.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <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_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Know where you are going to place your stop before you start trading a specific security.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> There are plenty of theories on stop-loss placement. Technical traders are always looking for ways to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/markettiming.asp">time the market</a>, and different stop or limit orders have different uses depending on the type of timing techniques being implemented. Some theories use universal placements such as 6% <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trailingstop.asp">trailing stops</a> on all securities, and some theories use security- or pattern-specific placements including average true range percentage stops. </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-stop-loss-placement-methods"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> Stop-Loss Placement Methods </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Common methods include the percentage method described above. There's also the support method which involves hard stops at a set price. This method may be a little harder to practice. You'll need to figure out the most recent support level of the stock. As soon as you've figured that out, you can place your stop-loss order just below that level. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The other method is the moving average method. By using this way, stop-losses are placed just below a longer-term <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/movingaverage.asp">moving average</a> price rather than shorter-term prices. </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/swingtrading.asp">Swing traders</a> often employ a multiple-day high/low method, in which stops are placed at the low price of a predetermined day's trading. For example, lows may consistently be replaced at the two-day low. More patient traders may use indicator stops based on larger trend analysis. Indicator stops are often coupled with other technical indicators such as the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/active-trading/042114/overbought-or-oversold-use-relative-strength-index-find-out.asp">relative strength index (RSI)</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <span class="heading-toc" id="toc-what-to-consider-with-stop-loss-orders"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_28-0"> <span class="mntl-sc-block-heading__text"> What to Consider With Stop-Loss Orders </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> As an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investor.asp">investor</a> there are a few things you'll want to keep in mind when it comes to stop-loss orders:<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> <li>Stop-loss orders are not for active traders.</li><li>Stop-loss orders don't work well for large blocks of stock as you may lose more in the long run.</li><li>Brokers charge different fees for different orders, so keep an eye out for how much you're paying.</li><li>And never assume your stop-loss order has gone through. Always wait for the order confirmation.</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-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_33-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Traders should evaluate their own risk tolerances to determine stop-loss placements. Specific markets or securities should be studied to understand whether <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retracement.asp">retracements</a> are common. Securities that show retracements require a more active stop-loss and re-entry strategy. Stop-losses are a form of profit capturing and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskmanagement.asp">risk management</a>, but they do not guarantee profitability. </p></div>

No one wants to lose money when they're playing the market. That's why it's important to set a floor for your position in a security. That's where stop-loss orders come in. But many investors have a tough time determining where to set their levels. Setting them up too far away may result in big losses if the market makes a move in the opposite direction. Set your stop-losses too close, and you can get out of a position too quickly. So how can you tell where to set your stop-loss order? Read on to find out more. ### Key Takeaways * Stop-loss orders are placed with brokers to sell securities when they reach a specific price. * Figuring out where to place your stop-loss depends on your risk threshold—the price should minimize and limit your loss. * The percentage method limits the stop-loss at a specific percentage. * In the support method, an investor determines the most recent support level of the stock and places the stop-loss just below that level. * The moving average method sees the stop-loss placed just below a longer-term moving average price. ## What Is a Stop-Loss Order? A stop-loss order is placed with a [broker](https://www.investopedia.com/terms/b/broker.asp) to sell securities when they reach a specific price. These orders help minimize the loss an investor may incur in a security position. So if you set the stop-loss order at 10% below the price at which you purchased the security, your loss will be limited to 10%. For example, if you buy Company X's stock for $25 per share, you can enter a stop-loss order for $22.50. This will keep your loss to 10%. But if Company X's stock drops below $22.50, your shares will be sold at the current price. ### [Slippage](https://www.investopedia.com/terms/s/slippage.asp) refers to the point when you can't find a buyer at your limit and you end up with a lower price than expected. ## Determining Stop-Loss Order Determining [stop-loss order](https://www.investopedia.com/terms/s/stop-lossorder.asp) placement is all about targeting an allowable risk threshold. This price should be strategically derived with the intention of limiting loss. For example, if a stock is purchased at $30 and the stop-loss is placed at $24, the stop-loss is limiting downside capture to 20% of the original position. If the 20% threshold is where you are comfortable, place a trailing stop-loss. ### Know where you are going to place your stop before you start trading a specific security. There are plenty of theories on stop-loss placement. Technical traders are always looking for ways to [time the market](https://www.investopedia.com/terms/m/markettiming.asp), and different stop or limit orders have different uses depending on the type of timing techniques being implemented. Some theories use universal placements such as 6% [trailing stops](https://www.investopedia.com/terms/t/trailingstop.asp) on all securities, and some theories use security- or pattern-specific placements including average true range percentage stops. ## Stop-Loss Placement Methods Common methods include the percentage method described above. There's also the support method which involves hard stops at a set price. This method may be a little harder to practice. You'll need to figure out the most recent support level of the stock. As soon as you've figured that out, you can place your stop-loss order just below that level. The other method is the moving average method. By using this way, stop-losses are placed just below a longer-term [moving average](https://www.investopedia.com/terms/m/movingaverage.asp) price rather than shorter-term prices. [Swing traders](https://www.investopedia.com/terms/s/swingtrading.asp) often employ a multiple-day high/low method, in which stops are placed at the low price of a predetermined day's trading. For example, lows may consistently be replaced at the two-day low. More patient traders may use indicator stops based on larger trend analysis. Indicator stops are often coupled with other technical indicators such as the [relative strength index (RSI)](https://www.investopedia.com/articles/active-trading/042114/overbought-or-oversold-use-relative-strength-index-find-out.asp). ## What to Consider With Stop-Loss Orders As an [investor](https://www.investopedia.com/terms/i/investor.asp) there are a few things you'll want to keep in mind when it comes to stop-loss orders: * Stop-loss orders are not for active traders. * Stop-loss orders don't work well for large blocks of stock as you may lose more in the long run. * Brokers charge different fees for different orders, so keep an eye out for how much you're paying. * And never assume your stop-loss order has gone through. Always wait for the order confirmation. ## The Bottom Line Traders should evaluate their own risk tolerances to determine stop-loss placements. Specific markets or securities should be studied to understand whether [retracements](https://www.investopedia.com/terms/r/retracement.asp) are common. Securities that show retracements require a more active stop-loss and re-entry strategy. Stop-losses are a form of profit capturing and [risk management](https://www.investopedia.com/terms/r/riskmanagement.asp), but they do not guarantee profitability.

No one wants to lose money when they're playing the market. That's why it's important to set a floor for your position in a security. That's where stop-loss orders come in. But many investors have a tough time determining where to set their levels. Setting them up too far away may result in big losses if the market makes a move in the opposite direction. Set your stop-losses too close, and you can get out of a position too quickly. So how can you tell where to set your stop-loss order? Read on to find out more. Key Takeaways Stop-loss orders are placed with brokers to sell securities when they reach a specific price.Figuring out where to place your stop-loss depends on your risk threshold—the price should minimize and limit your loss.The percentage method limits the stop-loss at a specific percentage.In the support method, an investor determines the most recent support level of the stock and places the stop-loss just below that level.The moving average method sees the stop-loss placed just below a longer-term moving average price. What Is a Stop-Loss Order? A stop-loss order is placed with a broker to sell securities when they reach a specific price. These orders help minimize the loss an investor may incur in a security position. So if you set the stop-loss order at 10% below the price at which you purchased the security, your loss will be limited to 10%. For example, if you buy Company X's stock for $25 per share, you can enter a stop-loss order for $22.50. This will keep your loss to 10%. But if Company X's stock drops below $22.50, your shares will be sold at the current price. Slippage refers to the point when you can't find a buyer at your limit and you end up with a lower price than expected. Determining Stop-Loss Order Determining stop-loss order placement is all about targeting an allowable risk threshold. This price should be strategically derived with the intention of limiting loss. For example, if a stock is purchased at $30 and the stop-loss is placed at $24, the stop-loss is limiting downside capture to 20% of the original position. If the 20% threshold is where you are comfortable, place a trailing stop-loss. Know where you are going to place your stop before you start trading a specific security. There are plenty of theories on stop-loss placement. Technical traders are always looking for ways to time the market, and different stop or limit orders have different uses depending on the type of timing techniques being implemented. Some theories use universal placements such as 6% trailing stops on all securities, and some theories use security- or pattern-specific placements including average true range percentage stops. Stop-Loss Placement Methods Common methods include the percentage method described above. There's also the support method which involves hard stops at a set price. This method may be a little harder to practice. You'll need to figure out the most recent support level of the stock. As soon as you've figured that out, you can place your stop-loss order just below that level. The other method is the moving average method. By using this way, stop-losses are placed just below a longer-term moving average price rather than shorter-term prices. Swing traders often employ a multiple-day high/low method, in which stops are placed at the low price of a predetermined day's trading. For example, lows may consistently be replaced at the two-day low. More patient traders may use indicator stops based on larger trend analysis. Indicator stops are often coupled with other technical indicators such as the relative strength index (RSI). What to Consider With Stop-Loss Orders As an investor there are a few things you'll want to keep in mind when it comes to stop-loss orders: Stop-loss orders are not for active traders.Stop-loss orders don't work well for large blocks of stock as you may lose more in the long run.Brokers charge different fees for different orders, so keep an eye out for how much you're paying.And never assume your stop-loss order has gone through. Always wait for the order confirmation. The Bottom Line Traders should evaluate their own risk tolerances to determine stop-loss placements. Specific markets or securities should be studied to understand whether retracements are common. Securities that show retracements require a more active stop-loss and re-entry strategy. Stop-losses are a form of profit capturing and risk management, but they do not guarantee profitability.

https://www.investopedia.com/how-to-buy-metaverse-crypto-7113440

How to Buy Metaverse Crypto

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Metaverse crypto tokens have emerged as a new sub-asset class within the crypto markets, attracting investors who want to get in early on what could turn out to become the next iteration of the internet. Early-stage versions of the metaverse, such as Decentraland and Sandbox, are powered by cryptocurrencies that act as currencies in these virtual worlds. For investors, they offer an avenue to gain investment exposure to this new and fast-growing industry.   </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-important" 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"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/crypto-exchange-interview-5209280">Investing in cryptocurrencies</a>, Decentralized Finance (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/decentralized-finance-defi-5113835">DeFi</a>), 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.</p></div></div></div> <span class="heading-toc" id="toc-what-is-metaverse-crypto"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> What Is Metaverse Crypto? </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/metaverse-definition-5206578">Metaverse</a> crypto is a sub-set of cryptocurrencies that enable users of blockchain-powered virtual worlds to buy and sell digital assets, such as virtual land, real estate, or avatar items. Like all crypto assets, however, they are high-risk investments, which means conducting thorough research is essential before making the decision to add metaverse tokens into your crypto portfolio.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> While leading metaverse tokens, such as Decentraland’s MANA, Sandbox’s SAND, and Axie Infinity’s AXS, experienced incredible price rallies in the 2021 crypto bull market, their prices collapsed in 2022 alongside the rest of the crypto market, highlighting the riskiness of this sub-asset class.  </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 metaverse has also attracted major global brands looking at new avenues to build their brand, reach new customers, and increase customer loyalty. Nike and Gucci, for example, have already taken the leap, exploring ways that NFTs could add to their customer experiences. Nike has purchased NFT fashion startup RTFKT, with the aim to sell Nike shoes in the metaverse, while Gucci hosted its very own Gucci Vault Land in the Sandbox metaverse late last year.   </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <span class="heading-toc" id="toc-how-to-buy-metaverse-crypto"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_12-0"> <span class="mntl-sc-block-heading__text"> How to Buy Metaverse Crypto  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Buying metaverse coins works the same way as buying Bitcoin, Ethereum, or any other digital currency on a crypto exchange. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-crypto-exchanges-5071855">Cryptocurrency exchanges</a> are online trading platforms similar to traditional online brokers like Fidelity or Charles Schwab–that enable you to buy and sell digital currencies for U.S. dollars or other cryptocurrencies.  </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"> Here’s how it works!  </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 1: Sign up for a crypto exchange</strong> </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"> Choose a reputable crypto exchange, like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.coinbase.com/partner/starter-us-offer?clickId=1JdVzbThYxyNUoITy8XhXRIbUkAy4LSpI0nLVY0&amp;utm_source=impact&amp;utm_medium=growthp&amp;utm_campaign=rt_p_m_w_d_acq_imp_gro_aff_Dotdash&amp;utm_content=1175448&amp;utm_creative=US%20-%20%245%20Bitcoin%20Incentive%20Offer&amp;irgwc=1" rel="sponsored nofollow">Coinbase</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.kraken.com/?clickid=11Gxa4Th6xyNUoITy8XhXRIbUkAy4vQVI0nLVY0&amp;utm_source=Impact&amp;utm_medium=Affiliate&amp;utm_campaign=2104074&amp;utm_content=Kraken%20App%3A%20Buy%20Bitcoin%20%2B%20Crypto%20-%20400x300&amp;irgwc=1&amp;mpid=2104074" rel="sponsored nofollow">Kraken</a>, or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://uphold.com/join-uphold-ap?irclickid=1JdVzbThYxyNUoITy8XhXRIbUkAy4vXdI0nLVY[…]uy%20Crypto%20on%20Uphold%20Ad%20EN%20728x90&amp;partner_id=2104074" rel="nofollow">Uphold</a>, where you can buy metaverse tokens by depositing U.S. dollars using a payment method that suits you. Register an account and complete the exchange’s customer onboarding 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"> <strong>Step 2: Confirm your payment details.</strong> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Next, you need to choose the payment method you want to use to fund your trading account. Wire transfers are typically accepted by all U.S.-based crypto exchanges.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> <strong>Step 3: Select the metaverse token you want to buy, view the current market price, and press “buy.”</strong> </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"> Once you have funded your account, choose the metaverse token(s) you want to purchase, place an order for the amount you want to buy, and wait for your order to be filled. If you place a market order, your purchase will be completed within seconds and the tokens will appear in your trading account’s wallet.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <figure class="comp mntl-sc-block finance-sc-block-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_29-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:101.2%;"> <img alt="1" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/vZ2p-YBZLkD-K0GiqiTEH5-35oM=/1180x0/filters:no_upscale():max_bytes(150000):strip_icc()/Hero-bf065afaca624e3582b2a32084b89934.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/u9wwqfl1KH9_mQfNsHBMgaHqHA8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Hero-bf065afaca624e3582b2a32084b89934.jpg" data-srcset="https://www.investopedia.com/thmb/Eiy2K9uYu-sQ9NULuHSmzYR_GWo=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Hero-bf065afaca624e3582b2a32084b89934.jpg 750w" data-tracking-container="true" height="1195" id="mntl-sc-block-image_1-0" width="1180"/> <noscript> <img alt="1" class="img--noscript universal-image__image" height="1195" sizes="750px" src="https://www.investopedia.com/thmb/u9wwqfl1KH9_mQfNsHBMgaHqHA8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Hero-bf065afaca624e3582b2a32084b89934.jpg" srcset="https://www.investopedia.com/thmb/Eiy2K9uYu-sQ9NULuHSmzYR_GWo=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Hero-bf065afaca624e3582b2a32084b89934.jpg 750w" width="1180"/> </noscript> </div> </div> </figure> <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"> Alternative Ways to Buy Metaverse Crypto  </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Alternatively, you could also purchase metaverse coins on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/ptop.asp">peer-to-peer</a> trading platforms. Unlike on centralized crypto exchanges where you place an order that goes into an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/order-book.asp">order book</a> for a specific cryptocurrency pair, on a peer-to-peer marketplace you can purchase cryptocurrencies directly from another individual using a predetermined payment method and for an agreed price.  </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"> Moreover, you could also swap cryptocurrencies you already hold for metaverse tokens on decentralized exchanges (DEXs). Decentralized exchanges only require you to connect your crypto wallet to the trading platform’s smart contract, enabling you to swap one token for another without requiring you to create a trading account or complete a customer verification process.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_35-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_36-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Unlike traditional brokerage firms, cryptocurrency exchanges are not members of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sipc.asp">Securities Investor Protection Corp. (SIPC)</a>. Therefore, unless user terms specify otherwise, investors with cryptocurrency assets commingled on a custodial cryptocurrency exchange could potentially lose their funds as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/unsecuredcreditor.asp#:~:text=An%20unsecured%20creditor%20is%20an,borrower%20default%20on%20the%20loan.">unsecured creditors</a>.</p></div></div></div> <span class="heading-toc" id="toc-what-you-need-to-open-a-cryptocurrency-exchange-account"></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"> What You Need to Open a Cryptocurrency Exchange Account  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> To open an account on a cryptocurrency exchange, there are certain requirements. Let’s take a look at them.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-subheading__text"> Personal Information </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> The personal information and documentation required to complete a crypto exchange’s onboarding process typically includes:  </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>Full name</li><li>Email address</li><li>Phone number</li><li>Home address</li><li>Proof of address</li><li>Government-issued ID</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_45-0"> <span class="mntl-sc-block-subheading__text"> Minimum Deposits </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Every exchange requires customers to make a minimum deposit to start trading. The minimum deposit differs from exchange to exchange but is typically between $10 to $20. Some crypto trading apps, such as Robinhood, even allow you to start with as little as $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_47-0"></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_48-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:57.1%;"> <img alt="r" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/KhcyorCA3KcLmq7tk_ibDgEHVqg=/768x0/filters:no_upscale():max_bytes(150000):strip_icc()/what-are-a-bull-and-bear-market-2_2-1db159e2e7324906b969e53e2757e334.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/gSvkRf4EiSHcTEEYLCh6-JoBOk0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/what-are-a-bull-and-bear-market-2_2-1db159e2e7324906b969e53e2757e334.jpg" data-srcset="https://www.investopedia.com/thmb/cIDRqoUKwW13y5uwB12L0fDXNjI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/what-are-a-bull-and-bear-market-2_2-1db159e2e7324906b969e53e2757e334.jpg 750w" data-tracking-container="true" height="439" id="mntl-sc-block-image_2-0" width="768"/> <noscript> <img alt="r" class="img--noscript universal-image__image" height="439" sizes="750px" src="https://www.investopedia.com/thmb/gSvkRf4EiSHcTEEYLCh6-JoBOk0=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/what-are-a-bull-and-bear-market-2_2-1db159e2e7324906b969e53e2757e334.jpg" srcset="https://www.investopedia.com/thmb/cIDRqoUKwW13y5uwB12L0fDXNjI=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/what-are-a-bull-and-bear-market-2_2-1db159e2e7324906b969e53e2757e334.jpg 750w" width="768"/> </noscript> </div> </div> </figure> <span class="heading-toc" id="toc-types-of-cryptocurrency-exchanges"></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"> Types of Cryptocurrency Exchanges </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_50-0"> <span class="mntl-sc-block-subheading__text"> Centralized Exchanges </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tech/what-are-centralized-cryptocurrency-exchanges/">Centralized crypto exchanges</a> are online trading platforms akin to traditional online brokerages where traders and investors can buy and sell cryptocurrencies after completing a customer onboarding process and depositing U.S. dollars to fund their trading accounts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_53-0"> <span class="mntl-sc-block-subheading__text"> Decentralized Exchanges </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> Decentralized crypto exchanges are trading platforms where smart contracts replace a centralized orderbook, enabling crypto traders and investors to swap tokens for one another simply by connecting their crypto wallets. No identity verification is required.  </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"> Arguably the most compelling argument for trading on decentralized exchanges is that situations like the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ftx-exchange-5200842">FTX collapse</a> cannot affect user funds as assets are held in users’ wallets, separate from a centralized exchange wallet. Therefore, if a decentralized exchange gets hacked or the company operating it goes bankrupt, user funds remain unaffected. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_58-0"> <span class="mntl-sc-block-subheading__text"> Hybrid Exchanges </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Hybrid crypto exchanges combine a centralized orderbook to match trades with decentralized token storage to enable crypto traders to experience the best of both centralized and decentralized exchanges.   </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <span class="heading-toc" id="toc-best-cryptocurrency-exchanges"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_61-0"> <span class="mntl-sc-block-heading__text"> Best Cryptocurrency Exchanges </span> </h2> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_62-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th> <b>Company</b></th> <th> <b>Transaction Fees</b></th> <th> <b>Minimum Deposit or Purchase</b></th> <th> <b>Trade Limits</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.coinbase.com/partner/starter-us-offer?clickId=1JdVzbThYxyNUoITy8XhXRIbUkAy4LSpI0nLVY0&amp;utm_source=impact&amp;utm_medium=growthp&amp;utm_campaign=rt_p_m_w_d_acq_imp_gro_aff_Dotdash&amp;utm_content=1175448&amp;utm_creative=US%20-%20%245%20Bitcoin%20Incentive%20Offer&amp;irgwc=1" rel="sponsored nofollow">Coinbase</a></td> <td> 0.00% to 0.60%</td> <td> $1</td> <td> No</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.kraken.com/?clickid=11Gxa4Th6xyNUoITy8XhXRIbUkAy4vQVI0nLVY0&amp;utm_source=Impact&amp;utm_medium=Affiliate&amp;utm_campaign=2104074&amp;utm_content=Kraken%20App%3A%20Buy%20Bitcoin%20%2B%20Crypto%20-%20400x300&amp;irgwc=1&amp;mpid=2104074" rel="sponsored nofollow">Kraken</a></td> <td> 0.00% to 0.26%</td> <td> $1</td> <td> No</td> </tr> <tr> <td><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://uphold.com/join-uphold-ap?irclickid=1JdVzbThYxyNUoITy8XhXRIbUkAy4vXdI0nLVY[…]uy%20Crypto%20on%20Uphold%20Ad%20EN%20728x90&amp;partner_id=2104074" rel="nofollow">Uphold</a></td> <td> 0.8% to 1.2%</td> <td> $10</td> <td> Yes</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_64-0"><span class="heading-toc" id="toc-what-are-the-top-metaverse-coins-right-now"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Top Metaverse Coins Right Now?</h2> <div class="mntl-sc-block-questionandanswer__answer"><h3>Decentraland (MANA) </h3><p>Decentraland’s MANA token is the leading virtual world’s in-platform currency, which enables users to transact in the early-stage metaverse. From buying parcels of virtual land to buying wearable items, MANA is required to make it happen. </p><h3>Sandbox (SAND)</h3><p>The Sandbox has been able to attract some of the biggest artists, influencers, and brands to the metaverse by offering a versatile virtual world, powered by the SAND token. Like Decentraland’s MANA, SAND acts as the in-world currency required to make transactions. </p><h3>Axie Infinity (AXS)</h3><p>Axie Infinity is arguably one of the most popular metaverse-esque blockchain games, enabling players to battle their in-game avatars–called Axies–in various virtual lands, with the winners earning tokens. AXS is the game’s governance token that allows players to make decisions about the game’s development. It is also used in the game’s NFT marketplace as a transactional currency.</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-factors-to-consider-when-opening-a-cryptocurrency-exchange-account"></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"> Factors to Consider When Opening a Cryptocurrency Exchange Account </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> <strong>Security:</strong> A high level of security is arguably the most important aspect of a reputable crypto exchange. Ensure that you choose an exchange with a strong cybersecurity track record that has not experienced any hacks.   </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"> <strong>Fees:</strong> Trading fees and other exchange fees (such as withdrawal fees) can eat into your returns. Ensure that you choose an exchange with low fees to mitigate the impact of fees on your trading revenues.  </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"> <strong>Number and quality of supported cryptocurrencies:</strong> If you are looking to purchase metaverse tokens, make sure the exchange you choose supports the assets you would like to purchase. While most leading exchanges support the top metaverse tokens, some offer more liquidity than others.  </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"> <strong>Wallet safety:</strong> Choose an exchange that provides secure crypto wallets, ideally with added safety features such as withdrawal wallet whitelisting. Address whitelisting is a security feature provided by numerous crypto exchanges that only allows cryptocurrency withdrawals to specific “whitelisted” external wallet addresses predefined by the user.<br/> </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"> <strong>Storage and custody:</strong> Ensure that the crypto exchange you choose holds most, if not all, customer assets in cold storage to mitigate the risk of theft of your assets held on the exchange.  </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"> <strong>Centralized vs. decentralized:</strong> While decentralized exchanges arguably offer the more secure trading avenue, centralized exchanges are typically regulated (at least to some degree), thus providing more customer protection than their unregulated decentralized counterparts.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_78-0"></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_79-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:39.0%;"> <img alt="1" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/hzR9CWjM6vqWE06mBAqtvZe4tKI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Blog-Inner-Kraken-NFTs-6a04b317d1e34155887fb8d7afc609ac.jpg" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/hzR9CWjM6vqWE06mBAqtvZe4tKI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Blog-Inner-Kraken-NFTs-6a04b317d1e34155887fb8d7afc609ac.jpg" data-srcset="https://www.investopedia.com/thmb/-dBxpzp_Pa4XGco8HmJMZ2ryaBc=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Blog-Inner-Kraken-NFTs-6a04b317d1e34155887fb8d7afc609ac.jpg 750w" data-tracking-container="true" height="600" id="mntl-sc-block-image_3-0" width="1536"/> <noscript> <img alt="1" class="img--noscript universal-image__image" height="600" sizes="750px" src="https://www.investopedia.com/thmb/hzR9CWjM6vqWE06mBAqtvZe4tKI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/Blog-Inner-Kraken-NFTs-6a04b317d1e34155887fb8d7afc609ac.jpg" srcset="https://www.investopedia.com/thmb/-dBxpzp_Pa4XGco8HmJMZ2ryaBc=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/Blog-Inner-Kraken-NFTs-6a04b317d1e34155887fb8d7afc609ac.jpg 750w" width="1536"/> </noscript> </div> </div> </figure> <span class="heading-toc" id="toc-faqs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_80-0"> <span class="mntl-sc-block-heading__text"> FAQs </span> </h2> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_81-0"><span class="heading-toc" id="toc-how-can-i-earn-crypto-in-the-metaverse"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Earn Crypto in the Metaverse?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p><strong>Land Sales: </strong>The buying and selling of virtual land has become one of the most alluring earning opportunities in the metaverse. Some parcels of Land–virtual land sold in the form of NFTs in Decentraland–have been sold for hundreds of thousands of dollars. </p><p><strong>Digital Asset Creation:</strong> By creating and selling new digital assets–typically in the form of NFTs–metaverse users can earn crypto. </p><p><strong>Selling Accessories: </strong>Avatars can be customized with various items, such as clothes and shoes. These can be bought and sold as NFTs, enabling metaverse users to make money in the metaverse.  </p><p><strong>Providing Services:</strong> Like in the “real” world, metaverse users can offer services to earn crypto, such as promoting brands by offering virtual advertising space or acting as a virtual tour guide through the metaverse.</p><p><strong>Hosting Events:</strong> Hosting virtual events, such as concerts and art shows, has emerged as a popular way to earn revenue in the metaverse. </p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_83-0"><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_84-0"><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>It's important to remember that, like all crypto assets, metaverse crypto assets are high-risk investments. Therefore, conducting thorough research is essential before making the decision to add metaverse tokens to your crypto portfolio. </p></div></div></div></div>

Metaverse crypto tokens have emerged as a new sub-asset class within the crypto markets, attracting investors who want to get in early on what could turn out to become the next iteration of the internet. Early-stage versions of the metaverse, such as Decentraland and Sandbox, are powered by cryptocurrencies that act as currencies in these virtual worlds. For investors, they offer an avenue to gain investment exposure to this new and fast-growing industry.   ### [Investing in cryptocurrencies](https://www.investopedia.com/crypto-exchange-interview-5209280), Decentralized Finance ([DeFi](https://www.investopedia.com/decentralized-finance-defi-5113835)), 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. ## What Is Metaverse Crypto? [Metaverse](https://www.investopedia.com/metaverse-definition-5206578) crypto is a sub-set of cryptocurrencies that enable users of blockchain-powered virtual worlds to buy and sell digital assets, such as virtual land, real estate, or avatar items. Like all crypto assets, however, they are high-risk investments, which means conducting thorough research is essential before making the decision to add metaverse tokens into your crypto portfolio.  While leading metaverse tokens, such as Decentraland’s MANA, Sandbox’s SAND, and Axie Infinity’s AXS, experienced incredible price rallies in the 2021 crypto bull market, their prices collapsed in 2022 alongside the rest of the crypto market, highlighting the riskiness of this sub-asset class.  The metaverse has also attracted major global brands looking at new avenues to build their brand, reach new customers, and increase customer loyalty. Nike and Gucci, for example, have already taken the leap, exploring ways that NFTs could add to their customer experiences. Nike has purchased NFT fashion startup RTFKT, with the aim to sell Nike shoes in the metaverse, while Gucci hosted its very own Gucci Vault Land in the Sandbox metaverse late last year.   ## How to Buy Metaverse Crypto Buying metaverse coins works the same way as buying Bitcoin, Ethereum, or any other digital currency on a crypto exchange. [Cryptocurrency exchanges](https://www.investopedia.com/best-crypto-exchanges-5071855) are online trading platforms similar to traditional online brokers like Fidelity or Charles Schwab–that enable you to buy and sell digital currencies for U.S. dollars or other cryptocurrencies.  Here’s how it works!  **Step 1: Sign up for a crypto exchange** Choose a reputable crypto exchange, like [Coinbase](https://www.coinbase.com/partner/starter-us-offer?clickId=1JdVzbThYxyNUoITy8XhXRIbUkAy4LSpI0nLVY0&utm_source=impact&utm_medium=growthp&utm_campaign=rt_p_m_w_d_acq_imp_gro_aff_Dotdash&utm_content=1175448&utm_creative=US%20-%20%245%20Bitcoin%20Incentive%20Offer&irgwc=1), [Kraken](https://www.kraken.com/?clickid=11Gxa4Th6xyNUoITy8XhXRIbUkAy4vQVI0nLVY0&utm_source=Impact&utm_medium=Affiliate&utm_campaign=2104074&utm_content=Kraken%20App%3A%20Buy%20Bitcoin%20%2B%20Crypto%20-%20400x300&irgwc=1&mpid=2104074), or [Uphold](https://uphold.com/join-uphold-ap?irclickid=1JdVzbThYxyNUoITy8XhXRIbUkAy4vXdI0nLVY[…]uy%20Crypto%20on%20Uphold%20Ad%20EN%20728x90&partner_id=2104074), where you can buy metaverse tokens by depositing U.S. dollars using a payment method that suits you. Register an account and complete the exchange’s customer onboarding process.  **Step 2: Confirm your payment details.** Next, you need to choose the payment method you want to use to fund your trading account. Wire transfers are typically accepted by all U.S.-based crypto exchanges.  **Step 3: Select the metaverse token you want to buy, view the current market price, and press “buy.”** Once you have funded your account, choose the metaverse token(s) you want to purchase, place an order for the amount you want to buy, and wait for your order to be filled. If you place a market order, your purchase will be completed within seconds and the tokens will appear in your trading account’s wallet.  ![1]() :max_bytes(150000):strip_icc()/Hero-bf065afaca624e3582b2a32084b89934.jpg) ### Alternative Ways to Buy Metaverse Crypto Alternatively, you could also purchase metaverse coins on [peer-to-peer](https://www.investopedia.com/terms/p/ptop.asp) trading platforms. Unlike on centralized crypto exchanges where you place an order that goes into an [order book](https://www.investopedia.com/terms/o/order-book.asp) for a specific cryptocurrency pair, on a peer-to-peer marketplace you can purchase cryptocurrencies directly from another individual using a predetermined payment method and for an agreed price.  Moreover, you could also swap cryptocurrencies you already hold for metaverse tokens on decentralized exchanges (DEXs). Decentralized exchanges only require you to connect your crypto wallet to the trading platform’s smart contract, enabling you to swap one token for another without requiring you to create a trading account or complete a customer verification process.  ### Unlike traditional brokerage firms, cryptocurrency exchanges are not members of the [Securities Investor Protection Corp. (SIPC)](https://www.investopedia.com/terms/s/sipc.asp). Therefore, unless user terms specify otherwise, investors with cryptocurrency assets commingled on a custodial cryptocurrency exchange could potentially lose their funds as [unsecured creditors](https://www.investopedia.com/terms/u/unsecuredcreditor.asp#:~:text=An%20unsecured%20creditor%20is%20an,borrower%20default%20on%20the%20loan.). ## What You Need to Open a Cryptocurrency Exchange Account To open an account on a cryptocurrency exchange, there are certain requirements. Let’s take a look at them.  ### Personal Information The personal information and documentation required to complete a crypto exchange’s onboarding process typically includes:  * Full name * Email address * Phone number * Home address * Proof of address * Government-issued ID ### Minimum Deposits Every exchange requires customers to make a minimum deposit to start trading. The minimum deposit differs from exchange to exchange but is typically between $10 to $20. Some crypto trading apps, such as Robinhood, even allow you to start with as little as $1.  ![r]() :max_bytes(150000):strip_icc()/what-are-a-bull-and-bear-market-2_2-1db159e2e7324906b969e53e2757e334.jpg) ## Types of Cryptocurrency Exchanges ### Centralized Exchanges [Centralized crypto exchanges](https://www.investopedia.com/tech/what-are-centralized-cryptocurrency-exchanges/) are online trading platforms akin to traditional online brokerages where traders and investors can buy and sell cryptocurrencies after completing a customer onboarding process and depositing U.S. dollars to fund their trading accounts. ### Decentralized Exchanges Decentralized crypto exchanges are trading platforms where smart contracts replace a centralized orderbook, enabling crypto traders and investors to swap tokens for one another simply by connecting their crypto wallets. No identity verification is required.  Arguably the most compelling argument for trading on decentralized exchanges is that situations like the [FTX collapse](https://www.investopedia.com/ftx-exchange-5200842) cannot affect user funds as assets are held in users’ wallets, separate from a centralized exchange wallet. Therefore, if a decentralized exchange gets hacked or the company operating it goes bankrupt, user funds remain unaffected. ### Hybrid Exchanges Hybrid crypto exchanges combine a centralized orderbook to match trades with decentralized token storage to enable crypto traders to experience the best of both centralized and decentralized exchanges.   ## Best Cryptocurrency Exchanges | **Company** | **Transaction Fees** | **Minimum Deposit or Purchase** | **Trade Limits** | | --- | --- | --- | --- | | [Coinbase](https://www.coinbase.com/partner/starter-us-offer?clickId=1JdVzbThYxyNUoITy8XhXRIbUkAy4LSpI0nLVY0&utm_source=impact&utm_medium=growthp&utm_campaign=rt_p_m_w_d_acq_imp_gro_aff_Dotdash&utm_content=1175448&utm_creative=US%20-%20%245%20Bitcoin%20Incentive%20Offer&irgwc=1) | 0.00% to 0.60% | $1 | No | | [Kraken](https://www.kraken.com/?clickid=11Gxa4Th6xyNUoITy8XhXRIbUkAy4vQVI0nLVY0&utm_source=Impact&utm_medium=Affiliate&utm_campaign=2104074&utm_content=Kraken%20App%3A%20Buy%20Bitcoin%20%2B%20Crypto%20-%20400x300&irgwc=1&mpid=2104074) | 0.00% to 0.26% | $1 | No | | [Uphold](https://uphold.com/join-uphold-ap?irclickid=1JdVzbThYxyNUoITy8XhXRIbUkAy4vXdI0nLVY[…]uy%20Crypto%20on%20Uphold%20Ad%20EN%20728x90&partner_id=2104074) | 0.8% to 1.2% | $10 | Yes | ## What Are the Top Metaverse Coins Right Now? ### Decentraland (MANA) Decentraland’s MANA token is the leading virtual world’s in-platform currency, which enables users to transact in the early-stage metaverse. From buying parcels of virtual land to buying wearable items, MANA is required to make it happen.  ### Sandbox (SAND) The Sandbox has been able to attract some of the biggest artists, influencers, and brands to the metaverse by offering a versatile virtual world, powered by the SAND token. Like Decentraland’s MANA, SAND acts as the in-world currency required to make transactions.  ### Axie Infinity (AXS) Axie Infinity is arguably one of the most popular metaverse-esque blockchain games, enabling players to battle their in-game avatars–called Axies–in various virtual lands, with the winners earning tokens. AXS is the game’s governance token that allows players to make decisions about the game’s development. It is also used in the game’s NFT marketplace as a transactional currency. ## Factors to Consider When Opening a Cryptocurrency Exchange Account **Security:** A high level of security is arguably the most important aspect of a reputable crypto exchange. Ensure that you choose an exchange with a strong cybersecurity track record that has not experienced any hacks.   **Fees:** Trading fees and other exchange fees (such as withdrawal fees) can eat into your returns. Ensure that you choose an exchange with low fees to mitigate the impact of fees on your trading revenues.  **Number and quality of supported cryptocurrencies:** If you are looking to purchase metaverse tokens, make sure the exchange you choose supports the assets you would like to purchase. While most leading exchanges support the top metaverse tokens, some offer more liquidity than others.  **Wallet safety:** Choose an exchange that provides secure crypto wallets, ideally with added safety features such as withdrawal wallet whitelisting. Address whitelisting is a security feature provided by numerous crypto exchanges that only allows cryptocurrency withdrawals to specific “whitelisted” external wallet addresses predefined by the user. **Storage and custody:** Ensure that the crypto exchange you choose holds most, if not all, customer assets in cold storage to mitigate the risk of theft of your assets held on the exchange.  **Centralized vs. decentralized:** While decentralized exchanges arguably offer the more secure trading avenue, centralized exchanges are typically regulated (at least to some degree), thus providing more customer protection than their unregulated decentralized counterparts.  ![1]() :max_bytes(150000):strip_icc()/Blog-Inner-Kraken-NFTs-6a04b317d1e34155887fb8d7afc609ac.jpg) ## FAQs ## How Can I Earn Crypto in the Metaverse? **Land Sales:** The buying and selling of virtual land has become one of the most alluring earning opportunities in the metaverse. Some parcels of Land–virtual land sold in the form of NFTs in Decentraland–have been sold for hundreds of thousands of dollars.  **Digital Asset Creation:** By creating and selling new digital assets–typically in the form of NFTs–metaverse users can earn crypto.  **Selling Accessories:** Avatars can be customized with various items, such as clothes and shoes. These can be bought and sold as NFTs, enabling metaverse users to make money in the metaverse.   **Providing Services:** Like in the “real” world, metaverse users can offer services to earn crypto, such as promoting brands by offering virtual advertising space or acting as a virtual tour guide through the metaverse. **Hosting Events:** Hosting virtual events, such as concerts and art shows, has emerged as a popular way to earn revenue in the metaverse.  ### It's important to remember that, like all crypto assets, metaverse crypto assets are high-risk investments. Therefore, conducting thorough research is essential before making the decision to add metaverse tokens to your crypto portfolio. 

Metaverse crypto tokens have emerged as a new sub-asset class within the crypto markets, attracting investors who want to get in early on what could turn out to become the next iteration of the internet. Early-stage versions of the metaverse, such as Decentraland and Sandbox, are powered by cryptocurrencies that act as currencies in these virtual worlds. For investors, they offer an avenue to gain investment exposure to this new and fast-growing industry.   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. What Is Metaverse Crypto? Metaverse crypto is a sub-set of cryptocurrencies that enable users of blockchain-powered virtual worlds to buy and sell digital assets, such as virtual land, real estate, or avatar items. Like all crypto assets, however, they are high-risk investments, which means conducting thorough research is essential before making the decision to add metaverse tokens into your crypto portfolio.  While leading metaverse tokens, such as Decentraland’s MANA, Sandbox’s SAND, and Axie Infinity’s AXS, experienced incredible price rallies in the 2021 crypto bull market, their prices collapsed in 2022 alongside the rest of the crypto market, highlighting the riskiness of this sub-asset class.  The metaverse has also attracted major global brands looking at new avenues to build their brand, reach new customers, and increase customer loyalty. Nike and Gucci, for example, have already taken the leap, exploring ways that NFTs could add to their customer experiences. Nike has purchased NFT fashion startup RTFKT, with the aim to sell Nike shoes in the metaverse, while Gucci hosted its very own Gucci Vault Land in the Sandbox metaverse late last year.   How to Buy Metaverse Crypto  Buying metaverse coins works the same way as buying Bitcoin, Ethereum, or any other digital currency on a crypto exchange. Cryptocurrency exchanges are online trading platforms similar to traditional online brokers like Fidelity or Charles Schwab–that enable you to buy and sell digital currencies for U.S. dollars or other cryptocurrencies.  Here’s how it works!  Step 1: Sign up for a crypto exchange Choose a reputable crypto exchange, like Coinbase, Kraken, or Uphold, where you can buy metaverse tokens by depositing U.S. dollars using a payment method that suits you. Register an account and complete the exchange’s customer onboarding process.  Step 2: Confirm your payment details. Next, you need to choose the payment method you want to use to fund your trading account. Wire transfers are typically accepted by all U.S.-based crypto exchanges.  Step 3: Select the metaverse token you want to buy, view the current market price, and press “buy.” Once you have funded your account, choose the metaverse token(s) you want to purchase, place an order for the amount you want to buy, and wait for your order to be filled. If you place a market order, your purchase will be completed within seconds and the tokens will appear in your trading account’s wallet.  Alternative Ways to Buy Metaverse Crypto  Alternatively, you could also purchase metaverse coins on peer-to-peer trading platforms. Unlike on centralized crypto exchanges where you place an order that goes into an order book for a specific cryptocurrency pair, on a peer-to-peer marketplace you can purchase cryptocurrencies directly from another individual using a predetermined payment method and for an agreed price.  Moreover, you could also swap cryptocurrencies you already hold for metaverse tokens on decentralized exchanges (DEXs). Decentralized exchanges only require you to connect your crypto wallet to the trading platform’s smart contract, enabling you to swap one token for another without requiring you to create a trading account or complete a customer verification process.  Unlike traditional brokerage firms, cryptocurrency exchanges are not members of the Securities Investor Protection Corp. (SIPC). Therefore, unless user terms specify otherwise, investors with cryptocurrency assets commingled on a custodial cryptocurrency exchange could potentially lose their funds as unsecured creditors. What You Need to Open a Cryptocurrency Exchange Account  To open an account on a cryptocurrency exchange, there are certain requirements. Let’s take a look at them.  Personal Information The personal information and documentation required to complete a crypto exchange’s onboarding process typically includes:  Full nameEmail addressPhone numberHome addressProof of addressGovernment-issued ID Minimum Deposits Every exchange requires customers to make a minimum deposit to start trading. The minimum deposit differs from exchange to exchange but is typically between $10 to $20. Some crypto trading apps, such as Robinhood, even allow you to start with as little as $1.  Types of Cryptocurrency Exchanges Centralized Exchanges Centralized crypto exchanges are online trading platforms akin to traditional online brokerages where traders and investors can buy and sell cryptocurrencies after completing a customer onboarding process and depositing U.S. dollars to fund their trading accounts. Decentralized Exchanges Decentralized crypto exchanges are trading platforms where smart contracts replace a centralized orderbook, enabling crypto traders and investors to swap tokens for one another simply by connecting their crypto wallets. No identity verification is required.  Arguably the most compelling argument for trading on decentralized exchanges is that situations like the FTX collapse cannot affect user funds as assets are held in users’ wallets, separate from a centralized exchange wallet. Therefore, if a decentralized exchange gets hacked or the company operating it goes bankrupt, user funds remain unaffected. Hybrid Exchanges Hybrid crypto exchanges combine a centralized orderbook to match trades with decentralized token storage to enable crypto traders to experience the best of both centralized and decentralized exchanges.   Best Cryptocurrency Exchanges  Company  Transaction Fees  Minimum Deposit or Purchase  Trade Limits Coinbase  0.00% to 0.60%  $1  No Kraken  0.00% to 0.26%  $1  No Uphold  0.8% to 1.2%  $10  Yes What Are the Top Metaverse Coins Right Now? Decentraland (MANA) Decentraland’s MANA token is the leading virtual world’s in-platform currency, which enables users to transact in the early-stage metaverse. From buying parcels of virtual land to buying wearable items, MANA is required to make it happen. Sandbox (SAND)The Sandbox has been able to attract some of the biggest artists, influencers, and brands to the metaverse by offering a versatile virtual world, powered by the SAND token. Like Decentraland’s MANA, SAND acts as the in-world currency required to make transactions. Axie Infinity (AXS)Axie Infinity is arguably one of the most popular metaverse-esque blockchain games, enabling players to battle their in-game avatars–called Axies–in various virtual lands, with the winners earning tokens. AXS is the game’s governance token that allows players to make decisions about the game’s development. It is also used in the game’s NFT marketplace as a transactional currency. Factors to Consider When Opening a Cryptocurrency Exchange Account Security: A high level of security is arguably the most important aspect of a reputable crypto exchange. Ensure that you choose an exchange with a strong cybersecurity track record that has not experienced any hacks.   Fees: Trading fees and other exchange fees (such as withdrawal fees) can eat into your returns. Ensure that you choose an exchange with low fees to mitigate the impact of fees on your trading revenues.  Number and quality of supported cryptocurrencies: If you are looking to purchase metaverse tokens, make sure the exchange you choose supports the assets you would like to purchase. While most leading exchanges support the top metaverse tokens, some offer more liquidity than others.  Wallet safety: Choose an exchange that provides secure crypto wallets, ideally with added safety features such as withdrawal wallet whitelisting. Address whitelisting is a security feature provided by numerous crypto exchanges that only allows cryptocurrency withdrawals to specific “whitelisted” external wallet addresses predefined by the user. Storage and custody: Ensure that the crypto exchange you choose holds most, if not all, customer assets in cold storage to mitigate the risk of theft of your assets held on the exchange.  Centralized vs. decentralized: While decentralized exchanges arguably offer the more secure trading avenue, centralized exchanges are typically regulated (at least to some degree), thus providing more customer protection than their unregulated decentralized counterparts.  FAQs How Can I Earn Crypto in the Metaverse? Land Sales: The buying and selling of virtual land has become one of the most alluring earning opportunities in the metaverse. Some parcels of Land–virtual land sold in the form of NFTs in Decentraland–have been sold for hundreds of thousands of dollars. Digital Asset Creation: By creating and selling new digital assets–typically in the form of NFTs–metaverse users can earn crypto. Selling Accessories: Avatars can be customized with various items, such as clothes and shoes. These can be bought and sold as NFTs, enabling metaverse users to make money in the metaverse.  Providing Services: Like in the “real” world, metaverse users can offer services to earn crypto, such as promoting brands by offering virtual advertising space or acting as a virtual tour guide through the metaverse.Hosting Events: Hosting virtual events, such as concerts and art shows, has emerged as a popular way to earn revenue in the metaverse.  It's important to remember that, like all crypto assets, metaverse crypto assets are high-risk investments. Therefore, conducting thorough research is essential before making the decision to add metaverse tokens to your crypto portfolio. 

https://www.investopedia.com/petrobras-adrs-sink-after-brazil-government-ousts-ceo-8648841

Petrobras ADRs Sink After Brazil Government Ousts CEO

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>Petrobras CEO Jean Paul Prates was reportedly pushed out by Brazil President Lula da Silva following a dispute over the payment of dividends.</li><li>Prates had resisted efforts by government-chosen members of the board to withhold an extraordinary dividend payout.</li><li>Lula has been pushing Petrobras to reduce the amount given to investors and use the money to boost job creation and economic activity in the country.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/adr.asp">American Depositary Receipts (ADRs)</a> of Petrobras (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PBR">PBR</a>) sank after the Brazilian government replaced the state-run oil giant's CEO Jean Paul Prates. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The company announced in a press release that Prates would be stepping down after a meeting of the board to consider his “early termination.”<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The Brazilian Ministry of Mines and Energy informed the company that Prates will be replaced by former energy regulator Magda Chambriard.<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"> Petrobras' Chief Financial and Investor Relations Officer Sergio Caetano Leite was also relieved of his duties, with Carlos Alberto Rechelo Neto appointed as interim CFO.<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-whats-behind-petrobras-executive-shake-up"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-heading__text"> What's Behind Petrobras' Executive Shake-Up? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Prates was only at the helm since January 2023, and is the fourth CEO in as many years to be ousted. Brazil’s President, Luiz Inacio Lula da Silva, reportedly removed Prates following a dispute over dividends. </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"> Prates and Lula clashed when the CEO refused earlier this year to go along with government-chosen board members who wanted to withhold a payment of extraordinary dividends. </p> <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"> Lula has been pushing for Petrobras to cut back on returning money to shareholders and instead use the cash to invest in areas that would create jobs and stimulate economic activity.<span class="ql-inline-citation" data-cite="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"> The news sent Petrobras ADRs into negative territory for the year.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_20-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:50.7%;"> <img alt="PBR" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/RjQA3SLJNmIiyxw4zlLG1soEGjA=/1216x0/filters:no_upscale():max_bytes(150000):strip_icc()/PBR_2024-05-15_11-25-40-34f922a48b9a42599ac9599a5b39081a.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/0xYyyUhTbQcMVVucHq0PdaS1K7k=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/PBR_2024-05-15_11-25-40-34f922a48b9a42599ac9599a5b39081a.png" data-srcset="https://www.investopedia.com/thmb/WmeThnxKTrvVhsvGMzVq4j80Gro=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/PBR_2024-05-15_11-25-40-34f922a48b9a42599ac9599a5b39081a.png 750w" data-tracking-container="true" height="617" id="mntl-sc-block-image_1-0" width="1216"/> <noscript> <img alt="PBR" class="img--noscript universal-image__image" height="617" sizes="750px" src="https://www.investopedia.com/thmb/0xYyyUhTbQcMVVucHq0PdaS1K7k=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/PBR_2024-05-15_11-25-40-34f922a48b9a42599ac9599a5b39081a.png" srcset="https://www.investopedia.com/thmb/WmeThnxKTrvVhsvGMzVq4j80Gro=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/PBR_2024-05-15_11-25-40-34f922a48b9a42599ac9599a5b39081a.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 * Petrobras CEO Jean Paul Prates was reportedly pushed out by Brazil President Lula da Silva following a dispute over the payment of dividends. * Prates had resisted efforts by government-chosen members of the board to withhold an extraordinary dividend payout. * Lula has been pushing Petrobras to reduce the amount given to investors and use the money to boost job creation and economic activity in the country. [American Depositary Receipts (ADRs)](https://www.investopedia.com/terms/a/adr.asp) of Petrobras ([PBR](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PBR)) sank after the Brazilian government replaced the state-run oil giant's CEO Jean Paul Prates. The company announced in a press release that Prates would be stepping down after a meeting of the board to consider his “early termination.” The Brazilian Ministry of Mines and Energy informed the company that Prates will be replaced by former energy regulator Magda Chambriard. Petrobras' Chief Financial and Investor Relations Officer Sergio Caetano Leite was also relieved of his duties, with Carlos Alberto Rechelo Neto appointed as interim CFO. ## What's Behind Petrobras' Executive Shake-Up? Prates was only at the helm since January 2023, and is the fourth CEO in as many years to be ousted. Brazil’s President, Luiz Inacio Lula da Silva, reportedly removed Prates following a dispute over dividends. Prates and Lula clashed when the CEO refused earlier this year to go along with government-chosen board members who wanted to withhold a payment of extraordinary dividends. Lula has been pushing for Petrobras to cut back on returning money to shareholders and instead use the cash to invest in areas that would create jobs and stimulate economic activity. The news sent Petrobras ADRs into negative territory for the year. ![PBR]() :max_bytes(150000):strip_icc()/PBR_2024-05-15_11-25-40-34f922a48b9a42599ac9599a5b39081a.png) TradingView Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Petrobras CEO Jean Paul Prates was reportedly pushed out by Brazil President Lula da Silva following a dispute over the payment of dividends.Prates had resisted efforts by government-chosen members of the board to withhold an extraordinary dividend payout.Lula has been pushing Petrobras to reduce the amount given to investors and use the money to boost job creation and economic activity in the country. American Depositary Receipts (ADRs) of Petrobras (PBR) sank after the Brazilian government replaced the state-run oil giant's CEO Jean Paul Prates. The company announced in a press release that Prates would be stepping down after a meeting of the board to consider his “early termination.” The Brazilian Ministry of Mines and Energy informed the company that Prates will be replaced by former energy regulator Magda Chambriard. Petrobras' Chief Financial and Investor Relations Officer Sergio Caetano Leite was also relieved of his duties, with Carlos Alberto Rechelo Neto appointed as interim CFO. What's Behind Petrobras' Executive Shake-Up? Prates was only at the helm since January 2023, and is the fourth CEO in as many years to be ousted. Brazil’s President, Luiz Inacio Lula da Silva, reportedly removed Prates following a dispute over dividends. Prates and Lula clashed when the CEO refused earlier this year to go along with government-chosen board members who wanted to withhold a payment of extraordinary dividends. Lula has been pushing for Petrobras to cut back on returning money to shareholders and instead use the cash to invest in areas that would create jobs and stimulate economic activity. The news sent Petrobras ADRs into negative territory for the year. TradingView Do you have a news tip for Investopedia reporters? Please email us at [email protected]

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

Managed Account: Definition and How It Works Vs. Mutual Funds

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-a-managed-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 Managed Account? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A managed account is an investment account that is owned by an investor but managed by somebody else. The account owner can either be an institutional investor or an individual retail investor. A professional <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moneymanager.asp">money manager</a> hired by the investor then oversees the account and the trading activity within it. </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"> Armed with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discretionaryaccount.asp">discretionary authority</a> over the account, the dedicated manager actively makes investment decisions pertinent to the individual, considering the client's needs and goals, risk tolerance, and asset size. Managed accounts are most often seen among high-net-worth investors. </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 managed account is a portfolio that is owned by one investor but is supervised by a professional money manager who has been hired by that investor.</li><li>Money managers can demand six-figure minimum investments to manage accounts and are compensated by a fee, calculated as a set percentage of assets under management (AUM).</li><li>Robo-advisors offer algorithmically-managed accounts at a lower cost for everyday investors with low starting balances.</li><li>A mutual fund is a type of managed account, but it is open to anyone with the means to buy its shares, rather than personalized for a particular investor.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-a-managed-account-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 Managed Account Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> A managed account may contain financial <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/asset.asp">assets</a>, cash, or titles to property. The money or investment manager has the authority to buy and sell assets without the client’s prior approval, as long as they act according to the client’s objectives. Because a managed account involves <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fiduciary.asp">fiduciary duty</a>, the manager must act in the best interest of the client or potentially face civil or criminal penalties. The investment manager will typically supply the client with regular reports on the account's performance and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/holdings.asp">holdings</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"> Money managers often have minimum dollar amounts on the accounts they will manage, meaning a client must have a certain amount of funds to invest. Many minimums start at $250,000, though some managers will accept $100,000 and even $50,000 accounts.<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_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Managers will usually charge an annual fee for their services, calculated as a percentage of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aum.asp">assets under management</a> (AUM). Compensation fees range greatly, but most average around 1% to 2% of AUM. Many managers will provide discounts based on an account's asset size, so that the larger the portfolio, the smaller the percentage fee. According to the Internal Revenue Service, these fees are no longer <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tax-deduction.asp">tax-deductible</a> as investment expenses.<span class="ql-inline-citation" data-cite="4"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> A new innovation to managed accounts aimed at lay investors is the so-called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp">robo-advisor</a>. Robo-advisors are digital platforms that provide automated, algorithmically-driven portfolio management with little to no human supervision. These platforms are typically cheaper, charging, for example, somewhere in the region of 0.25% of AUM, and may require as little as $5 to get started.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <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>Managed accounts are typically used by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hnwi.asp">high-net-worth individuals</a> as they often require a high minimum dollar amount of investment.</p></div></div></div> <span class="heading-toc" id="toc-managed-accounts-vs-mutual-funds"></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"> Managed Accounts vs. Mutual Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Managed accounts and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualfund.asp">mutual funds</a> both represent actively managed portfolios or pools of money that invest over a variety of assets—or <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>. </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"> Technically, a mutual fund is a type of managed account. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fund_company.asp">fund company</a> will hire a money manager to look after investments in the fund's portfolio. This manager may alter the fund's holdings per the fund's objectives. </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"> When mutual funds began to be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/mutualfund/05/mfhistory.asp">marketed in earnest in the 1950s</a>, they were touted as a way for the "little guy"—that is, small <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retailinvestor.asp">retail investors</a>—to experience and benefit from professional money management. Previously, this was a service available only to high-net-worth individuals. </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>Customized managed accounts address the account holder's needs; mutual funds invest according to the fund's objectives.</p></li> <li><p>Managed account trades can be timed to minimize tax liability; mutual fund investors have no control when a fund realizes taxable capital gains.</p></li> <li><p>Managed account-holders have maximum transparency and control over assets; mutual fund-holders don't own the fund's assets, only a share of the fund's asset value.</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>Some managed accounts require six-figure minimum in funds; mutual funds demand much lower initial investment amounts.</p></li> <li><p>It may take days to invest, or de-vest managed account assets; mutual fund shares are more liquid and can be bought or sold daily.</p></li> <li><p>Managed account managers tend to charge high annual fees that impact overall returns; mutual funds' expense ratio fees tend to be lower.</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> <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"> Management Considerations </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Both managed accounts and mutual funds are overseen by professional managers. Managed accounts are personalized investment portfolios customized to the specific risks, goals, and needs of the account holder. Management of the mutual fund is on behalf of the many mutual fund holders and all about meeting the fund's investment and return objectives. </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"> With a managed account, the investor allocates funds, and the manager purchases and places physical shares of securities into the account portfolio. The account holder owns the securities and may direct the manager to trade them as desired. </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 contrast, mutual funds are classified by investors’ <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 the funds’ investment objectives, not by individual preferences. Also, investors purchasing shares of a mutual fund own a percentage of the value of the fund, not the fund itself or the actual assets in the fund. </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"> Transactional Considerations </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> On the transactional side, events might move more slowly in a managed account. Days may pass before the manager has the money fully invested. Also, depending on the holdings selected, managers may be able to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidate.asp">liquidate</a> securities at specific times only. </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"> Conversely, shares of mutual funds may typically be purchased and redeemed as desired, daily. However, some mutual funds may carry penalties if redeemed before holding for a specified period. </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 professional guiding a managed account may attempt to offset gains and losses by buying and selling assets when it is the most tax beneficial to the account's owner. In doing so, it could result in little or no tax liabilities on a significant profit for the individual. In contrast, mutual fund shareholders have no control over when portfolio managers sell the underlying securities, so they may face tax bites on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalgain.asp">capital gains</a>. </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-special-considerations"></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"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> In July 2016, managed funds were in the news, as several <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/institutionalinvestor.asp">institutional investors</a> simultaneously opted for them over the hedge funds that had been handling a portion of their portfolios. The investors wanted broader platforms, customized strategies, full control over their separate accounts, daily valuation, significantly lower fees, and full transparency when it came to those fees, as well as to the nature of the holdings themselves.<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_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> <em>Pensions &amp; Investments </em>claimed that the state-managed Alaska Permanent Fund Corp. in Juneau redeemed US$2 billion in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedgefund.asp">hedge funds</a> to invest in a managed account so that investment decisions would be in-house. It was also reported that the $28.2 billion Iowa Public Employees’ Retirement System set up plans for moving $700 million in investments to managed accounts with seven firms in 2016.<span class="ql-inline-citation" data-cite="1"></span> </p></div>

## What Is a Managed Account? A managed account is an investment account that is owned by an investor but managed by somebody else. The account owner can either be an institutional investor or an individual retail investor. A professional [money manager](https://www.investopedia.com/terms/m/moneymanager.asp) hired by the investor then oversees the account and the trading activity within it. Armed with [discretionary authority](https://www.investopedia.com/terms/d/discretionaryaccount.asp) over the account, the dedicated manager actively makes investment decisions pertinent to the individual, considering the client's needs and goals, risk tolerance, and asset size. Managed accounts are most often seen among high-net-worth investors. ### Key Takeaways * A managed account is a portfolio that is owned by one investor but is supervised by a professional money manager who has been hired by that investor. * Money managers can demand six-figure minimum investments to manage accounts and are compensated by a fee, calculated as a set percentage of assets under management (AUM). * Robo-advisors offer algorithmically-managed accounts at a lower cost for everyday investors with low starting balances. * A mutual fund is a type of managed account, but it is open to anyone with the means to buy its shares, rather than personalized for a particular investor. ## How a Managed Account Works A managed account may contain financial [assets](https://www.investopedia.com/terms/a/asset.asp), cash, or titles to property. The money or investment manager has the authority to buy and sell assets without the client’s prior approval, as long as they act according to the client’s objectives. Because a managed account involves [fiduciary duty](https://www.investopedia.com/terms/f/fiduciary.asp), the manager must act in the best interest of the client or potentially face civil or criminal penalties. The investment manager will typically supply the client with regular reports on the account's performance and [holdings](https://www.investopedia.com/terms/h/holdings.asp). Money managers often have minimum dollar amounts on the accounts they will manage, meaning a client must have a certain amount of funds to invest. Many minimums start at $250,000, though some managers will accept $100,000 and even $50,000 accounts. Managers will usually charge an annual fee for their services, calculated as a percentage of the [assets under management](https://www.investopedia.com/terms/a/aum.asp) (AUM). Compensation fees range greatly, but most average around 1% to 2% of AUM. Many managers will provide discounts based on an account's asset size, so that the larger the portfolio, the smaller the percentage fee. According to the Internal Revenue Service, these fees are no longer [tax-deductible](https://www.investopedia.com/terms/t/tax-deduction.asp) as investment expenses. A new innovation to managed accounts aimed at lay investors is the so-called [robo-advisor](https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp). Robo-advisors are digital platforms that provide automated, algorithmically-driven portfolio management with little to no human supervision. These platforms are typically cheaper, charging, for example, somewhere in the region of 0.25% of AUM, and may require as little as $5 to get started. ### Managed accounts are typically used by [high-net-worth individuals](https://www.investopedia.com/terms/h/hnwi.asp) as they often require a high minimum dollar amount of investment. ## Managed Accounts vs. Mutual Funds Managed accounts and [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp) both represent actively managed portfolios or pools of money that invest over a variety of assets—or [asset classes](https://www.investopedia.com/terms/a/assetclasses.asp). Technically, a mutual fund is a type of managed account. The [fund company](https://www.investopedia.com/terms/f/fund_company.asp) will hire a money manager to look after investments in the fund's portfolio. This manager may alter the fund's holdings per the fund's objectives. When mutual funds began to be [marketed in earnest in the 1950s](https://www.investopedia.com/articles/mutualfund/05/mfhistory.asp), they were touted as a way for the "little guy"—that is, small [retail investors](https://www.investopedia.com/terms/r/retailinvestor.asp)—to experience and benefit from professional money management. Previously, this was a service available only to high-net-worth individuals. Pros * Customized managed accounts address the account holder's needs; mutual funds invest according to the fund's objectives. * Managed account trades can be timed to minimize tax liability; mutual fund investors have no control when a fund realizes taxable capital gains. * Managed account-holders have maximum transparency and control over assets; mutual fund-holders don't own the fund's assets, only a share of the fund's asset value. Cons * Some managed accounts require six-figure minimum in funds; mutual funds demand much lower initial investment amounts. * It may take days to invest, or de-vest managed account assets; mutual fund shares are more liquid and can be bought or sold daily. * Managed account managers tend to charge high annual fees that impact overall returns; mutual funds' expense ratio fees tend to be lower. ### Management Considerations Both managed accounts and mutual funds are overseen by professional managers. Managed accounts are personalized investment portfolios customized to the specific risks, goals, and needs of the account holder. Management of the mutual fund is on behalf of the many mutual fund holders and all about meeting the fund's investment and return objectives. With a managed account, the investor allocates funds, and the manager purchases and places physical shares of securities into the account portfolio. The account holder owns the securities and may direct the manager to trade them as desired. In contrast, mutual funds are classified by investors’ [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp) and the funds’ investment objectives, not by individual preferences. Also, investors purchasing shares of a mutual fund own a percentage of the value of the fund, not the fund itself or the actual assets in the fund. ### Transactional Considerations On the transactional side, events might move more slowly in a managed account. Days may pass before the manager has the money fully invested. Also, depending on the holdings selected, managers may be able to [liquidate](https://www.investopedia.com/terms/l/liquidate.asp) securities at specific times only. Conversely, shares of mutual funds may typically be purchased and redeemed as desired, daily. However, some mutual funds may carry penalties if redeemed before holding for a specified period. The professional guiding a managed account may attempt to offset gains and losses by buying and selling assets when it is the most tax beneficial to the account's owner. In doing so, it could result in little or no tax liabilities on a significant profit for the individual. In contrast, mutual fund shareholders have no control over when portfolio managers sell the underlying securities, so they may face tax bites on [capital gains](https://www.investopedia.com/terms/c/capitalgain.asp). ## Special Considerations In July 2016, managed funds were in the news, as several [institutional investors](https://www.investopedia.com/terms/i/institutionalinvestor.asp) simultaneously opted for them over the hedge funds that had been handling a portion of their portfolios. The investors wanted broader platforms, customized strategies, full control over their separate accounts, daily valuation, significantly lower fees, and full transparency when it came to those fees, as well as to the nature of the holdings themselves. *Pensions & Investments* claimed that the state-managed Alaska Permanent Fund Corp. in Juneau redeemed US$2 billion in [hedge funds](https://www.investopedia.com/terms/h/hedgefund.asp) to invest in a managed account so that investment decisions would be in-house. It was also reported that the $28.2 billion Iowa Public Employees’ Retirement System set up plans for moving $700 million in investments to managed accounts with seven firms in 2016.

What Is a Managed Account? A managed account is an investment account that is owned by an investor but managed by somebody else. The account owner can either be an institutional investor or an individual retail investor. A professional money manager hired by the investor then oversees the account and the trading activity within it. Armed with discretionary authority over the account, the dedicated manager actively makes investment decisions pertinent to the individual, considering the client's needs and goals, risk tolerance, and asset size. Managed accounts are most often seen among high-net-worth investors. Key Takeaways A managed account is a portfolio that is owned by one investor but is supervised by a professional money manager who has been hired by that investor.Money managers can demand six-figure minimum investments to manage accounts and are compensated by a fee, calculated as a set percentage of assets under management (AUM).Robo-advisors offer algorithmically-managed accounts at a lower cost for everyday investors with low starting balances.A mutual fund is a type of managed account, but it is open to anyone with the means to buy its shares, rather than personalized for a particular investor. How a Managed Account Works A managed account may contain financial assets, cash, or titles to property. The money or investment manager has the authority to buy and sell assets without the client’s prior approval, as long as they act according to the client’s objectives. Because a managed account involves fiduciary duty, the manager must act in the best interest of the client or potentially face civil or criminal penalties. The investment manager will typically supply the client with regular reports on the account's performance and holdings. Money managers often have minimum dollar amounts on the accounts they will manage, meaning a client must have a certain amount of funds to invest. Many minimums start at $250,000, though some managers will accept $100,000 and even $50,000 accounts. Managers will usually charge an annual fee for their services, calculated as a percentage of the assets under management (AUM). Compensation fees range greatly, but most average around 1% to 2% of AUM. Many managers will provide discounts based on an account's asset size, so that the larger the portfolio, the smaller the percentage fee. According to the Internal Revenue Service, these fees are no longer tax-deductible as investment expenses. A new innovation to managed accounts aimed at lay investors is the so-called robo-advisor. Robo-advisors are digital platforms that provide automated, algorithmically-driven portfolio management with little to no human supervision. These platforms are typically cheaper, charging, for example, somewhere in the region of 0.25% of AUM, and may require as little as $5 to get started. Managed accounts are typically used by high-net-worth individuals as they often require a high minimum dollar amount of investment. Managed Accounts vs. Mutual Funds Managed accounts and mutual funds both represent actively managed portfolios or pools of money that invest over a variety of assets—or asset classes. Technically, a mutual fund is a type of managed account. The fund company will hire a money manager to look after investments in the fund's portfolio. This manager may alter the fund's holdings per the fund's objectives. When mutual funds began to be marketed in earnest in the 1950s, they were touted as a way for the "little guy"—that is, small retail investors—to experience and benefit from professional money management. Previously, this was a service available only to high-net-worth individuals. Pros Customized managed accounts address the account holder's needs; mutual funds invest according to the fund's objectives. Managed account trades can be timed to minimize tax liability; mutual fund investors have no control when a fund realizes taxable capital gains. Managed account-holders have maximum transparency and control over assets; mutual fund-holders don't own the fund's assets, only a share of the fund's asset value. Cons Some managed accounts require six-figure minimum in funds; mutual funds demand much lower initial investment amounts. It may take days to invest, or de-vest managed account assets; mutual fund shares are more liquid and can be bought or sold daily. Managed account managers tend to charge high annual fees that impact overall returns; mutual funds' expense ratio fees tend to be lower. Management Considerations Both managed accounts and mutual funds are overseen by professional managers. Managed accounts are personalized investment portfolios customized to the specific risks, goals, and needs of the account holder. Management of the mutual fund is on behalf of the many mutual fund holders and all about meeting the fund's investment and return objectives. With a managed account, the investor allocates funds, and the manager purchases and places physical shares of securities into the account portfolio. The account holder owns the securities and may direct the manager to trade them as desired. In contrast, mutual funds are classified by investors’ risk tolerance and the funds’ investment objectives, not by individual preferences. Also, investors purchasing shares of a mutual fund own a percentage of the value of the fund, not the fund itself or the actual assets in the fund. Transactional Considerations On the transactional side, events might move more slowly in a managed account. Days may pass before the manager has the money fully invested. Also, depending on the holdings selected, managers may be able to liquidate securities at specific times only. Conversely, shares of mutual funds may typically be purchased and redeemed as desired, daily. However, some mutual funds may carry penalties if redeemed before holding for a specified period. The professional guiding a managed account may attempt to offset gains and losses by buying and selling assets when it is the most tax beneficial to the account's owner. In doing so, it could result in little or no tax liabilities on a significant profit for the individual. In contrast, mutual fund shareholders have no control over when portfolio managers sell the underlying securities, so they may face tax bites on capital gains. Special Considerations In July 2016, managed funds were in the news, as several institutional investors simultaneously opted for them over the hedge funds that had been handling a portion of their portfolios. The investors wanted broader platforms, customized strategies, full control over their separate accounts, daily valuation, significantly lower fees, and full transparency when it came to those fees, as well as to the nature of the holdings themselves. Pensions & Investments claimed that the state-managed Alaska Permanent Fund Corp. in Juneau redeemed US$2 billion in hedge funds to invest in a managed account so that investment decisions would be in-house. It was also reported that the $28.2 billion Iowa Public Employees’ Retirement System set up plans for moving $700 million in investments to managed accounts with seven firms in 2016.

https://www.investopedia.com/terms/d/diluted-normalized-earnings-per-share.asp

Diluted Normalized Earnings Per Share: 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-diluted-normalized-earnings-per-share"></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 Diluted Normalized Earnings Per Share? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Diluted normalized earnings per share shows a company's profit per share after stripping out one-off income<strong> </strong>or expenses and assuming all stock that could potentially be issued has been. The metric is calculated by taking profit (less one-time earnings) and dividing by the sum of outstanding common shares and potential <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/outstandingshares.asp" rel="noopener noreferrer">outstanding shares</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"> Diluted normalized EPS differs from regular <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/eps.asp" rel="noopener noreferrer">earnings per share</a> (EPS), because it accounts for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/convertible-security.asp" rel="noopener noreferrer">convertible securities</a> and preferred stock, as well as stock options and warrants. This means dividing normalized profit by a larger number of shares, resulting in fewer earnings per share. </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>Diluted normalized earnings per share shows how much profit from normal operations is made on each share of a company, assuming that all stock that could be issued has been.</li><li>It is calculated by dividing a company's profit less its one-time earnings, by both outstanding common stock and its potential shares outstanding.</li><li>Diluted normalized EPS, unlike regular earnings per share (EPS), factors in convertible securities and preferred stock, as well as stock options and warrants.</li><li>That means dividing normalized profit by a larger number of shares, resulting in there being fewer earnings to go around.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-diluted-normalized-earnings-per-share"></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 Diluted Normalized Earnings Per Share </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> EPS is one of the most important variables used to determine a company's profitability and value each of its individual shares. Several different versions of this metric are published in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-statements.asp" rel="noopener noreferrer">financial statements</a> and brokerage <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/research_note.asp" rel="noopener noreferrer">research notes</a>, though, so it is important that investors understand what each one represents. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/normalizedearnings.asp" rel="noopener noreferrer">Normalized earnings</a> are profits that have been adjusted to exclude the effects of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/seasonality.asp" rel="noopener noreferrer">seasonality</a>, irregular items such as non-recurring expenses, or one-time gains such as from the sale of a division. Adding dilution to this equation then assumes all convertible securities (investments that can be changed into common stock) have been exercised. </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">Important</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Big gaps between normalized EPS and diluted normalized EPS signal a greater risk of potential earnings dilution, as a large increase in the number of shares on the market means fewer earnings to go around.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> Including all of a company's potentially outstanding shares increases earnings <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dilution.asp" rel="noopener noreferrer">dilution</a> to shareholders by spreading a company's profit over a larger number of shares. As a result, while a company's diluted normalized EPS might occasionally be similar to its basic EPS, in cases where the company is large and established it will almost always be lower.  </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"> Along with other measures of profitability, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/research-analyst.asp" rel="noopener noreferrer">analysts</a> and investors typically track a company's diluted EPS over time, comparing it against industry <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/peer-group.asp" rel="noopener noreferrer">peers</a> for valuation purposes. </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-benefits-of-diluted-normalized-earnings-per-share"></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 Diluted Normalized Earnings Per Share </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> Calculating diluted EPS figures based on normalized earnings, excluding one-time events, gives a truer picture of underlying profitability. This particular metric is often overlooked, despite providing a more conservative yardstick for analysis, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valuation.asp" rel="noopener noreferrer">valuation</a> and investment comparisons than <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/headlineearnings.asp" rel="noopener noreferrer">headline</a> EPS, which is a company's earnings based solely on operational and capital investment activities. </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"> Investors focus on diluted EPS because the number gives a clearer picture of a company's <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>. The more closely a company's diluted normalized EPS tracks its EPS figure, the more stable its profitability per share. The greater the difference, the greater the risk of share dilution and unsustainable ongoing operations. </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"> Comparing the two numbers can alert analysts and investors to potential developments likely to result in lower-than-expected shareholder earnings and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp" rel="noopener noreferrer">dividend</a> payouts. Looking at diluted normalized EPS can also help pinpoint a company with a large number of convertible securities and large <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stockoption.asp" rel="noopener noreferrer">stock option</a> issuance.  </p></div>

## What Is Diluted Normalized Earnings Per Share? Diluted normalized earnings per share shows a company's profit per share after stripping out one-off incomeor expenses and assuming all stock that could potentially be issued has been. The metric is calculated by taking profit (less one-time earnings) and dividing by the sum of outstanding common shares and potential [outstanding shares](https://www.investopedia.com/terms/o/outstandingshares.asp). Diluted normalized EPS differs from regular [earnings per share](https://www.investopedia.com/terms/e/eps.asp) (EPS), because it accounts for [convertible securities](https://www.investopedia.com/terms/c/convertible-security.asp) and preferred stock, as well as stock options and warrants. This means dividing normalized profit by a larger number of shares, resulting in fewer earnings per share. ### Key Takeaways * Diluted normalized earnings per share shows how much profit from normal operations is made on each share of a company, assuming that all stock that could be issued has been. * It is calculated by dividing a company's profit less its one-time earnings, by both outstanding common stock and its potential shares outstanding. * Diluted normalized EPS, unlike regular earnings per share (EPS), factors in convertible securities and preferred stock, as well as stock options and warrants. * That means dividing normalized profit by a larger number of shares, resulting in there being fewer earnings to go around. ## Understanding Diluted Normalized Earnings Per Share EPS is one of the most important variables used to determine a company's profitability and value each of its individual shares. Several different versions of this metric are published in [financial statements](https://www.investopedia.com/terms/f/financial-statements.asp) and brokerage [research notes](https://www.investopedia.com/terms/r/research_note.asp), though, so it is important that investors understand what each one represents. [Normalized earnings](https://www.investopedia.com/terms/n/normalizedearnings.asp) are profits that have been adjusted to exclude the effects of [seasonality](https://www.investopedia.com/terms/s/seasonality.asp), irregular items such as non-recurring expenses, or one-time gains such as from the sale of a division. Adding dilution to this equation then assumes all convertible securities (investments that can be changed into common stock) have been exercised. ### Important Big gaps between normalized EPS and diluted normalized EPS signal a greater risk of potential earnings dilution, as a large increase in the number of shares on the market means fewer earnings to go around. Including all of a company's potentially outstanding shares increases earnings [dilution](https://www.investopedia.com/terms/d/dilution.asp) to shareholders by spreading a company's profit over a larger number of shares. As a result, while a company's diluted normalized EPS might occasionally be similar to its basic EPS, in cases where the company is large and established it will almost always be lower.  Along with other measures of profitability, [analysts](https://www.investopedia.com/terms/r/research-analyst.asp) and investors typically track a company's diluted EPS over time, comparing it against industry [peers](https://www.investopedia.com/terms/p/peer-group.asp) for valuation purposes. ## Benefits of Diluted Normalized Earnings Per Share Calculating diluted EPS figures based on normalized earnings, excluding one-time events, gives a truer picture of underlying profitability. This particular metric is often overlooked, despite providing a more conservative yardstick for analysis, [valuation](https://www.investopedia.com/terms/v/valuation.asp) and investment comparisons than [headline](https://www.investopedia.com/terms/h/headlineearnings.asp) EPS, which is a company's earnings based solely on operational and capital investment activities. Investors focus on diluted EPS because the number gives a clearer picture of a company's [income](https://www.investopedia.com/terms/i/income.asp). The more closely a company's diluted normalized EPS tracks its EPS figure, the more stable its profitability per share. The greater the difference, the greater the risk of share dilution and unsustainable ongoing operations. Comparing the two numbers can alert analysts and investors to potential developments likely to result in lower-than-expected shareholder earnings and [dividend](https://www.investopedia.com/terms/d/dividend.asp) payouts. Looking at diluted normalized EPS can also help pinpoint a company with a large number of convertible securities and large [stock option](https://www.investopedia.com/terms/s/stockoption.asp) issuance. 

What Is Diluted Normalized Earnings Per Share? Diluted normalized earnings per share shows a company's profit per share after stripping out one-off income or expenses and assuming all stock that could potentially be issued has been. The metric is calculated by taking profit (less one-time earnings) and dividing by the sum of outstanding common shares and potential outstanding shares. Diluted normalized EPS differs from regular earnings per share (EPS), because it accounts for convertible securities and preferred stock, as well as stock options and warrants. This means dividing normalized profit by a larger number of shares, resulting in fewer earnings per share. Key Takeaways Diluted normalized earnings per share shows how much profit from normal operations is made on each share of a company, assuming that all stock that could be issued has been.It is calculated by dividing a company's profit less its one-time earnings, by both outstanding common stock and its potential shares outstanding.Diluted normalized EPS, unlike regular earnings per share (EPS), factors in convertible securities and preferred stock, as well as stock options and warrants.That means dividing normalized profit by a larger number of shares, resulting in there being fewer earnings to go around. Understanding Diluted Normalized Earnings Per Share EPS is one of the most important variables used to determine a company's profitability and value each of its individual shares. Several different versions of this metric are published in financial statements and brokerage research notes, though, so it is important that investors understand what each one represents. Normalized earnings are profits that have been adjusted to exclude the effects of seasonality, irregular items such as non-recurring expenses, or one-time gains such as from the sale of a division. Adding dilution to this equation then assumes all convertible securities (investments that can be changed into common stock) have been exercised. Important Big gaps between normalized EPS and diluted normalized EPS signal a greater risk of potential earnings dilution, as a large increase in the number of shares on the market means fewer earnings to go around. Including all of a company's potentially outstanding shares increases earnings dilution to shareholders by spreading a company's profit over a larger number of shares. As a result, while a company's diluted normalized EPS might occasionally be similar to its basic EPS, in cases where the company is large and established it will almost always be lower.  Along with other measures of profitability, analysts and investors typically track a company's diluted EPS over time, comparing it against industry peers for valuation purposes. Benefits of Diluted Normalized Earnings Per Share Calculating diluted EPS figures based on normalized earnings, excluding one-time events, gives a truer picture of underlying profitability. This particular metric is often overlooked, despite providing a more conservative yardstick for analysis, valuation and investment comparisons than headline EPS, which is a company's earnings based solely on operational and capital investment activities. Investors focus on diluted EPS because the number gives a clearer picture of a company's income. The more closely a company's diluted normalized EPS tracks its EPS figure, the more stable its profitability per share. The greater the difference, the greater the risk of share dilution and unsustainable ongoing operations. Comparing the two numbers can alert analysts and investors to potential developments likely to result in lower-than-expected shareholder earnings and dividend payouts. Looking at diluted normalized EPS can also help pinpoint a company with a large number of convertible securities and large stock option issuance. 

https://www.investopedia.com/how-to-invest-globally-through-etfs-8431212

How to Invest Globally Through 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"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">Exchange-traded funds (ETFs)</a> are a straightforward way to diversify portfolios. Investing in a single fund exposes you to many different securities. Investing in ETFs with holdings across a range of global markets is one way to add further <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversification</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"> Global investing can give you a stake in markets poised for significant growth, though it’s important to consider the risks involved. </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>By investing in global markets through ETFs, investors can diversify and gain exposure to new markets.</li><li>International investing poses risks like currency value fluctuations and geopolitical risks.</li><li>When choosing among ETFs, you’ll need to review their expense ratios, trading volume, liquidity, and tracking errors.</li><li>When investing in global ETFs, you’ll use a different approach than for domestic investing.</li></ul></div></div></div> <span class="heading-toc" id="toc-investing-globally-with-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Investing Globally with ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> No matter where you live, odds are good that you’re most familiar with your country’s businesses and stock market. An American, for example, likely knows about major stock exchanges like the New York Stock Exchange and primarily invests in American companies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> However, there are dozens of global markets, and some investors want exposure to foreign companies and other assets in their investment <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolios</a>. This can be difficult, complicated, and expensive. </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"> Investing globally through ETFs makes the process easier. These funds trade on American stock exchanges but hold shares in foreign companies. That means you can buy shares easily in these ETFs to speculate in foreign markets, including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/basics/11/should-you-invest-emerging-markets.asp">emerging markets</a> with the potential for future growth.<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-what-to-consider-when-investing-globally"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_14-0"> <span class="mntl-sc-block-heading__text"> What to Consider When Investing Globally </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> When investing globally, you need to consider the same risks as investing domestically. It’s important to research the funds you want to invest in to ensure you understand their goals, the fees they charge, and their potential for risk and reward. </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"> However, global investing also brings many other <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risk.asp">risks</a> that you need to consider. </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, currency fluctuations can significantly affect your investment’s performance. When Americans want to invest in the Japanese stock market, they use dollars to buy shares, but if the yen weakens, their investments lose value in dollar terms. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> For example, from January 2023 to January 2024, the value of the yen fell by 13% compared with the dollar.<span class="ql-inline-citation" data-cite="1"></span> If you invested in 2023 and sold in 2024, the shares held by the ETF would have needed to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/appreciation.asp">appreciate</a> by 13% in yen just to break even. </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"> Meanwhile, if the currency you’re investing in goes up, that would increase the value of your 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"> Geopolitics also comes into play. While all markets worldwide are interconnected directly or indirectly, you’ll likely face increased risk when investing in foreign markets. </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, investors with stakes in ETFs focused on the Russian market in 2021 would likely have had the value of their investment fall significantly after the 2022 Russian invasion of Ukraine. In late February 2022, trading of Russian companies was halted by the New York Stock Exchange and Nasdaq, making it difficult to regain your stake.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> One ETF focused on the Russian market, the iShares MSCI Russia ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ERUS">ERUS</a>), fell from a peak of more than $50 in October 2021 to less than $18 in February 2022 and then finally to $8.06 when trading was halted.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <span class="heading-toc" id="toc-how-to-select-global-etfs-for-investment"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_31-0"> <span class="mntl-sc-block-heading__text"> How to Select Global ETFs for Investment </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Choosing the right global ETF for your portfolio will depend on your goals. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> A few global ETFs are available. Some, like the Vanguard Total World Stock ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=VT">VT</a>), own American and foreign stocks. Investors who want to own domestic and international stocks can use this fund. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Over the past 10 years, VT has had an annualized <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/return.asp">return</a> of 8.07%, slightly lower than its benchmark of 8.17%.<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> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_38-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_39-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0">Total World ETFs</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>ETFs that invest in both the U.S. and foreign markets are often heavily weighted toward American stocks.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> Other funds, like the iShares MSCI ACWI ex U.S. ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ACWX">ACWX</a>), only hold shares in non-American companies. These funds are worthwhile for investors with exposure to American businesses and who want to add stocks from elsewhere in their portfolios. </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 the past decade, ACWX has had annualized returns of 3.70%.<span class="ql-inline-citation" data-cite="4"></span> Its returns are lower than VT because of the strength of the U.S. markets compared with international markets in recent years. </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"> Some funds focus on one or a few specific countries. For example, the WisdomTree Japan Hedged Equity Fund (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DXJ">DXJ</a>) concentrates on the Japanese market, employing hedging strategies to limit its currency risk. This fund has had returns of 9.97% over the past 10 years.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Once you know the type of ETF you’re looking for, you’ll have to do some market research. Are you just looking for broad exposure to international markets, or do you want to focus on a specific country, a group of nations, or a region? </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"> Many of the same factors apply as when investing in domestic ETFs. Review the <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>, how well they track their <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp">benchmark</a> index, and their <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/041015/why-trading-volume-important-investors.asp">trading volume</a> to ensure <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp">liquidity</a>. </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-understanding-global-etf-holdings"></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"> Understanding Global ETF Holdings </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> When researching global ETFs, you need to understand the fund’s holdings. For example, is the fund focused on a specific country? Does it aim to track the performance of a major index like the Nikkei 225 or the Hang Seng, and if so, what is its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/exchangetradedfunds/09/tracking-error-etf-funds.asp">tracking error</a>? If tracking an index, assess the fund’s tracking error to gauge how closely it mirrors the index’s performance. </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"> Reviewing the index that a fund tracks is essential. Does it represent large-cap companies like the Dow Jones Industrial Average, or does it offer a broader view of a country’s large companies, like the S&amp;P 500? Knowing this is vital because the performance of large-cap companies in foreign markets often differs significantly from that of smaller caps within the same markets. </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"> Investigate the fund’s specific holdings, which should be readily available, to understand the shares it owns and its weighting strategy. Also, examine whether the fund employs derivatives to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedge.asp">hedge</a> against currency risk. While hedging can mitigate the impact of currency fluctuations on global ETFs, it usually incurs extra costs. </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-how-to-invest-in-global-etfs"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_57-0"> <span class="mntl-sc-block-heading__text"> How to Invest in Global ETFs  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> There are a few ways to invest in global ETFs. </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"> One popular strategy for buy-and-hold investors is to use a total market fund, like VT, to gain exposure to domestic and foreign businesses. These funds are usually weighted by market cap, so you gain more exposure to the U.S. market, the largest in the world, and some exposure to other markets. </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"> Other investors want to focus on specific countries or groups of countries. If, for example, you think that Brazil has a growing economy and is poised to outperform, you might look for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/brazil-etfs-how-they-work-8425617">an ETF focused on the Brazilian market</a> to get exposure to that nation’s stocks. </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’s important to keep in mind that diversification is key for all investing. Adding international ETFs to your portfolio can add diversification. However, if you invest in only one country, this is risky. If the nation you invest in goes through a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/recession.asp">recession</a> or its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/currency.asp">currency</a> drops in value, you could lose a significant amount. Buying shares in an ETF that focuses on several countries or multiple ETFs, so you have exposure to different countries, can cut that risk. </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"> Once you’ve decided on your strategy, you’re ready to start investing in global ETFs. Then, you can select specific funds to invest in and place orders to buy your shares. </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-risks-and-challenges-of-global-etf-investing"></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"> Risks and Challenges of Global ETF Investing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> Global ETF investing has many of the same risks as investing in domestic funds, such as market <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a>, but it also brings many unique challenges to keep in mind. </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"> One is that you will likely know less about another country’s market and its operations. If you’re an American investor, you interact with American business daily, follow American news, and understand the opportunities and risks that each business and industry faces. </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"> When investing in another country, you’re less familiar with its markets, meaning you’ll have to spend far more time researching investment options. </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"> You’ll also face <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/regulatory_risk.asp">regulatory risk</a>. Sometimes, your government blocks trade or investing in a foreign country’s stocks. That country might also impose regulations that affect the value of your investments. Inadequate regulations in the foreign market could mean a greater chance of fraud that affects your investment. </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"> <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> is also a concern. If the dollar gets stronger or the value of the other country’s currency falls, your investment could lose value unless the fund uses hedging strategies. </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"> To limit these risks, it’s important to build a diverse portfolio that doesn’t focus too heavily on a specific country’s stocks and to spend time researching potential investments before you commit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_80-0"></div> <span class="heading-toc" id="toc-tax-considerations-for-global-etf-investors"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_81-0"> <span class="mntl-sc-block-heading__text"> Tax Considerations for Global ETF Investors </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_82-0"> When investing outside the United States, taxes can be complicated. The U.S. collects taxes on your profits from foreign investments.<span class="ql-inline-citation" data-cite="12"></span> However, every country has unique tax laws, so you’ll have to deal with tax laws both in the U.S. and abroad. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_83-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_84-0"> The U.S. offers a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/foreign-tax-credit.asp">foreign tax credit</a> and has tax treaties with some nations that can mitigate the effect of foreign taxes. Investing by using ETFs can also help reduce some of this complexity. Depending on the agreements between the U.S. and the foreign country, the fund can reclaim some of the taxes paid, saving individual investors from dealing with foreign taxes on their own.<span class="ql-inline-citation" data-cite="13"></span><span class="ql-inline-citation" data-cite="14"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_85-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_86-0"> You must still pay the Internal Revenue Service for capital gains and dividend payments, even if the fund recovers taxes paid to foreign entities.<span class="ql-inline-citation" data-cite="12"></span> To remain <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/11/intro-tax-efficient-investing.asp">tax efficient</a>, you should try to hold investments for at least a year to pay the lower rates for long-term capital gains.<span class="ql-inline-citation" data-cite="15"></span> Investing in a tax-advantaged account, such as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/12/401k.asp">an individual retirement account or a 401(k)</a>, can also help limit or defer your taxes.<span class="ql-inline-citation" data-cite="16"></span> This strategy is especially popular when investing in income-producing funds that pay regular dividends.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_87-0"></div> <span class="heading-toc" id="toc-examples-of-successful-global-etf-investments"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_88-0"> <span class="mntl-sc-block-heading__text"> Examples of Successful Global ETF Investments </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_89-0"> Investing in global ETFs has been a winning strategy for many investors. </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"> For example, in a one-year period starting from Jan. 18, 2023, the Franklin FTSE Taiwan ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=FLTW">FLTW</a>), which invests in the Taiwanese market, produced a return of 30.10%.<span class="ql-inline-citation" data-cite="8"></span> That beat the return of the Vanguard S&amp;P 500 ETF (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=VOO">VOO</a>), which had a return of 26.33%.<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_92-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_93-0"> This strong performance is in part because of the success of Taiwan Semiconductor Manufacturing Co. Limited (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TSM">TSM</a>), which has had a price increase of about 200% over five years.<span class="ql-inline-citation" data-cite="17"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_94-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_95-0"> Successful international investors can identify markets that are undervalued or poised to grow significantly. For instance, an investor foreseeing several years ago the rising demand for semiconductors and Taiwan’s position as a major producer (more than 60% of the world supply) would have done well by investing in the Taiwanese market.<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_96-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_97-0"><span class="heading-toc" id="toc-what-are-other-ways-to-invest-internationally"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Other Ways to Invest Internationally?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Investors who want to get exposure to global markets have many options other than ETFs. For example, investors could trade <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</a>, which are a way for foreign companies to access the American market, buy foreign shares over-the-counter, or even trade directly on a foreign stock market.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_98-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_99-0"><span class="heading-toc" id="toc-whats-the-difference-between-emerging-markets-and-frontier-markets"></span> <h2 class="mntl-sc-block-questionandanswer__question">What’s the Difference Between Emerging Markets and Frontier Markets?</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/investing/092013/difference-between-emerging-and-frontier-markets.asp">Emerging markets and frontier markets</a> are both names for what are considered smaller, less-developed countries. Generally, emerging markets are those considered less economically developed, such as India, Mexico, or Saudi Arabia. Frontier markets are considered even less developed and thus might pose more risk.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_100-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_101-0"><span class="heading-toc" id="toc-what-are-the-best-emerging-market-etfs"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Best Emerging Market ETFs?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>It’s important to do your own research to find the right ETFs for your needs, but some of the most popular emerging market ETFs include the Vanguard FTSE Emerging Markets ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=VWO">VWO</a>) and the iShares MSCI BIC ETF (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BKF">BKF</a>).</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_102-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_103-0"><span class="heading-toc" id="toc-what-is-the-largest-etf-provider-globally"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Largest ETF Provider Globally?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>BlackRock is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/080415/5-biggest-etf-companies.asp">largest ETF provider globally</a>, with about 425 ETFs offered and more than $3 trillion under management.<span class="ql-inline-citation" data-cite="19"></span><span class="ql-inline-citation" data-cite="18"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_104-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_105-0"><span class="heading-toc" id="toc-how-do-currency-fluctuations-and-country-risk-affect-global-etf-investments"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do Currency Fluctuations and Country Risk Affect Global ETF Investments?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Global ETF investments are exposed to currency fluctuations because they typically use local currency. If that currency’s value changes compared with the dollar, the value of that fund in dollar terms will also change. Some funds use hedging techniques to limit this risk.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_106-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_107-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_108-0"> Global ETFs are an option for investors who want to diversify their portfolios and gain exposure to non-American companies. While investing internationally can be risky, it can also offer valuable rewards. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_109-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_110-0"> Before investing, research different funds and consider how they meet your portfolio needs, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/figure-out-your-investment-goals/">investment goals</a>, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risktolerance.asp">risk tolerance</a>. </p></div>

[Exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp) are a straightforward way to diversify portfolios. Investing in a single fund exposes you to many different securities. Investing in ETFs with holdings across a range of global markets is one way to add further [diversification](https://www.investopedia.com/terms/d/diversification.asp). Global investing can give you a stake in markets poised for significant growth, though it’s important to consider the risks involved. ### Key Takeaways * By investing in global markets through ETFs, investors can diversify and gain exposure to new markets. * International investing poses risks like currency value fluctuations and geopolitical risks. * When choosing among ETFs, you’ll need to review their expense ratios, trading volume, liquidity, and tracking errors. * When investing in global ETFs, you’ll use a different approach than for domestic investing. ## Investing Globally with ETFs No matter where you live, odds are good that you’re most familiar with your country’s businesses and stock market. An American, for example, likely knows about major stock exchanges like the New York Stock Exchange and primarily invests in American companies. However, there are dozens of global markets, and some investors want exposure to foreign companies and other assets in their investment [portfolios](https://www.investopedia.com/terms/p/portfolio.asp). This can be difficult, complicated, and expensive. Investing globally through ETFs makes the process easier. These funds trade on American stock exchanges but hold shares in foreign companies. That means you can buy shares easily in these ETFs to speculate in foreign markets, including [emerging markets](https://www.investopedia.com/articles/basics/11/should-you-invest-emerging-markets.asp) with the potential for future growth. ## What to Consider When Investing Globally When investing globally, you need to consider the same risks as investing domestically. It’s important to research the funds you want to invest in to ensure you understand their goals, the fees they charge, and their potential for risk and reward. However, global investing also brings many other [risks](https://www.investopedia.com/terms/r/risk.asp) that you need to consider. For example, currency fluctuations can significantly affect your investment’s performance. When Americans want to invest in the Japanese stock market, they use dollars to buy shares, but if the yen weakens, their investments lose value in dollar terms. For example, from January 2023 to January 2024, the value of the yen fell by 13% compared with the dollar. If you invested in 2023 and sold in 2024, the shares held by the ETF would have needed to [appreciate](https://www.investopedia.com/terms/a/appreciation.asp) by 13% in yen just to break even. Meanwhile, if the currency you’re investing in goes up, that would increase the value of your investment. Geopolitics also comes into play. While all markets worldwide are interconnected directly or indirectly, you’ll likely face increased risk when investing in foreign markets. For example, investors with stakes in ETFs focused on the Russian market in 2021 would likely have had the value of their investment fall significantly after the 2022 Russian invasion of Ukraine. In late February 2022, trading of Russian companies was halted by the New York Stock Exchange and Nasdaq, making it difficult to regain your stake. One ETF focused on the Russian market, the iShares MSCI Russia ETF ([ERUS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ERUS)), fell from a peak of more than $50 in October 2021 to less than $18 in February 2022 and then finally to $8.06 when trading was halted. ## How to Select Global ETFs for Investment Choosing the right global ETF for your portfolio will depend on your goals. A few global ETFs are available. Some, like the Vanguard Total World Stock ETF ([VT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=VT)), own American and foreign stocks. Investors who want to own domestic and international stocks can use this fund. Over the past 10 years, VT has had an annualized [return](https://www.investopedia.com/terms/r/return.asp) of 8.07%, slightly lower than its benchmark of 8.17%. ### Total World ETFs ETFs that invest in both the U.S. and foreign markets are often heavily weighted toward American stocks. Other funds, like the iShares MSCI ACWI ex U.S. ETF ([ACWX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ACWX)), only hold shares in non-American companies. These funds are worthwhile for investors with exposure to American businesses and who want to add stocks from elsewhere in their portfolios. Over the past decade, ACWX has had annualized returns of 3.70%. Its returns are lower than VT because of the strength of the U.S. markets compared with international markets in recent years. Some funds focus on one or a few specific countries. For example, the WisdomTree Japan Hedged Equity Fund ([DXJ](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DXJ)) concentrates on the Japanese market, employing hedging strategies to limit its currency risk. This fund has had returns of 9.97% over the past 10 years. Once you know the type of ETF you’re looking for, you’ll have to do some market research. Are you just looking for broad exposure to international markets, or do you want to focus on a specific country, a group of nations, or a region? Many of the same factors apply as when investing in domestic ETFs. Review the [expense ratios](https://www.investopedia.com/terms/e/expenseratio.asp), how well they track their [benchmark](https://www.investopedia.com/terms/b/benchmark.asp) index, and their [trading volume](https://www.investopedia.com/ask/answers/041015/why-trading-volume-important-investors.asp) to ensure [liquidity](https://www.investopedia.com/terms/l/liquidity.asp). ## Understanding Global ETF Holdings When researching global ETFs, you need to understand the fund’s holdings. For example, is the fund focused on a specific country? Does it aim to track the performance of a major index like the Nikkei 225 or the Hang Seng, and if so, what is its [tracking error](https://www.investopedia.com/articles/exchangetradedfunds/09/tracking-error-etf-funds.asp)? If tracking an index, assess the fund’s tracking error to gauge how closely it mirrors the index’s performance. Reviewing the index that a fund tracks is essential. Does it represent large-cap companies like the Dow Jones Industrial Average, or does it offer a broader view of a country’s large companies, like the S&P 500? Knowing this is vital because the performance of large-cap companies in foreign markets often differs significantly from that of smaller caps within the same markets. Investigate the fund’s specific holdings, which should be readily available, to understand the shares it owns and its weighting strategy. Also, examine whether the fund employs derivatives to [hedge](https://www.investopedia.com/terms/h/hedge.asp) against currency risk. While hedging can mitigate the impact of currency fluctuations on global ETFs, it usually incurs extra costs. ## How to Invest in Global ETFs There are a few ways to invest in global ETFs. One popular strategy for buy-and-hold investors is to use a total market fund, like VT, to gain exposure to domestic and foreign businesses. These funds are usually weighted by market cap, so you gain more exposure to the U.S. market, the largest in the world, and some exposure to other markets. Other investors want to focus on specific countries or groups of countries. If, for example, you think that Brazil has a growing economy and is poised to outperform, you might look for [an ETF focused on the Brazilian market](https://www.investopedia.com/brazil-etfs-how-they-work-8425617) to get exposure to that nation’s stocks. It’s important to keep in mind that diversification is key for all investing. Adding international ETFs to your portfolio can add diversification. However, if you invest in only one country, this is risky. If the nation you invest in goes through a [recession](https://www.investopedia.com/terms/r/recession.asp) or its [currency](https://www.investopedia.com/terms/c/currency.asp) drops in value, you could lose a significant amount. Buying shares in an ETF that focuses on several countries or multiple ETFs, so you have exposure to different countries, can cut that risk. Once you’ve decided on your strategy, you’re ready to start investing in global ETFs. Then, you can select specific funds to invest in and place orders to buy your shares. ## Risks and Challenges of Global ETF Investing Global ETF investing has many of the same risks as investing in domestic funds, such as market [volatility](https://www.investopedia.com/terms/v/volatility.asp), but it also brings many unique challenges to keep in mind. One is that you will likely know less about another country’s market and its operations. If you’re an American investor, you interact with American business daily, follow American news, and understand the opportunities and risks that each business and industry faces. When investing in another country, you’re less familiar with its markets, meaning you’ll have to spend far more time researching investment options. You’ll also face [regulatory risk](https://www.investopedia.com/terms/r/regulatory_risk.asp). Sometimes, your government blocks trade or investing in a foreign country’s stocks. That country might also impose regulations that affect the value of your investments. Inadequate regulations in the foreign market could mean a greater chance of fraud that affects your investment. [Currency risk](https://www.investopedia.com/terms/c/currencyrisk.asp) is also a concern. If the dollar gets stronger or the value of the other country’s currency falls, your investment could lose value unless the fund uses hedging strategies. To limit these risks, it’s important to build a diverse portfolio that doesn’t focus too heavily on a specific country’s stocks and to spend time researching potential investments before you commit. ## Tax Considerations for Global ETF Investors When investing outside the United States, taxes can be complicated. The U.S. collects taxes on your profits from foreign investments. However, every country has unique tax laws, so you’ll have to deal with tax laws both in the U.S. and abroad. The U.S. offers a [foreign tax credit](https://www.investopedia.com/terms/f/foreign-tax-credit.asp) and has tax treaties with some nations that can mitigate the effect of foreign taxes. Investing by using ETFs can also help reduce some of this complexity. Depending on the agreements between the U.S. and the foreign country, the fund can reclaim some of the taxes paid, saving individual investors from dealing with foreign taxes on their own. You must still pay the Internal Revenue Service for capital gains and dividend payments, even if the fund recovers taxes paid to foreign entities. To remain [tax efficient](https://www.investopedia.com/articles/stocks/11/intro-tax-efficient-investing.asp), you should try to hold investments for at least a year to pay the lower rates for long-term capital gains. Investing in a tax-advantaged account, such as [an individual retirement account or a 401(k)](https://www.investopedia.com/ask/answers/12/401k.asp), can also help limit or defer your taxes. This strategy is especially popular when investing in income-producing funds that pay regular dividends. ## Examples of Successful Global ETF Investments Investing in global ETFs has been a winning strategy for many investors. For example, in a one-year period starting from Jan. 18, 2023, the Franklin FTSE Taiwan ETF ([FLTW](https://www.investopedia.com/markets/quote?tvwidgetsymbol=FLTW)), which invests in the Taiwanese market, produced a return of 30.10%. That beat the return of the Vanguard S&P 500 ETF ([VOO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=VOO)), which had a return of 26.33%. This strong performance is in part because of the success of Taiwan Semiconductor Manufacturing Co. Limited ([TSM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TSM)), which has had a price increase of about 200% over five years. Successful international investors can identify markets that are undervalued or poised to grow significantly. For instance, an investor foreseeing several years ago the rising demand for semiconductors and Taiwan’s position as a major producer (more than 60% of the world supply) would have done well by investing in the Taiwanese market. ## What Are Other Ways to Invest Internationally? Investors who want to get exposure to global markets have many options other than ETFs. For example, investors could trade [American depositary receipts](https://www.investopedia.com/terms/a/adr.asp), which are a way for foreign companies to access the American market, buy foreign shares over-the-counter, or even trade directly on a foreign stock market. ## What’s the Difference Between Emerging Markets and Frontier Markets? [Emerging markets and frontier markets](https://www.investopedia.com/articles/investing/092013/difference-between-emerging-and-frontier-markets.asp) are both names for what are considered smaller, less-developed countries. Generally, emerging markets are those considered less economically developed, such as India, Mexico, or Saudi Arabia. Frontier markets are considered even less developed and thus might pose more risk. ## What Are the Best Emerging Market ETFs? It’s important to do your own research to find the right ETFs for your needs, but some of the most popular emerging market ETFs include the Vanguard FTSE Emerging Markets ETF ([VWO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=VWO)) and the iShares MSCI BIC ETF ([BKF](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BKF)). ## What Is the Largest ETF Provider Globally? BlackRock is the [largest ETF provider globally](https://www.investopedia.com/articles/investing/080415/5-biggest-etf-companies.asp), with about 425 ETFs offered and more than $3 trillion under management. ## How Do Currency Fluctuations and Country Risk Affect Global ETF Investments? Global ETF investments are exposed to currency fluctuations because they typically use local currency. If that currency’s value changes compared with the dollar, the value of that fund in dollar terms will also change. Some funds use hedging techniques to limit this risk. ## The Bottom Line Global ETFs are an option for investors who want to diversify their portfolios and gain exposure to non-American companies. While investing internationally can be risky, it can also offer valuable rewards. Before investing, research different funds and consider how they meet your portfolio needs, [investment goals](https://www.investopedia.com/investing/figure-out-your-investment-goals/), and [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp).

Exchange-traded funds (ETFs) are a straightforward way to diversify portfolios. Investing in a single fund exposes you to many different securities. Investing in ETFs with holdings across a range of global markets is one way to add further diversification. Global investing can give you a stake in markets poised for significant growth, though it’s important to consider the risks involved. Key Takeaways By investing in global markets through ETFs, investors can diversify and gain exposure to new markets.International investing poses risks like currency value fluctuations and geopolitical risks.When choosing among ETFs, you’ll need to review their expense ratios, trading volume, liquidity, and tracking errors.When investing in global ETFs, you’ll use a different approach than for domestic investing. Investing Globally with ETFs No matter where you live, odds are good that you’re most familiar with your country’s businesses and stock market. An American, for example, likely knows about major stock exchanges like the New York Stock Exchange and primarily invests in American companies. However, there are dozens of global markets, and some investors want exposure to foreign companies and other assets in their investment portfolios. This can be difficult, complicated, and expensive. Investing globally through ETFs makes the process easier. These funds trade on American stock exchanges but hold shares in foreign companies. That means you can buy shares easily in these ETFs to speculate in foreign markets, including emerging markets with the potential for future growth. What to Consider When Investing Globally When investing globally, you need to consider the same risks as investing domestically. It’s important to research the funds you want to invest in to ensure you understand their goals, the fees they charge, and their potential for risk and reward. However, global investing also brings many other risks that you need to consider. For example, currency fluctuations can significantly affect your investment’s performance. When Americans want to invest in the Japanese stock market, they use dollars to buy shares, but if the yen weakens, their investments lose value in dollar terms. For example, from January 2023 to January 2024, the value of the yen fell by 13% compared with the dollar. If you invested in 2023 and sold in 2024, the shares held by the ETF would have needed to appreciate by 13% in yen just to break even. Meanwhile, if the currency you’re investing in goes up, that would increase the value of your investment. Geopolitics also comes into play. While all markets worldwide are interconnected directly or indirectly, you’ll likely face increased risk when investing in foreign markets. For example, investors with stakes in ETFs focused on the Russian market in 2021 would likely have had the value of their investment fall significantly after the 2022 Russian invasion of Ukraine. In late February 2022, trading of Russian companies was halted by the New York Stock Exchange and Nasdaq, making it difficult to regain your stake. One ETF focused on the Russian market, the iShares MSCI Russia ETF (ERUS), fell from a peak of more than $50 in October 2021 to less than $18 in February 2022 and then finally to $8.06 when trading was halted. How to Select Global ETFs for Investment Choosing the right global ETF for your portfolio will depend on your goals. A few global ETFs are available. Some, like the Vanguard Total World Stock ETF (VT), own American and foreign stocks. Investors who want to own domestic and international stocks can use this fund. Over the past 10 years, VT has had an annualized return of 8.07%, slightly lower than its benchmark of 8.17%. Total World ETFs ETFs that invest in both the U.S. and foreign markets are often heavily weighted toward American stocks. Other funds, like the iShares MSCI ACWI ex U.S. ETF (ACWX), only hold shares in non-American companies. These funds are worthwhile for investors with exposure to American businesses and who want to add stocks from elsewhere in their portfolios. Over the past decade, ACWX has had annualized returns of 3.70%. Its returns are lower than VT because of the strength of the U.S. markets compared with international markets in recent years. Some funds focus on one or a few specific countries. For example, the WisdomTree Japan Hedged Equity Fund (DXJ) concentrates on the Japanese market, employing hedging strategies to limit its currency risk. This fund has had returns of 9.97% over the past 10 years. Once you know the type of ETF you’re looking for, you’ll have to do some market research. Are you just looking for broad exposure to international markets, or do you want to focus on a specific country, a group of nations, or a region? Many of the same factors apply as when investing in domestic ETFs. Review the expense ratios, how well they track their benchmark index, and their trading volume to ensure liquidity. Understanding Global ETF Holdings When researching global ETFs, you need to understand the fund’s holdings. For example, is the fund focused on a specific country? Does it aim to track the performance of a major index like the Nikkei 225 or the Hang Seng, and if so, what is its tracking error? If tracking an index, assess the fund’s tracking error to gauge how closely it mirrors the index’s performance. Reviewing the index that a fund tracks is essential. Does it represent large-cap companies like the Dow Jones Industrial Average, or does it offer a broader view of a country’s large companies, like the S&P 500? Knowing this is vital because the performance of large-cap companies in foreign markets often differs significantly from that of smaller caps within the same markets. Investigate the fund’s specific holdings, which should be readily available, to understand the shares it owns and its weighting strategy. Also, examine whether the fund employs derivatives to hedge against currency risk. While hedging can mitigate the impact of currency fluctuations on global ETFs, it usually incurs extra costs. How to Invest in Global ETFs  There are a few ways to invest in global ETFs. One popular strategy for buy-and-hold investors is to use a total market fund, like VT, to gain exposure to domestic and foreign businesses. These funds are usually weighted by market cap, so you gain more exposure to the U.S. market, the largest in the world, and some exposure to other markets. Other investors want to focus on specific countries or groups of countries. If, for example, you think that Brazil has a growing economy and is poised to outperform, you might look for an ETF focused on the Brazilian market to get exposure to that nation’s stocks. It’s important to keep in mind that diversification is key for all investing. Adding international ETFs to your portfolio can add diversification. However, if you invest in only one country, this is risky. If the nation you invest in goes through a recession or its currency drops in value, you could lose a significant amount. Buying shares in an ETF that focuses on several countries or multiple ETFs, so you have exposure to different countries, can cut that risk. Once you’ve decided on your strategy, you’re ready to start investing in global ETFs. Then, you can select specific funds to invest in and place orders to buy your shares. Risks and Challenges of Global ETF Investing Global ETF investing has many of the same risks as investing in domestic funds, such as market volatility, but it also brings many unique challenges to keep in mind. One is that you will likely know less about another country’s market and its operations. If you’re an American investor, you interact with American business daily, follow American news, and understand the opportunities and risks that each business and industry faces. When investing in another country, you’re less familiar with its markets, meaning you’ll have to spend far more time researching investment options. You’ll also face regulatory risk. Sometimes, your government blocks trade or investing in a foreign country’s stocks. That country might also impose regulations that affect the value of your investments. Inadequate regulations in the foreign market could mean a greater chance of fraud that affects your investment. Currency risk is also a concern. If the dollar gets stronger or the value of the other country’s currency falls, your investment could lose value unless the fund uses hedging strategies. To limit these risks, it’s important to build a diverse portfolio that doesn’t focus too heavily on a specific country’s stocks and to spend time researching potential investments before you commit. Tax Considerations for Global ETF Investors When investing outside the United States, taxes can be complicated. The U.S. collects taxes on your profits from foreign investments. However, every country has unique tax laws, so you’ll have to deal with tax laws both in the U.S. and abroad. The U.S. offers a foreign tax credit and has tax treaties with some nations that can mitigate the effect of foreign taxes. Investing by using ETFs can also help reduce some of this complexity. Depending on the agreements between the U.S. and the foreign country, the fund can reclaim some of the taxes paid, saving individual investors from dealing with foreign taxes on their own. You must still pay the Internal Revenue Service for capital gains and dividend payments, even if the fund recovers taxes paid to foreign entities. To remain tax efficient, you should try to hold investments for at least a year to pay the lower rates for long-term capital gains. Investing in a tax-advantaged account, such as an individual retirement account or a 401(k), can also help limit or defer your taxes. This strategy is especially popular when investing in income-producing funds that pay regular dividends. Examples of Successful Global ETF Investments Investing in global ETFs has been a winning strategy for many investors. For example, in a one-year period starting from Jan. 18, 2023, the Franklin FTSE Taiwan ETF (FLTW), which invests in the Taiwanese market, produced a return of 30.10%. That beat the return of the Vanguard S&P 500 ETF (VOO), which had a return of 26.33%. This strong performance is in part because of the success of Taiwan Semiconductor Manufacturing Co. Limited (TSM), which has had a price increase of about 200% over five years. Successful international investors can identify markets that are undervalued or poised to grow significantly. For instance, an investor foreseeing several years ago the rising demand for semiconductors and Taiwan’s position as a major producer (more than 60% of the world supply) would have done well by investing in the Taiwanese market. What Are Other Ways to Invest Internationally? Investors who want to get exposure to global markets have many options other than ETFs. For example, investors could trade American depositary receipts, which are a way for foreign companies to access the American market, buy foreign shares over-the-counter, or even trade directly on a foreign stock market. What’s the Difference Between Emerging Markets and Frontier Markets? Emerging markets and frontier markets are both names for what are considered smaller, less-developed countries. Generally, emerging markets are those considered less economically developed, such as India, Mexico, or Saudi Arabia. Frontier markets are considered even less developed and thus might pose more risk. What Are the Best Emerging Market ETFs? It’s important to do your own research to find the right ETFs for your needs, but some of the most popular emerging market ETFs include the Vanguard FTSE Emerging Markets ETF (VWO) and the iShares MSCI BIC ETF (BKF). What Is the Largest ETF Provider Globally? BlackRock is the largest ETF provider globally, with about 425 ETFs offered and more than $3 trillion under management. How Do Currency Fluctuations and Country Risk Affect Global ETF Investments? Global ETF investments are exposed to currency fluctuations because they typically use local currency. If that currency’s value changes compared with the dollar, the value of that fund in dollar terms will also change. Some funds use hedging techniques to limit this risk. The Bottom Line Global ETFs are an option for investors who want to diversify their portfolios and gain exposure to non-American companies. While investing internationally can be risky, it can also offer valuable rewards. Before investing, research different funds and consider how they meet your portfolio needs, investment goals, and risk tolerance.

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

Norwegian Krone (NOK): History, Example, FAQs

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-the-norwegian-krone-nok"></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 Norwegian Krone (NOK)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The Norwegian <em>krone </em>(NOK) is the official currency of Norway.<span class="ql-inline-citation" data-cite="7"></span> Its regulation and circulation are controlled by the country's central bank, the Norges Bank.<span class="ql-inline-citation" data-cite="8"></span> The bank has issued its eighth series of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/banknote.asp">banknotes</a>, including the latest in November 2019, which saw new 1000-<em>krone </em>bills. The year before introduced the new 50-<em>krone </em>and 500-<em>krone </em>bills and 2017 brought the new 100-<em>krone </em>and 200-<em>krone </em>bills.<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_3-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> As of August 2022, $1 USD is equal to roughly 9.77 NOK.<span class="ql-inline-citation" data-cite="21"></span> A single Norwegian Krone is worth $0.10 cents.<span class="ql-inline-citation" data-cite="12"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <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 Norwegian krone (NOK), which began circulation in 1875, is the official currency of Norway.</li><li>The krone's regulation and circulation are controlled by the country's central bank, the Norges Bank. </li><li>The Norwegian krone currency code is "NOK" and its symbol is "kr."</li><li>Coins come in denominations of 1, 5, 10, and 20 krone, and banknotes are divided into 50, 100, 200, 500, and 1,000 denominations.</li><li>The Norwegian Krone has a value of $0.10 cents as of August 23, 2022.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-the-norwegian-krone"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_8-0"> <span class="mntl-sc-block-heading__text"> Understanding the Norwegian Krone </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The Norwegian <em>krone</em>, or <em>kroner </em>(the plural term), subdivides into 100 <em>øre</em>. The english translation for the word <em>krone</em> is "the crown." Coins come in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/denomination.asp">denominations</a> of 1, 5, 10, and 20 <em>krone </em>and banknotes appear in denominations of 50, 100, 200, 500, and 1,000 <em>kroner</em>. The currency symbol is “kr.”<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> The new banknotes feature images of Norwegian maritime history on the front, while the back shows an abstract of sea and wind in the form of a cubic pattern.<span class="ql-inline-citation" data-cite="9"></span> For example, the 50-<em>krone </em>note has a green tint, an image of the Utvær Lighthouse on the front, and the back features an abstract rendition of the light signal from a lighthouse as well as a the constellation Ursa Major.<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_12-0"></div> <span class="heading-toc" id="toc-history-of-the-krone"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_13-0"> <span class="mntl-sc-block-heading__text"> History of the Krone </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The first circulation of the <em>krone </em>came in 1875 when it became the replacement of the <em>speciedaler. </em>At the time, the conversion rate was four <em>kroner </em>for one <em>speciedaler</em>. Following the switch, Norway joined the Scandinavian Monetary Union, an alliance that existed until the outbreak of World War I. During the existence of the Union, the Norwegian <em>krone </em>on the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/goldstandard.asp">gold standard</a> until 1931 when it was pegged to the British pound.<span class="ql-inline-citation" data-cite="14"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> In 1939 the country's currency was pegged to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/usd.asp">U.S. dollar (USD)</a>, but during the German occupation of Norway in the Second World War, it was pegged to the Reichsmark. At the war's end, the currency was pegged to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gbp.asp">British pound (GBP)</a>. Shortly after, the krone was pegged to the US dollar until 1971 when it free floats in the market for seven years until it is linked to a basket of currencies. Then in 1992, the central bank moved away from a fixed exchange rate, allowing the currency to <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/floatingexchangerate.asp">float</a> based on the <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/exchangerate.asp">foreign currency exchange rate</a>.<span class="ql-inline-citation" data-cite="14"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_18-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_19-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The 10 Syrian pound so closely resembles the 20 Norwegian kroner that it can fool many coin-operated, automated service machines in Norway.<span class="ql-inline-citation" data-cite="22"></span></p></div></div></div> <span class="heading-toc" id="toc-economic-impact-on-the-noks-value"></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"> Economic Impact on the NOK's Value </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> As with all currencies, economic trends trigger fluctuation in the value of the Norwegian <em>krone</em>. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/forex/031615/safest-currencies-world.asp">Currency investors may seek out the NOK</a> when the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/euro.asp">euro’s</a> (EUR) value is in doubt. Increased activity in trading the NOK may increase the rate of exchange. Changes in the global price of crude oil also affect the NOK's value as Norway is Western Europe’s leading oil exporter.<span class="ql-inline-citation" data-cite="15"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> Norway's shipping, hydroelectric power, fishing, and manufacturing all contribute to the country's <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>. However, it is interesting to note that many industries are <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/soe.asp">state-owned</a>.<span class="ql-inline-citation" data-cite="16"></span> Historically, the <em>krone </em>is a prudent investment as Norway stakes claim to one of Europe’s most stable economies. </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"> Norway is one of the wealthiest countries on the globe and enjoys one of the highest standards of living. According to the latest World Bank data, Norway has a high-income economy with slow population growth at 0.5% annually. GDP growth for 2021 came in at 3.9% while the inflation deflator was at 16.9%.<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> <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-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_28-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Don't confuse the Norwegian Krone with the similarly-named Danish Krone (DKK) or Swedish Krona (SEK). The Norwegian krone is worth 9% more than the Swedish Krona.<span class="ql-inline-citation" data-cite="4"></span></p></div></div></div> <span class="heading-toc" id="toc-example-of-the-norwegian-krone"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_29-0"> <span class="mntl-sc-block-heading__text"> Example of the Norwegian Krone </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> To understand the value of the Norwegian krone in Norway, it is helpful to examine the currency's buying power with respect to familiar consumer goods. According to <em>The Economist's </em>popular<em> </em>"Big Mac" Index, as of June 2022, the cost of a Big Mac in Norway averaged out to 62 krone in 2022, a figure equal to about $5.15 U.S. dollars. This is the second most expensive Big Mac in the world, just behind Switzerland.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> The average monthly salary in Norway was 50,800 NOK, according to Statistics Norway, a figure that converts to $5,178.<span class="ql-inline-citation" data-cite="18"></span><span class="ql-inline-citation" data-cite="17"></span> Much of that salary is subject to income taxes, which are returned to the public in the form of health care and generous welfare programs.<span class="ql-inline-citation" data-cite="19"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_34-0"><span class="heading-toc" id="toc-is-the-us-dollar-stronger-than-the-norwegian-krone"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is the U.S. Dollar Stronger Than the Norwegian Krone?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The U.S. dollar is stronger than the Norwegian Krone and has steadily strengthened against it since 2015.<span class="ql-inline-citation" data-cite="20"></span> This is likely due to changes in the respective interest rates between the two countries, fluctuations in the price of oil, and the weakening of the Eurozone economy.</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-norwegian-krone-to-usd-exchange-rate"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Norwegian Krone to USD Exchange Rate?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>One U.S. dollar is equal to 9.77 Norwegian Krone (NOK) as of August 23, 2022.<span class="ql-inline-citation" data-cite="21"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_38-0"><span class="heading-toc" id="toc-is-the-norwegian-krone-a-safe-haven"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is the Norwegian Krone a Safe Haven?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The Norwegian Krone is generally <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/forex/031615/safest-currencies-world.asp">considered a safe currency</a>, in that its value is not likely to be affected by failures in other markets. Although it is occasionally affected by domestic troubles, the Norwegian economy is relatively stable and the currency is unlikely to see any sharp changes in value.<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_39-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_40-0"><span class="heading-toc" id="toc-is-the-norwegian-krone-a-good-investment"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is the Norwegian Krone a Good Investment?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Although the Norwegian Krone (NOK) is generally considered a safe and reliable currency, it falls to each individual investor to decide whether it is worth investing in.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_42-0"><span class="heading-toc" id="toc-does-norway-use-the-euro"></span> <h2 class="mntl-sc-block-questionandanswer__question">Does Norway Use the Euro?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Norway is not a member state of the European Union, and therefore is not eligible to use the Euro. However, the Norwegian economy is closely tied to the Eurozone, and the country is a member of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/european-economic-area-eea-agreement.asp">European Economic Area</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_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> <em>Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.</em> </p></div>

## What Is the Norwegian Krone (NOK)? The Norwegian *krone* (NOK) is the official currency of Norway. Its regulation and circulation are controlled by the country's central bank, the Norges Bank. The bank has issued its eighth series of [banknotes](https://www.investopedia.com/terms/b/banknote.asp), including the latest in November 2019, which saw new 1000-*krone* bills. The year before introduced the new 50-*krone* and 500-*krone* bills and 2017 brought the new 100-*krone* and 200-*krone* bills. As of August 2022, $1 USD is equal to roughly 9.77 NOK. A single Norwegian Krone is worth $0.10 cents. ### Key Takeaways * The Norwegian krone (NOK), which began circulation in 1875, is the official currency of Norway. * The krone's regulation and circulation are controlled by the country's central bank, the Norges Bank. * The Norwegian krone currency code is "NOK" and its symbol is "kr." * Coins come in denominations of 1, 5, 10, and 20 krone, and banknotes are divided into 50, 100, 200, 500, and 1,000 denominations. * The Norwegian Krone has a value of $0.10 cents as of August 23, 2022. ## Understanding the Norwegian Krone The Norwegian *krone*, or *kroner* (the plural term), subdivides into 100 *øre*. The english translation for the word *krone* is "the crown." Coins come in [denominations](https://www.investopedia.com/terms/d/denomination.asp) of 1, 5, 10, and 20 *krone* and banknotes appear in denominations of 50, 100, 200, 500, and 1,000 *kroner*. The currency symbol is “kr.” The new banknotes feature images of Norwegian maritime history on the front, while the back shows an abstract of sea and wind in the form of a cubic pattern. For example, the 50-*krone* note has a green tint, an image of the Utvær Lighthouse on the front, and the back features an abstract rendition of the light signal from a lighthouse as well as a the constellation Ursa Major. ## History of the Krone The first circulation of the *krone* came in 1875 when it became the replacement of the *speciedaler.* At the time, the conversion rate was four *kroner* for one *speciedaler*. Following the switch, Norway joined the Scandinavian Monetary Union, an alliance that existed until the outbreak of World War I. During the existence of the Union, the Norwegian *krone* on the [gold standard](https://www.investopedia.com/terms/g/goldstandard.asp) until 1931 when it was pegged to the British pound. In 1939 the country's currency was pegged to the [U.S. dollar (USD)](https://www.investopedia.com/terms/u/usd.asp), but during the German occupation of Norway in the Second World War, it was pegged to the Reichsmark. At the war's end, the currency was pegged to the [British pound (GBP)](https://www.investopedia.com/terms/g/gbp.asp). Shortly after, the krone was pegged to the US dollar until 1971 when it free floats in the market for seven years until it is linked to a basket of currencies. Then in 1992, the central bank moved away from a fixed exchange rate, allowing the currency to [float](https://www.investopedia.com/terms/f/floatingexchangerate.asp) based on the [foreign currency exchange rate](https://www.investopedia.com/terms/e/exchangerate.asp). ### The 10 Syrian pound so closely resembles the 20 Norwegian kroner that it can fool many coin-operated, automated service machines in Norway. ## Economic Impact on the NOK's Value As with all currencies, economic trends trigger fluctuation in the value of the Norwegian *krone*. [Currency investors may seek out the NOK](https://www.investopedia.com/articles/forex/031615/safest-currencies-world.asp) when the [euro’s](https://www.investopedia.com/terms/e/euro.asp) (EUR) value is in doubt. Increased activity in trading the NOK may increase the rate of exchange. Changes in the global price of crude oil also affect the NOK's value as Norway is Western Europe’s leading oil exporter. Norway's shipping, hydroelectric power, fishing, and manufacturing all contribute to the country's [gross domestic product (GDP)](https://www.investopedia.com/terms/g/gdp.asp). However, it is interesting to note that many industries are [state-owned](https://www.investopedia.com/terms/s/soe.asp). Historically, the *krone* is a prudent investment as Norway stakes claim to one of Europe’s most stable economies. Norway is one of the wealthiest countries on the globe and enjoys one of the highest standards of living. According to the latest World Bank data, Norway has a high-income economy with slow population growth at 0.5% annually. GDP growth for 2021 came in at 3.9% while the inflation deflator was at 16.9%. ### Don't confuse the Norwegian Krone with the similarly-named Danish Krone (DKK) or Swedish Krona (SEK). The Norwegian krone is worth 9% more than the Swedish Krona. ## Example of the Norwegian Krone To understand the value of the Norwegian krone in Norway, it is helpful to examine the currency's buying power with respect to familiar consumer goods. According to *The Economist's* popular"Big Mac" Index, as of June 2022, the cost of a Big Mac in Norway averaged out to 62 krone in 2022, a figure equal to about $5.15 U.S. dollars. This is the second most expensive Big Mac in the world, just behind Switzerland. The average monthly salary in Norway was 50,800 NOK, according to Statistics Norway, a figure that converts to $5,178. Much of that salary is subject to income taxes, which are returned to the public in the form of health care and generous welfare programs. ## Is the U.S. Dollar Stronger Than the Norwegian Krone? The U.S. dollar is stronger than the Norwegian Krone and has steadily strengthened against it since 2015. This is likely due to changes in the respective interest rates between the two countries, fluctuations in the price of oil, and the weakening of the Eurozone economy. ## What Is the Norwegian Krone to USD Exchange Rate? One U.S. dollar is equal to 9.77 Norwegian Krone (NOK) as of August 23, 2022. ## Is the Norwegian Krone a Safe Haven? The Norwegian Krone is generally [considered a safe currency](https://www.investopedia.com/articles/forex/031615/safest-currencies-world.asp), in that its value is not likely to be affected by failures in other markets. Although it is occasionally affected by domestic troubles, the Norwegian economy is relatively stable and the currency is unlikely to see any sharp changes in value. ## Is the Norwegian Krone a Good Investment? Although the Norwegian Krone (NOK) is generally considered a safe and reliable currency, it falls to each individual investor to decide whether it is worth investing in. ## Does Norway Use the Euro? Norway is not a member state of the European Union, and therefore is not eligible to use the Euro. However, the Norwegian economy is closely tied to the Eurozone, and the country is a member of the [European Economic Area](https://www.investopedia.com/terms/e/european-economic-area-eea-agreement.asp). *Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.*

What Is the Norwegian Krone (NOK)? The Norwegian krone (NOK) is the official currency of Norway. Its regulation and circulation are controlled by the country's central bank, the Norges Bank. The bank has issued its eighth series of banknotes, including the latest in November 2019, which saw new 1000-krone bills. The year before introduced the new 50-krone and 500-krone bills and 2017 brought the new 100-krone and 200-krone bills. As of August 2022, $1 USD is equal to roughly 9.77 NOK. A single Norwegian Krone is worth $0.10 cents. Key Takeaways The Norwegian krone (NOK), which began circulation in 1875, is the official currency of Norway.The krone's regulation and circulation are controlled by the country's central bank, the Norges Bank. The Norwegian krone currency code is "NOK" and its symbol is "kr."Coins come in denominations of 1, 5, 10, and 20 krone, and banknotes are divided into 50, 100, 200, 500, and 1,000 denominations.The Norwegian Krone has a value of $0.10 cents as of August 23, 2022. Understanding the Norwegian Krone The Norwegian krone, or kroner (the plural term), subdivides into 100 øre. The english translation for the word krone is "the crown." Coins come in denominations of 1, 5, 10, and 20 krone and banknotes appear in denominations of 50, 100, 200, 500, and 1,000 kroner. The currency symbol is “kr.” The new banknotes feature images of Norwegian maritime history on the front, while the back shows an abstract of sea and wind in the form of a cubic pattern. For example, the 50-krone note has a green tint, an image of the Utvær Lighthouse on the front, and the back features an abstract rendition of the light signal from a lighthouse as well as a the constellation Ursa Major. History of the Krone The first circulation of the krone came in 1875 when it became the replacement of the speciedaler. At the time, the conversion rate was four kroner for one speciedaler. Following the switch, Norway joined the Scandinavian Monetary Union, an alliance that existed until the outbreak of World War I. During the existence of the Union, the Norwegian krone on the gold standard until 1931 when it was pegged to the British pound. In 1939 the country's currency was pegged to the U.S. dollar (USD), but during the German occupation of Norway in the Second World War, it was pegged to the Reichsmark. At the war's end, the currency was pegged to the British pound (GBP). Shortly after, the krone was pegged to the US dollar until 1971 when it free floats in the market for seven years until it is linked to a basket of currencies. Then in 1992, the central bank moved away from a fixed exchange rate, allowing the currency to float based on the foreign currency exchange rate. The 10 Syrian pound so closely resembles the 20 Norwegian kroner that it can fool many coin-operated, automated service machines in Norway. Economic Impact on the NOK's Value As with all currencies, economic trends trigger fluctuation in the value of the Norwegian krone. Currency investors may seek out the NOK when the euro’s (EUR) value is in doubt. Increased activity in trading the NOK may increase the rate of exchange. Changes in the global price of crude oil also affect the NOK's value as Norway is Western Europe’s leading oil exporter. Norway's shipping, hydroelectric power, fishing, and manufacturing all contribute to the country's gross domestic product (GDP). However, it is interesting to note that many industries are state-owned. Historically, the krone is a prudent investment as Norway stakes claim to one of Europe’s most stable economies. Norway is one of the wealthiest countries on the globe and enjoys one of the highest standards of living. According to the latest World Bank data, Norway has a high-income economy with slow population growth at 0.5% annually. GDP growth for 2021 came in at 3.9% while the inflation deflator was at 16.9%. Don't confuse the Norwegian Krone with the similarly-named Danish Krone (DKK) or Swedish Krona (SEK). The Norwegian krone is worth 9% more than the Swedish Krona. Example of the Norwegian Krone To understand the value of the Norwegian krone in Norway, it is helpful to examine the currency's buying power with respect to familiar consumer goods. According to The Economist's popular "Big Mac" Index, as of June 2022, the cost of a Big Mac in Norway averaged out to 62 krone in 2022, a figure equal to about $5.15 U.S. dollars. This is the second most expensive Big Mac in the world, just behind Switzerland. The average monthly salary in Norway was 50,800 NOK, according to Statistics Norway, a figure that converts to $5,178. Much of that salary is subject to income taxes, which are returned to the public in the form of health care and generous welfare programs. Is the U.S. Dollar Stronger Than the Norwegian Krone? The U.S. dollar is stronger than the Norwegian Krone and has steadily strengthened against it since 2015. This is likely due to changes in the respective interest rates between the two countries, fluctuations in the price of oil, and the weakening of the Eurozone economy. What Is the Norwegian Krone to USD Exchange Rate? One U.S. dollar is equal to 9.77 Norwegian Krone (NOK) as of August 23, 2022. Is the Norwegian Krone a Safe Haven? The Norwegian Krone is generally considered a safe currency, in that its value is not likely to be affected by failures in other markets. Although it is occasionally affected by domestic troubles, the Norwegian economy is relatively stable and the currency is unlikely to see any sharp changes in value. Is the Norwegian Krone a Good Investment? Although the Norwegian Krone (NOK) is generally considered a safe and reliable currency, it falls to each individual investor to decide whether it is worth investing in. Does Norway Use the Euro? Norway is not a member state of the European Union, and therefore is not eligible to use the Euro. However, the Norwegian economy is closely tied to the Eurozone, and the country is a member of the European Economic Area. Investopedia does not provide tax, investment, or financial services and advice. The information is presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Investing involves risk, including the possible loss of principal.

https://www.investopedia.com/ask/answers/12/difference-investing-trading.asp

Investing vs. Trading: What's the Difference?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-investing-vs-trading-an-overview"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> Investing vs. Trading: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Investing and trading are two different methods of attempting to profit in the financial markets. Both investors and traders seek profits through market participation. Investors generally seek larger returns over an extended period through buying and holding. Traders, by contrast, take advantage of both rising and falling markets to enter and exit positions over a shorter time frame, taking smaller, more frequent profits. </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>Investing takes a long-term approach to the markets and often applies to such purposes as retirement accounts.</li><li>Trading involves short-term strategies to maximize returns daily, monthly, or quarterly.</li><li>Investors are more likely to ride out short-term losses, while traders will attempt to make transactions that can help them profit quickly from fluctuating markets.</li></ul></div></div></div> <span class="heading-toc" id="toc-investing"></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"> Investing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The goal of investing is to gradually build wealth over an extended period of time. This is done by buying and holding a portfolio of one or more asset classes. This can include stocks, baskets of stocks, mutual funds, 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 (ETFs)</a>, and other investment instruments. </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"> Investments are often held for a period of years or even decades, taking advantage of perks like interest, dividends, and stock splits along the way. While markets inevitably fluctuate, investors typically ride out the downtrends with the expectation that prices will rebound and any losses eventually will be recovered. Investors are generally more concerned with market fundamentals, such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-earningsratio.asp">price-to-earnings (P/E) ratios</a> and management forecasts. </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"> Anyone with a 401(k) or an individual retirement account (IRA) is investing, even if they don't track the performance of their holdings on a daily basis. Since the goal is to grow a retirement account over decades, the day-to-day fluctuations of different mutual funds are less important than consistent growth over an extended period. </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"> Investment Styles </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Investors generally tend to take one of two types of investment approaches. These styles are noted below: </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>Active Investing:</strong> Investors who take an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/activeinvesting.asp">active investing</a> approach usually tend to monitor the markets on a regular basis and make changes accordingly. Active investors generally seek out particular investments that try to mimic or outperform the returns of a specific benchmark index.</li> <li><strong>Passive Investing:</strong> Passive investors follow a buy-and-hold strategy. This type of investor does not make an effort to closely monitor the markets on a daily or even regular basis. The goal of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/passiveinvesting.asp">passive investing</a> is to track the returns of the benchmark index.</li> </ul> <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"> Time Horizon </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Investors generally follow a long-term <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/timehorizon.asp">investment time horizon</a> to achieve their goals. This is usually more than one year as evidenced by the buy-and-hold strategy. The total length of time that an investor takes before they get their money back depends largely on their investment style or strategy and their goals. This means that someone saving for retirement has a longer time horizon than someone who is saving money to put a down payment on a house. </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>Investors often enhance their profits by compounding or reinvesting any profits and dividends into additional shares of stock.</p></div></div></div> <span class="heading-toc" id="toc-trading"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-heading__text"> Trading </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Trading involves more frequent transactions, such as the buying and selling of stocks, commodities, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/f/foreign-currency-pairs.asp">currency pairs</a>, or other instruments. The goal is to generate returns that outperform buy-and-hold investing. While investors may be content with <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/annual-return.asp">annual returns</a> of 10% to 15%, traders might seek a 10% return each month. </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"> Trading profits are generated by buying at a lower price and selling at a higher price within a relatively short period of time. The reverse also is true: trading profits can be made by selling at a higher price and buying to cover at a lower price (known as selling short) to profit in falling markets.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> While <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buyandhold.asp">buy-and-hold</a> investors wait out less profitable positions, traders seek to make profits within a specified period of time and often use a protective stop-loss order to close out losing positions at a predetermined price level automatically. Traders often employ technical analysis tools, such as moving averages and stochastic oscillators, to find high-probability trading setups. </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"> Trading Styles </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> A trader's style refers to the timeframe or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/holdingperiod.asp">holding period</a> in which stocks, commodities, or other trading instruments are bought and sold. Traders generally fall into one of four categories: </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>Position Trader</strong>: Positions are held from months to years</li> <li><strong>Swing Trader</strong>: Positions are held from days to weeks</li> <li><strong>Day Trader</strong>: Positions are held throughout the day only with no overnight positions</li> <li><strong>Scalp Trader</strong>: Positions are held for seconds to minutes with no <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/overnight-position.asp">overnight positions</a></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"> Traders often choose their trading style based on account size, amount of time dedicated to trading, level of trading experience, personality, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risktolerance.asp">risk tolerance</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Time Horizon </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> Unlike investors, traders have a short-term time horizon in mind while executing their trades. That's because traders monitor the markets consistently for changes in asset prices before making their moves. The goal is to take advantage of these ups and downs to maximize profits and minimize losses. A trader's time horizon can be anywhere from a few minutes to several days. </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-key-similarities"></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"> Key Similarities </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> The goal for investing and trading is the same: to make money. Both investors and traders do this by opening accounts so they can easily buy and sell assets like stocks, bonds, and mutual funds among others. </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"> Both investing and trading come with the possibility of risk and reward. After all, there are no guarantees in life, including the markets. Although the degree varies, every asset comes with the potential for loss the same way they promise big gains. </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-key-differences"></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"> Key Differences </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> The length of time that an investor and trader hold their assets diverges. As noted above, investors normally have a longer time horizon in mind. This is typically more than a year. Traders, on the other hand, normally hold onto their assets for short time frames. This can be as little as a few minutes. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> The potential for loss is among the key differences between the two. There is a risk of losing your money regardless of whether you hold it for the long term or for a short period of time. But the risk increases for traders for several reasons. They tend to hold onto their assets for a shorter time frame and they are also more open to holding a diverse set of assets—those that investors may not necessarily keep in their portfolios. This includes <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/futures.asp">futures</a> and swaps. </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"> Unlike investing, trading requires a great deal of time, effort, understanding of the markets, and research. Many traders are experienced and have a greater sense of how the markets work. While investors may also be experienced, a great many aren't. As such, they may rely on the expertise of financial experts, such as financial advisors.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_52-0"><span class="heading-toc" id="toc-are-trading-and-investing-the-same-thing"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are Trading and Investing the Same Thing?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Although these terms are generally used interchangeably, trading and investing are not the same thing. Trading involves buying and selling assets (such as stocks) for short-term gains. Traders primarily focus on share prices as they make their decisions. Investors, on the other hand, focus on long-term gains when they buy and sell investment vehicles.<br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_53-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_54-0"><span class="heading-toc" id="toc-whats-more-profitable-investing-or-trading"></span> <h2 class="mntl-sc-block-questionandanswer__question">What's More Profitable, Investing or Trading?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There's no easy answer to this question. That's because it depends on you and your financial situation. Trading is well-suited to individuals who have a good grasp of the markets and how they work. Traders are also more risk-tolerant, so they won't get distracted when there are some dips in the market or if they end up taking a loss. People who are more risk-averse and want to preserve their capital do better with investing.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_56-0"><span class="heading-toc" id="toc-is-trading-harder-than-investing"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is Trading Harder Than Investing?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Trading is generally more complex than investing. That's because trading requires consistent monitoring of the markets and a better understanding of how assets and markets work. Traders tend to buy and sell assets on a consistent and regular basis, and these assets can be as simple as stocks and bonds. But they can also be more complex like futures contracts and swaps. Unlike many investors, traders have to be able to keep their emotions at bay. This can be somewhat difficult as big losses can be harder to swallow.</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"> People often confuse investing and trading, using the terms interchangeably. But it's easy to see why because there are some distinct similarities, such as the need to open accounts, deposit money, and buy and sell assets. But the two are very different. Investors have a much longer time horizon than traders and are usually more risk-averse. Traders usually have a better understanding of how different assets and markets work. Whether you're an investor or trader, you should be aware of the rewards as well as the risks involved. </p></div>

## Investing vs. Trading: An Overview Investing and trading are two different methods of attempting to profit in the financial markets. Both investors and traders seek profits through market participation. Investors generally seek larger returns over an extended period through buying and holding. Traders, by contrast, take advantage of both rising and falling markets to enter and exit positions over a shorter time frame, taking smaller, more frequent profits. ### Key Takeaways * Investing takes a long-term approach to the markets and often applies to such purposes as retirement accounts. * Trading involves short-term strategies to maximize returns daily, monthly, or quarterly. * Investors are more likely to ride out short-term losses, while traders will attempt to make transactions that can help them profit quickly from fluctuating markets. ## Investing The goal of investing is to gradually build wealth over an extended period of time. This is done by buying and holding a portfolio of one or more asset classes. This can include stocks, baskets of stocks, mutual funds, bonds, [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp), and other investment instruments. Investments are often held for a period of years or even decades, taking advantage of perks like interest, dividends, and stock splits along the way. While markets inevitably fluctuate, investors typically ride out the downtrends with the expectation that prices will rebound and any losses eventually will be recovered. Investors are generally more concerned with market fundamentals, such as [price-to-earnings (P/E) ratios](https://www.investopedia.com/terms/p/price-earningsratio.asp) and management forecasts. Anyone with a 401(k) or an individual retirement account (IRA) is investing, even if they don't track the performance of their holdings on a daily basis. Since the goal is to grow a retirement account over decades, the day-to-day fluctuations of different mutual funds are less important than consistent growth over an extended period. ### Investment Styles Investors generally tend to take one of two types of investment approaches. These styles are noted below: * **Active Investing:** Investors who take an [active investing](https://www.investopedia.com/terms/a/activeinvesting.asp) approach usually tend to monitor the markets on a regular basis and make changes accordingly. Active investors generally seek out particular investments that try to mimic or outperform the returns of a specific benchmark index. * **Passive Investing:** Passive investors follow a buy-and-hold strategy. This type of investor does not make an effort to closely monitor the markets on a daily or even regular basis. The goal of [passive investing](https://www.investopedia.com/terms/p/passiveinvesting.asp) is to track the returns of the benchmark index. ### Time Horizon Investors generally follow a long-term [investment time horizon](https://www.investopedia.com/terms/t/timehorizon.asp) to achieve their goals. This is usually more than one year as evidenced by the buy-and-hold strategy. The total length of time that an investor takes before they get their money back depends largely on their investment style or strategy and their goals. This means that someone saving for retirement has a longer time horizon than someone who is saving money to put a down payment on a house. ### Investors often enhance their profits by compounding or reinvesting any profits and dividends into additional shares of stock. ## Trading Trading involves more frequent transactions, such as the buying and selling of stocks, commodities, [currency pairs](https://www.investopedia.com/terms/forex/f/foreign-currency-pairs.asp), or other instruments. The goal is to generate returns that outperform buy-and-hold investing. While investors may be content with [annual returns](https://www.investopedia.com/terms/a/annual-return.asp) of 10% to 15%, traders might seek a 10% return each month. Trading profits are generated by buying at a lower price and selling at a higher price within a relatively short period of time. The reverse also is true: trading profits can be made by selling at a higher price and buying to cover at a lower price (known as selling short) to profit in falling markets. While [buy-and-hold](https://www.investopedia.com/terms/b/buyandhold.asp) investors wait out less profitable positions, traders seek to make profits within a specified period of time and often use a protective stop-loss order to close out losing positions at a predetermined price level automatically. Traders often employ technical analysis tools, such as moving averages and stochastic oscillators, to find high-probability trading setups. ### Trading Styles A trader's style refers to the timeframe or [holding period](https://www.investopedia.com/terms/h/holdingperiod.asp) in which stocks, commodities, or other trading instruments are bought and sold. Traders generally fall into one of four categories: * **Position Trader**: Positions are held from months to years * **Swing Trader**: Positions are held from days to weeks * **Day Trader**: Positions are held throughout the day only with no overnight positions * **Scalp Trader**: Positions are held for seconds to minutes with no [overnight positions](https://www.investopedia.com/terms/o/overnight-position.asp) Traders often choose their trading style based on account size, amount of time dedicated to trading, level of trading experience, personality, and [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp). ### Time Horizon Unlike investors, traders have a short-term time horizon in mind while executing their trades. That's because traders monitor the markets consistently for changes in asset prices before making their moves. The goal is to take advantage of these ups and downs to maximize profits and minimize losses. A trader's time horizon can be anywhere from a few minutes to several days. ## Key Similarities The goal for investing and trading is the same: to make money. Both investors and traders do this by opening accounts so they can easily buy and sell assets like stocks, bonds, and mutual funds among others. Both investing and trading come with the possibility of risk and reward. After all, there are no guarantees in life, including the markets. Although the degree varies, every asset comes with the potential for loss the same way they promise big gains. ## Key Differences The length of time that an investor and trader hold their assets diverges. As noted above, investors normally have a longer time horizon in mind. This is typically more than a year. Traders, on the other hand, normally hold onto their assets for short time frames. This can be as little as a few minutes. The potential for loss is among the key differences between the two. There is a risk of losing your money regardless of whether you hold it for the long term or for a short period of time. But the risk increases for traders for several reasons. They tend to hold onto their assets for a shorter time frame and they are also more open to holding a diverse set of assets—those that investors may not necessarily keep in their portfolios. This includes [futures](https://www.investopedia.com/terms/f/futures.asp) and swaps. Unlike investing, trading requires a great deal of time, effort, understanding of the markets, and research. Many traders are experienced and have a greater sense of how the markets work. While investors may also be experienced, a great many aren't. As such, they may rely on the expertise of financial experts, such as financial advisors. ## Are Trading and Investing the Same Thing? Although these terms are generally used interchangeably, trading and investing are not the same thing. Trading involves buying and selling assets (such as stocks) for short-term gains. Traders primarily focus on share prices as they make their decisions. Investors, on the other hand, focus on long-term gains when they buy and sell investment vehicles. ## What's More Profitable, Investing or Trading? There's no easy answer to this question. That's because it depends on you and your financial situation. Trading is well-suited to individuals who have a good grasp of the markets and how they work. Traders are also more risk-tolerant, so they won't get distracted when there are some dips in the market or if they end up taking a loss. People who are more risk-averse and want to preserve their capital do better with investing. ## Is Trading Harder Than Investing? Trading is generally more complex than investing. That's because trading requires consistent monitoring of the markets and a better understanding of how assets and markets work. Traders tend to buy and sell assets on a consistent and regular basis, and these assets can be as simple as stocks and bonds. But they can also be more complex like futures contracts and swaps. Unlike many investors, traders have to be able to keep their emotions at bay. This can be somewhat difficult as big losses can be harder to swallow. ## The Bottom Line People often confuse investing and trading, using the terms interchangeably. But it's easy to see why because there are some distinct similarities, such as the need to open accounts, deposit money, and buy and sell assets. But the two are very different. Investors have a much longer time horizon than traders and are usually more risk-averse. Traders usually have a better understanding of how different assets and markets work. Whether you're an investor or trader, you should be aware of the rewards as well as the risks involved.

Investing vs. Trading: An Overview Investing and trading are two different methods of attempting to profit in the financial markets. Both investors and traders seek profits through market participation. Investors generally seek larger returns over an extended period through buying and holding. Traders, by contrast, take advantage of both rising and falling markets to enter and exit positions over a shorter time frame, taking smaller, more frequent profits. Key Takeaways Investing takes a long-term approach to the markets and often applies to such purposes as retirement accounts.Trading involves short-term strategies to maximize returns daily, monthly, or quarterly.Investors are more likely to ride out short-term losses, while traders will attempt to make transactions that can help them profit quickly from fluctuating markets. Investing The goal of investing is to gradually build wealth over an extended period of time. This is done by buying and holding a portfolio of one or more asset classes. This can include stocks, baskets of stocks, mutual funds, bonds, exchange-traded funds (ETFs), and other investment instruments. Investments are often held for a period of years or even decades, taking advantage of perks like interest, dividends, and stock splits along the way. While markets inevitably fluctuate, investors typically ride out the downtrends with the expectation that prices will rebound and any losses eventually will be recovered. Investors are generally more concerned with market fundamentals, such as price-to-earnings (P/E) ratios and management forecasts. Anyone with a 401(k) or an individual retirement account (IRA) is investing, even if they don't track the performance of their holdings on a daily basis. Since the goal is to grow a retirement account over decades, the day-to-day fluctuations of different mutual funds are less important than consistent growth over an extended period. Investment Styles Investors generally tend to take one of two types of investment approaches. These styles are noted below: Active Investing: Investors who take an active investing approach usually tend to monitor the markets on a regular basis and make changes accordingly. Active investors generally seek out particular investments that try to mimic or outperform the returns of a specific benchmark index. Passive Investing: Passive investors follow a buy-and-hold strategy. This type of investor does not make an effort to closely monitor the markets on a daily or even regular basis. The goal of passive investing is to track the returns of the benchmark index. Time Horizon Investors generally follow a long-term investment time horizon to achieve their goals. This is usually more than one year as evidenced by the buy-and-hold strategy. The total length of time that an investor takes before they get their money back depends largely on their investment style or strategy and their goals. This means that someone saving for retirement has a longer time horizon than someone who is saving money to put a down payment on a house. Investors often enhance their profits by compounding or reinvesting any profits and dividends into additional shares of stock. Trading Trading involves more frequent transactions, such as the buying and selling of stocks, commodities, currency pairs, or other instruments. The goal is to generate returns that outperform buy-and-hold investing. While investors may be content with annual returns of 10% to 15%, traders might seek a 10% return each month. Trading profits are generated by buying at a lower price and selling at a higher price within a relatively short period of time. The reverse also is true: trading profits can be made by selling at a higher price and buying to cover at a lower price (known as selling short) to profit in falling markets. While buy-and-hold investors wait out less profitable positions, traders seek to make profits within a specified period of time and often use a protective stop-loss order to close out losing positions at a predetermined price level automatically. Traders often employ technical analysis tools, such as moving averages and stochastic oscillators, to find high-probability trading setups. Trading Styles A trader's style refers to the timeframe or holding period in which stocks, commodities, or other trading instruments are bought and sold. Traders generally fall into one of four categories: Position Trader: Positions are held from months to years Swing Trader: Positions are held from days to weeks Day Trader: Positions are held throughout the day only with no overnight positions Scalp Trader: Positions are held for seconds to minutes with no overnight positions Traders often choose their trading style based on account size, amount of time dedicated to trading, level of trading experience, personality, and risk tolerance. Time Horizon Unlike investors, traders have a short-term time horizon in mind while executing their trades. That's because traders monitor the markets consistently for changes in asset prices before making their moves. The goal is to take advantage of these ups and downs to maximize profits and minimize losses. A trader's time horizon can be anywhere from a few minutes to several days. Key Similarities The goal for investing and trading is the same: to make money. Both investors and traders do this by opening accounts so they can easily buy and sell assets like stocks, bonds, and mutual funds among others. Both investing and trading come with the possibility of risk and reward. After all, there are no guarantees in life, including the markets. Although the degree varies, every asset comes with the potential for loss the same way they promise big gains. Key Differences The length of time that an investor and trader hold their assets diverges. As noted above, investors normally have a longer time horizon in mind. This is typically more than a year. Traders, on the other hand, normally hold onto their assets for short time frames. This can be as little as a few minutes. The potential for loss is among the key differences between the two. There is a risk of losing your money regardless of whether you hold it for the long term or for a short period of time. But the risk increases for traders for several reasons. They tend to hold onto their assets for a shorter time frame and they are also more open to holding a diverse set of assets—those that investors may not necessarily keep in their portfolios. This includes futures and swaps. Unlike investing, trading requires a great deal of time, effort, understanding of the markets, and research. Many traders are experienced and have a greater sense of how the markets work. While investors may also be experienced, a great many aren't. As such, they may rely on the expertise of financial experts, such as financial advisors. Are Trading and Investing the Same Thing? Although these terms are generally used interchangeably, trading and investing are not the same thing. Trading involves buying and selling assets (such as stocks) for short-term gains. Traders primarily focus on share prices as they make their decisions. Investors, on the other hand, focus on long-term gains when they buy and sell investment vehicles. What's More Profitable, Investing or Trading? There's no easy answer to this question. That's because it depends on you and your financial situation. Trading is well-suited to individuals who have a good grasp of the markets and how they work. Traders are also more risk-tolerant, so they won't get distracted when there are some dips in the market or if they end up taking a loss. People who are more risk-averse and want to preserve their capital do better with investing. Is Trading Harder Than Investing? Trading is generally more complex than investing. That's because trading requires consistent monitoring of the markets and a better understanding of how assets and markets work. Traders tend to buy and sell assets on a consistent and regular basis, and these assets can be as simple as stocks and bonds. But they can also be more complex like futures contracts and swaps. Unlike many investors, traders have to be able to keep their emotions at bay. This can be somewhat difficult as big losses can be harder to swallow. The Bottom Line People often confuse investing and trading, using the terms interchangeably. But it's easy to see why because there are some distinct similarities, such as the need to open accounts, deposit money, and buy and sell assets. But the two are very different. Investors have a much longer time horizon than traders and are usually more risk-averse. Traders usually have a better understanding of how different assets and markets work. Whether you're an investor or trader, you should be aware of the rewards as well as the risks involved.

https://www.investopedia.com/arm-stock-in-focus-after-reportedly-planning-to-launch-ai-chips-8647288

Arm Stock in Focus After Reportedly Planning to Launch AI Chips

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>Arm stock will be in focus on Monday after a report surfaced Sunday that the British chip designer plans to launch artificial intelligence chips in 2025.</li><li>The company reportedly plans to establish a new AI chip unit and build a prototype by spring next year before turning to contract manufacturers to have the chips mass produced by fall 2025.</li><li>Arm shares currently trade within a rising wedge, with a breakdown leading to a possible test of $79, while a breakout could see the price climb up to resistance around $145.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Shares in UK-based <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/arm-q4-fy-2024-earnings-8645295">chip design giant</a> Arm Holdings (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=arm">ARM</a>) will be in focus on Monday after <em>Nikkei Asia</em> reported Sunday that the company plans to develop <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp">artificial intelligence (AI)</a> chips, aiming to launch its first prototype in early 2025.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> According to the report, Arm—in which Japan’s SoftBank (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=sftby">SFTBY</a>) owns a 90% stake—will establish a new AI chip unit and build a prototype by spring next year before turning to contract manufacturers to have the chips mass produced by fall 2025.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> Arm will fund the majority of the initial development costs, expected to be billions of <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">yen</a>, with Softbank also contributing, the report said. Once up and running, the AI chip business could be <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spinoff.asp">spun off</a> under SoftBank.<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 Japanese financial giant has already commenced negotiations with Taiwan Semiconductor Manufacturing (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=tsm">TSM</a>) and other chipmakers as it looks to sure up production capacity, <em>Nikkei Asia</em> reported.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <span class="heading-toc" id="toc-arm-continues-push-into-lucrative-datacenter-market"></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"> Arm Continues Push into Lucrative Datacenter Market </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Arm, which makes money by selling <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/royalty.asp">royalties</a> on its chip designs, has continued its push into the lucrative AI datacenter market, where tech behemoths such as Microsoft (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=msft">MSFT</a>), Meta (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=meta">META</a>), Alphabet (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=googl">GOOGL</a>), and Amazon (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn">AMZN</a>) have announced plans to build their own <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/biden-to-announce-usd3-3-billion-microsoft-investment-for-ai-data-center-8645177">in-house</a> chips to power their AI computing requirements, helping to reduce their reliance on AI chip supplying giant Nvidia (<a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=nvda">NVDA</a>).<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_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Since <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/what-does-going-public-mean/#:~:text=Key%20Takeaways-,Going%20public%20refers%20to%20a%20private%20company's%20initial%20public%20offering,operations%2C%20expansion%2C%20or%20acquisitions.">going public</a> in September last year, the company’s shares have more than doubled from their $51 <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> price as investors place bets that the chip designer can capture a sizable slice of the AI infrastructure market.<span class="ql-inline-citation" data-cite="4"></span> Precedence Research of Canada expects the AI chip market to grow from $30 billion this year to $200 billion by 2032.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-monitor-these-levels-amid-breakout-from-rising-wedge"></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"> Monitor These Levels Amid Breakout From Rising Wedge </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The Arm share price has traded within a narrow <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/07/rising_wedge.asp">rising wedge</a> since mid April—a chart pattern technical analysts typically interpret as having a bearish bias because it indicates an easing of buying momentum. In the short-term, the price may continue to oscillate in the wedge until the downward sloping <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/012815/why-50-simple-moving-average-sma-so-common-traders-and-analysts.asp">50-day moving average</a> catches up with the pattern’s top trendline before the stock makes its next significant move.  </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"> Amid a move lower, investors should monitor the $79 level, an area where the price may find buyers near the February pre-<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/breakout.asp">breakout</a> level. However, if the price climbs above the wedge, it’s worth keeping in mind that the stock could make another attempt at testing key overhead <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/resistance.asp">resistance</a> near prior price action around $145. </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"> Arm shares closed trading last week at $108.84, after gaining 5.1% during Friday's session. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> <em>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_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> <em>As of the date this article was written, the author does not own any of the above securities.</em><br/> </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

### Key Takeaways * Arm stock will be in focus on Monday after a report surfaced Sunday that the British chip designer plans to launch artificial intelligence chips in 2025. * The company reportedly plans to establish a new AI chip unit and build a prototype by spring next year before turning to contract manufacturers to have the chips mass produced by fall 2025. * Arm shares currently trade within a rising wedge, with a breakdown leading to a possible test of $79, while a breakout could see the price climb up to resistance around $145. Shares in UK-based [chip design giant](https://www.investopedia.com/arm-q4-fy-2024-earnings-8645295) Arm Holdings ([ARM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=arm)) will be in focus on Monday after *Nikkei Asia* reported Sunday that the company plans to develop [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) chips, aiming to launch its first prototype in early 2025. According to the report, Arm—in which Japan’s SoftBank ([SFTBY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=sftby)) owns a 90% stake—will establish a new AI chip unit and build a prototype by spring next year before turning to contract manufacturers to have the chips mass produced by fall 2025. Arm will fund the majority of the initial development costs, expected to be billions of [yen](https://www.investopedia.com/terms/forex/j/jpy-japanese-yen.asp), with Softbank also contributing, the report said. Once up and running, the AI chip business could be [spun off](https://www.investopedia.com/terms/s/spinoff.asp) under SoftBank. The Japanese financial giant has already commenced negotiations with Taiwan Semiconductor Manufacturing ([TSM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=tsm)) and other chipmakers as it looks to sure up production capacity, *Nikkei Asia* reported. ## Arm Continues Push into Lucrative Datacenter Market Arm, which makes money by selling [royalties](https://www.investopedia.com/terms/r/royalty.asp) on its chip designs, has continued its push into the lucrative AI datacenter market, where tech behemoths such as Microsoft ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=msft)), Meta ([META](https://www.investopedia.com/markets/quote?tvwidgetsymbol=meta)), Alphabet ([GOOGL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=googl)), and Amazon ([AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=amzn)) have announced plans to build their own [in-house](https://www.investopedia.com/biden-to-announce-usd3-3-billion-microsoft-investment-for-ai-data-center-8645177) chips to power their AI computing requirements, helping to reduce their reliance on AI chip supplying giant Nvidia ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=nvda)). Since [going public](https://www.investopedia.com/ask/answers/what-does-going-public-mean/#:~:text=Key%20Takeaways-,Going%20public%20refers%20to%20a%20private%20company's%20initial%20public%20offering,operations%2C%20expansion%2C%20or%20acquisitions.) in September last year, the company’s shares have more than doubled from their $51 [initial public offering (IPO)](https://www.investopedia.com/terms/i/ipo.asp) price as investors place bets that the chip designer can capture a sizable slice of the AI infrastructure market. Precedence Research of Canada expects the AI chip market to grow from $30 billion this year to $200 billion by 2032. ## Monitor These Levels Amid Breakout From Rising Wedge The Arm share price has traded within a narrow [rising wedge](https://www.investopedia.com/articles/trading/07/rising_wedge.asp) since mid April—a chart pattern technical analysts typically interpret as having a bearish bias because it indicates an easing of buying momentum. In the short-term, the price may continue to oscillate in the wedge until the downward sloping [50-day moving average](https://www.investopedia.com/ask/answers/012815/why-50-simple-moving-average-sma-so-common-traders-and-analysts.asp) catches up with the pattern’s top trendline before the stock makes its next significant move.  Amid a move lower, investors should monitor the $79 level, an area where the price may find buyers near the February pre-[breakout](https://www.investopedia.com/terms/b/breakout.asp) level. However, if the price climbs above the wedge, it’s worth keeping in mind that the stock could make another attempt at testing key overhead [resistance](https://www.investopedia.com/terms/r/resistance.asp) near prior price action around $145. Arm shares closed trading last week at $108.84, after gaining 5.1% during Friday's session. *The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our [warranty and liability disclaimer](https://www.investopedia.com/legal-4768893#toc-warranty-and-liability-disclaimer) for more info.* *As of the date this article was written, the author does not own any of the above securities.* Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Arm stock will be in focus on Monday after a report surfaced Sunday that the British chip designer plans to launch artificial intelligence chips in 2025.The company reportedly plans to establish a new AI chip unit and build a prototype by spring next year before turning to contract manufacturers to have the chips mass produced by fall 2025.Arm shares currently trade within a rising wedge, with a breakdown leading to a possible test of $79, while a breakout could see the price climb up to resistance around $145. Shares in UK-based chip design giant Arm Holdings (ARM) will be in focus on Monday after Nikkei Asia reported Sunday that the company plans to develop artificial intelligence (AI) chips, aiming to launch its first prototype in early 2025. According to the report, Arm—in which Japan’s SoftBank (SFTBY) owns a 90% stake—will establish a new AI chip unit and build a prototype by spring next year before turning to contract manufacturers to have the chips mass produced by fall 2025. Arm will fund the majority of the initial development costs, expected to be billions of yen, with Softbank also contributing, the report said. Once up and running, the AI chip business could be spun off under SoftBank. The Japanese financial giant has already commenced negotiations with Taiwan Semiconductor Manufacturing (TSM) and other chipmakers as it looks to sure up production capacity, Nikkei Asia reported. Arm Continues Push into Lucrative Datacenter Market Arm, which makes money by selling royalties on its chip designs, has continued its push into the lucrative AI datacenter market, where tech behemoths such as Microsoft (MSFT), Meta (META), Alphabet (GOOGL), and Amazon (AMZN) have announced plans to build their own in-house chips to power their AI computing requirements, helping to reduce their reliance on AI chip supplying giant Nvidia (NVDA). Since going public in September last year, the company’s shares have more than doubled from their $51 initial public offering (IPO) price as investors place bets that the chip designer can capture a sizable slice of the AI infrastructure market. Precedence Research of Canada expects the AI chip market to grow from $30 billion this year to $200 billion by 2032. Monitor These Levels Amid Breakout From Rising Wedge The Arm share price has traded within a narrow rising wedge since mid April—a chart pattern technical analysts typically interpret as having a bearish bias because it indicates an easing of buying momentum. In the short-term, the price may continue to oscillate in the wedge until the downward sloping 50-day moving average catches up with the pattern’s top trendline before the stock makes its next significant move.  Amid a move lower, investors should monitor the $79 level, an area where the price may find buyers near the February pre-breakout level. However, if the price climbs above the wedge, it’s worth keeping in mind that the stock could make another attempt at testing key overhead resistance near prior price action around $145. Arm shares closed trading last week at $108.84, after gaining 5.1% during Friday's session. The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info. As of the date this article was written, the author does not own any of the above securities. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/best-life-insurance-for-seniors-4845439

Best Life Insurance Companies for Seniors of 2024

<div class="comp mntl-external-basic-sublayout-content sc-ad-container article-content list-sc" id="mntl-external-basic-sublayout-content_1-0"><div class="loc content-body"> <svg class="mntl-svg-resource is-hidden"> <defs> <symbol id="featured-partners__info-svg"><svg fill="none" height="13" width="12" xmlns="http://www.w3.org/2000/svg"><path d="M5.5 9h1V6h-1v3zM6 1.5c-2.76 0-5 2.24-5 5s2.24 5 5 5 5-2.24 5-5-2.24-5-5-5zm0 9c-2.205 0-4-1.795-4-4s1.795-4 4-4 4 1.795 4 4-1.795 4-4 4zM5.5 5h1V4h-1v1z" fill="#000" fill-opacity=".95" fill-rule="evenodd"></path></svg></symbol> <symbol id="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> <symbol id="bio-icon--finance"><svg viewbox="0 0 34.4 34.4" xmlns="http://www.w3.org/2000/svg"><path d="M17.2 0a17.2 17.2 0 1 0 17.2 17.2A17.2 17.2 0 0 0 17.2 0zm-2.39 28a1.55 1.55 0 0 1-1.59-1.66 10.87 10.87 0 0 1 .43-2.56l1.83-7.41a4.39 4.39 0 0 0 .18-1.05c0-.66-.47-.64-1.57.15l-.64.44-.45-.56c1.69-1.74 3.52-3 5.15-3 1.07 0 1.45.73 1.45 1.66a14.56 14.56 0 0 1-.52 3.11l-1.78 7a4.45 4.45 0 0 0-.14 1c0 .7.52.7 1.54.06l.81-.5.44.56C18.48 26.63 16.7 28 14.81 28zm3.58-17.47a2 2 0 0 1-2.06-2 2.11 2.11 0 0 1 2.18-2.13 2 2 0 0 1 2.09 2 2.14 2.14 0 0 1-2.21 2.13z"></path></svg></symbol> <symbol id="litho-comparison-table__arrow-icon"><svg fill="none" height="48" width="48" xmlns="http://www.w3.org/2000/svg"><circle cx="24" cy="24" fill="var(--color-1, white)" opacity=".72" r="24"></circle><path d="M30.284 8.697c-.396-.385-1.038-.385-1.434 0L13.927 23.21c-.396.385-.396 1.009 0 1.394s1.038.385 1.434 0l14.923-14.512c.396-.385.396-1.009 0-1.394z" fill="var(--color-2, #333333)"></path><path d="M30.283 39.303c-.396.385-1.038.385-1.434 0L13.926 24.791c-.396-.385-.396-1.009 0-1.394s1.038-.385 1.434 0l14.924 14.512c.396.385.396 1.009 0 1.394z" fill="var(--color-3, #333333)"></path></svg></symbol> </defs> </svg> <span class="comp external-content mntl-external-component" id="external-content_1-0"><div class="u-font-carbon--dd112"> <div class="comp product-roundup-content--finance product-roundup--base product-roundup--base" data-tracking-container="true" data-tracking-id="PRM Roundup | PRM Template" id="product-roundup-content--finance_1-0"> <div class="article-content"> <div class="article-intro article-content__description article-container expert-content structured-content text-passage"> <div class="comp intro-content prm-sc-page mntl-sc-page mntl-block" id="intro-content_1-0"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0"> Shopping for senior life insurance may seem daunting. Premiums can be high, plan details confusing, and the ramifications of your decision can be wide-ranging. You'll generally get the best rates and options if you contact companies directly. If you're in good health, consider applying for a policy that requires a medical exam—since rates increase with age and poor health, it may be to your advantage to show the company you're healthy. </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"> Our research found New York Life to be the best option due to its long history and top score in our rating system. To choose the best life insurance companies for seniors, we evaluated companies based on their highest maximum issue ages for term and cash-value life insurance (30%), financial stability based on AM Best financial strength ratings (24.5%), incidence of consumer complaints filed with the National Association of Insurance Commissioners (NAIC) and customer service features (24.5%), policy features and available riders (16%), and maximum coverage amounts (5%). </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp intro-content prm-sc-page mntl-sc-page mntl-block --> <div class="comp js-toc-appear 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 Life Insurance Companies for Seniors of 2024 </h2> <ul class="summary-list__content"> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Best Overall:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://dotdash.covrtech.com/?utm_carrier=NewYorkLife&amp;utm_journey=bridge" rel="nofollow noopener nocaes" target="_blank">New York Life</a><!-- end: summary-list__item-top-pick --> </span> </li> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Very Few Complaints :</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="http://dotdash.covrtech.com/?utm_carrier=Guardian&amp;utm_journey=bridge" rel="nofollow noopener nocaes" target="_blank">Guardian</a><!-- end: summary-list__item-top-pick --> </span> </li> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Best for a Positive Customer Experience:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="http://dotdash.covrtech.com/?utm_carrier=PacificLife&amp;utm_journey=wl" rel="nofollow noopener nocaes" target="_blank">Pacific Life Insurance</a><!-- end: summary-list__item-top-pick --> </span> </li> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Best If You Want a Term Policy:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="http://dotdash.covrtech.com/?utm_carrier=JohnHancock&amp;utm_journey=term" rel="nofollow noopener nocaes" target="_blank">John Hancock Life Insurance</a><!-- end: summary-list__item-top-pick --> </span> </li> </ul> </div><!-- end: comp js-toc-appear product-roundup-content__summary-list summary-list--finance summary-list--roundup summary-list --> <div class="comp product-roundup-expertise-block expertise-block" id="product-roundup-expertise-block_1-0"> <div class="expertise-block__header"> <span class="expertise-block__heading"> Why Trust Us </span> <div class="expertise-block__chevron"></div> </div> <div class="expertise-block__data-points"> <div class="expertise-block__data-point"> <span class="expertise-block__data-point-heading icon-companies-reviewed"> 91 </span> <div class="expertise-block__data-point-content"> Companies reviewed </div> </div> <div class="expertise-block__data-point"> <span class="expertise-block__data-point-heading icon-eat-features-considered"> 55 </span> <div class="expertise-block__data-point-content"> Features considered </div> </div> <div class="expertise-block__data-point"> <span class="expertise-block__data-point-heading icon-eat-analyzed"> 5,005 </span> <div class="expertise-block__data-point-content"> Data points analyzed </div> </div> </div> <span class="expertise-block__content"> We collected over 5,000 data points from 91 life insurance companies to measure financial stability, customer satisfaction, product and feature variety, and the overall buying experience. We then evaluated each company based on 55 metrics to develop unbiased, comprehensive reviews. <div class="expertise-block__section-link"> <a href="https://www.investopedia.com/life-insurance-review-methodology-5071427">Read our Full Methodology</a> </div> </span> </div><!-- end: comp product-roundup-expertise-block expertise-block --> <div class="comp post-intro prm-sc-page mntl-sc-page mntl-block" id="post-intro_1-0"> <div class="comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p><a data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://dotdash.covrtech.com/" rel="nofollow">Compare life insurance quotes</a> with our partner Covr Financial from multiple providers before buying.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> </div><!-- end: comp post-intro prm-sc-page mntl-sc-page mntl-block --> </div> <div class="article-body"> <div class="loc article-left-nav article-body__left-nav product-roundup__left-nav js-sticky-container"> <div class="comp sticky-toc-widget sticky-toc--finance product-roundup__toc sticky-toc--finance-roundup sticky-toc--roundup sticky-toc--base mntl-sticky-toc mntl-block" data-chop-desktop="false" data-chop-mobile="false" data-desktop-bp="54em" data-tracking-container="true" id="product-roundup__toc_1-0"> <div class="comp toc-wrapper mntl-toc mntl-block" data-chop-mobile="true" data-offset="60" data-tracking-container="true" id="toc-wrapper_1-0"> <div class="comp mntl-toc__inner mntl-block" id="mntl-toc__inner_1-0"> <div class="comp js-toc-toggle mntl-toc__heading mntl-block" data-click-tracked="true" id="mntl-toc__heading_1-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_1-0"> Best Life Insurance Companies for Seniors of 2024</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> <div class="comp mntl-toc-toggle mntl-block" id="mntl-toc-toggle_1-0"> <button class="comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block" data-collapsed-text="Expand" data-expanded-text="Expand" id="mntl-toc-toggle__btn_1-0"> Expand</button><!-- end: comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block --> </div><!-- end: comp mntl-toc-toggle mntl-block --> </div><!-- end: comp js-toc-toggle mntl-toc__heading mntl-block --> <div class="comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block" data-click-action="OnPageClick-Best Life Insurance Companies for Seniors of 2024" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__mobile-toggle_1-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_2-0"> Best Life Insurance Companies for Seniors of 2024</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> </div><!-- end: comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block --> <ul class="comp mntl-toc__list-heading expert-content mntl-toc__list" id="mntl-toc__list_1-0"> <li class="comp toc__listsc-item mntl-toc-list-item mntl-toc__list-item" id="toc__listsc-item_1-0"> <a class="mntl-toc__list-item-link js-mntl-toc-link" href="#summary-list" rel="nocaes"> <span class="link__wrapper">Our Top Picks</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp toc__listsc-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-New York Life" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_1-0"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-New York Life" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-new-york-life" rel="nocaes"> <span class="link__wrapper">New York Life</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Guardian" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_1-0-1"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Guardian" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-guardian" rel="nocaes"> <span class="link__wrapper">Guardian</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Pacific Life Insurance" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_1-0-2"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Pacific Life Insurance" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-pacific-life-insurance" rel="nocaes"> <span class="link__wrapper">Pacific Life Insurance</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item nested-toc-item--additional mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-John Hancock Life Insurance" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_1-0-3"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-John Hancock Life Insurance" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-john-hancock-life-insurance" rel="nocaes"> <span class="link__wrapper">John Hancock Life Insurance</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item nested-toc-item--additional mntl-toc-list-item mntl-toc__list-item --> <li class="comp toc-items__chop mntl-text-block" data-click-action="OnPageClick-See More" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="toc-items__chop_1-0"> See More (1)</li><!-- end: comp toc-items__chop mntl-text-block --> <li class="comp mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Compare Providers" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_2-0"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Compare Providers" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#comparison-table" rel="nocaes"> <span class="link__wrapper">Compare Providers</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp mntl-toc-list-item mntl-toc__list-item --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-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-More on Our Top Companies" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-more-about-our-top-insurance-companies" id="mntl-toc__list-item-link_1-0-1" rel="nocaes"><span class="link__wrapper">More on Our Top Companies</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-2"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-2"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-How to Choose" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-to-choose-the-right-life-insurance" id="mntl-toc__list-item-link_1-0-2" rel="nocaes"><span class="link__wrapper">How to Choose</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-3"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-3"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Alternative Options" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-alternative-life-insurance-options-for-seniors" id="mntl-toc__list-item-link_1-0-3" rel="nocaes"><span class="link__wrapper">Alternative Options</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-4"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-4"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-More Ratings" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-more-ratings-of-top-life-insurance-companies" id="mntl-toc__list-item-link_1-0-4" rel="nocaes"><span class="link__wrapper">More Ratings</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-5"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-5"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-FAQs" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-faqs-80b6b2d9-32f9-4ac0-b1a3-72eec4ad2622" id="mntl-toc__list-item-link_1-0-5" rel="nocaes"><span class="link__wrapper">FAQs</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-6"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-6"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Methodology" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-methodology" id="mntl-toc__list-item-link_1-0-6" rel="nocaes"><span class="link__wrapper">Methodology</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> </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-new-york-life"></span> <h3 class="comp list-sc-item__heading split-text--roundup-title split-text" data-click-action="Null" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Header" id="list-sc-item__heading_1-0"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best Overall</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">New York Life</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <div class="comp list-sc-item__rating product-rating" id="list-sc-item__rating_1-0"> <span class="product-rating__rating-label noskim"> Investopedia's Rating </span> <div alt="4.8 out of 5 stars" class="comp star-rating" id="star-rating_5-0"> <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_5-0" 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_5-0);"> <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 list-sc-item__rating product-rating --> <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"> <!-- basically identifies commerce, but "isRetailer" is more generic --> <!-- Leave support for 3x2 ratio, default to 2x1 aspect ratio--> <!-- Update the SASS variable used to scale up images smaller than 1500px--> <div class="prm-sc-block-productrecord__imageHolder" style="--imgWidth: 504px"> <figure class="loc productrecord__logo figure-media figure-3x2 figure-portrait mntl-sc-block mntl-sc-block-image figure-high-res"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="New York Life" class="lazyload figure-3x2 universal-image__image" data-expand="1500" data-src="https://www.investopedia.com/thmb/9dR6c7KduLH1nNwgXV3KLeS9u0k=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/New_York_Life-fe244fbe4c0b4c3a842fa2c15f06f2c7.jpg" height="1000" width="1500"/> <noscript> <img alt="New York Life" class="img--noscript figure-3x2 universal-image__image" height="1000" src="https://www.investopedia.com/thmb/9dR6c7KduLH1nNwgXV3KLeS9u0k=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/New_York_Life-fe244fbe4c0b4c3a842fa2c15f06f2c7.jpg" width="1500"/> </noscript> </div> </figure> </div> <div class="prm-sc-block-productrecord__specs"> <!-- Product Attribute List --> <ul class="comp mntl-sc-block mntl-sc-block-html prm-sc-block-productrecord__attributes"> <li class="key-spec infocat-prop__aMBestRating"> <span class="key-spec__title has-tooltip"> <strong>AM Best Rating:</strong> <span class="key-spec__tooltip tooltip-trigger"> <svg class="icon bio-icon--finance"> <use xlink:href="#bio-icon--finance" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </span> <span class="key-spec__tooltip-bubble tooltip-bubble">AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations.</span> </span> A++ </li> <li class="key-spec infocat-prop__acceptsCreditCards"> <span class="key-spec__title"> <strong>Accepts Credit Cards:</strong> </span> No </li> </ul> <!-- CTA Button (commerce button) --> <div class="loc cta productrecord__cta-button" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock - Button"> <a class="mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Covr" data-tracking-container="false" href="https://dotdash.covrtech.com/?utm_carrier=NewYorkLife&amp;utm_journey=bridge" id="mntl-commerce-btn_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Get A Quote</span></a><!-- end: mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button --> </div> </div> </div> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-2"> New York Life has been in business since 1845, has an A++ (Superior) AM Best rating, and has paid dividends every year since 1854, and had a higher overall score than another of the other 90 companies we analyzed.<span class="ql-inline-citation" data-cite="24"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-4"> <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>Policies available to 90-year-old applicants</p></li> <li><p>A++ AM Best rating</p></li> <li><p>Long history of dividend payments</p></li> <li><p>Few customer complaints</p></li> <li><p>Broad selection of riders</p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Must talk to an agent to get a quote and apply</p></li> <li><p>Limited policy information online</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-6"> <br/>New York Life ranks as having the overall best senior life insurance for a number of reasons. It’s one of very few companies we reviewed that issues policies to applicants up to age 90 (most companies cap applicant age at 85). And considering that it was founded in 1845 the company has weathered many financial storms, including multiple recessions and the Great Depression. Its strong financial position has earned it an A++ rating (the highest available) from AM Best.<span class="ql-inline-citation" data-cite="24"></span> An A++ (Superior) rating means AM Best believes the company has a superior ability to meet its ongoing insurance obligations.<span class="ql-inline-citation" data-cite="14"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-7"> The company receives few complaints with the NAIC.<span class="ql-inline-citation" data-cite="18"></span> Plus, whole life policyholders are eligible for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/011816/guide-dividendpaying-whole-life-insurance.asp">life insurance dividend payments</a>, and have been receiving them every year since 1854, the longest record for consistent dividend payments of all companies we reviewed. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-8"> New York Life also offers an array of riders with which to customize your policy, including a disability waiver of premium, a spouse's paid up insurance purchase option, and living benefits. The downside is that you’ll need to provide your phone number and other personal information to get detailed policy information and a quote. Not surprisingly, there’s no online application option either.   </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-9"> <li><strong>Maximum age</strong>: 90 years old</li><li><strong>Policy types</strong>: Term, variable universal life, universal life, whole life</li><li><strong>Coverage amounts</strong>: Start at $25,000 (whole life)</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="loc post-content tabbed-sc-block__content tabbed-sc-block__post-content"> <div class="comp tabbed-sc-block--review-link infocat-review-link link" data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock" id="tabbed-sc-block--review-link_1-0-9"> Read the Full <a data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="false" data-tracking-id="PRM Roundup | ProductRecordBlock" href="https://www.investopedia.com/new-york-life-insurance-review-5074534" id="tabbed-sc-block--review-link_1-0-9" rel="noopener nocaes" target="_blank"><span class="">New York Life Insurance Review</span></a><!-- end: --></div><!-- end: comp tabbed-sc-block--review-link infocat-review-link link --> </div> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0-1"> <span class="heading-toc" id="toc-guardian"></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">Very Few Complaints </span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Guardian</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <div class="comp list-sc-item__rating product-rating" id="list-sc-item__rating_1-0-1"> <span class="product-rating__rating-label noskim"> Investopedia's Rating </span> <div alt="4.7 out of 5 stars" class="comp star-rating" id="star-rating_5-0-1"> <span class="star-rating__label">4.7</span> <div class="star-rating__stars" data-rating-caption=""> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-1 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-2 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-3 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-4 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <svg height="0" style="position: absolute;" width="0"> <defs> <lineargradient id="linear-star-rating_5-0-1" x1="0%" x2="100%" y1="0%" y2="0%"> <stop offset="60%" stop-color="#333e8b"></stop> <stop offset="60%" stop-color="#d5d5d5"></stop> </lineargradient> </defs> </svg> <div class="star-rating__quarter-empty star-rating__icon star-rating__star-5 star-rating_star-icon" style="fill: url(#linear-star-rating_5-0-1);"> <svg viewbox="0 0 12.5 12.1" xmlns="http://www.w3.org/2000/svg"><path d="M6.2 0 8.2 4 12.5 4.6 9.4 7.7 10.1 12.1 6.2 10 2.4 12.1 3.1 7.7 0 4.6 4.3 4z"></path></svg> </div> </div> </div></div><!-- end: comp star-rating --> </div><!-- end: comp list-sc-item__rating product-rating --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0-1"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-1"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-1"> <div class="tabbed-sc-block-intro"> <!-- basically identifies commerce, but "isRetailer" is more generic --> <!-- Leave support for 3x2 ratio, default to 2x1 aspect ratio--> <!-- Update the SASS variable used to scale up images smaller than 1500px--> <div class="prm-sc-block-productrecord__imageHolder" style="--imgWidth: 0px"> <figure class="loc productrecord__logo figure-media figure-2x1 figure-landscape mntl-sc-block mntl-sc-block-image figure-high-res"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Guardian Life Insurance" class="lazyload figure-2x1 universal-image__image" data-expand="1500" data-src="https://www.investopedia.com/thmb/4EfG8a3dCuRY3XJxDPel1YR0inY=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/guardian-direct-0e2cba3724c6431b8596de415fd325ad.jpg" height="750" width="1500"/> <noscript> <img alt="Guardian Life Insurance" class="img--noscript figure-2x1 universal-image__image" height="750" src="https://www.investopedia.com/thmb/4EfG8a3dCuRY3XJxDPel1YR0inY=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/guardian-direct-0e2cba3724c6431b8596de415fd325ad.jpg" width="1500"/> </noscript> </div> </figure> </div> <div class="prm-sc-block-productrecord__specs"> <!-- Product Attribute List --> <ul class="comp mntl-sc-block mntl-sc-block-html prm-sc-block-productrecord__attributes"> <li class="key-spec infocat-prop__aMBestRating"> <span class="key-spec__title has-tooltip"> <strong>AM Best Rating:</strong> <span class="key-spec__tooltip tooltip-trigger"> <svg class="icon bio-icon--finance"> <use xlink:href="#bio-icon--finance" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </span> <span class="key-spec__tooltip-bubble tooltip-bubble">AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations.</span> </span> A++ </li> <li class="key-spec infocat-prop__acceptsCreditCards"> <span class="key-spec__title"> <strong>Accepts Credit Cards:</strong> </span> Yes </li> </ul> <!-- CTA Button (commerce button) --> <div class="loc cta productrecord__cta-button" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock - Button"> <a class="mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Covr" data-tracking-container="false" href="http://dotdash.covrtech.com/?utm_carrier=Guardian&amp;utm_journey=bridge" id="mntl-commerce-btn_1-0-1" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Get A Quote</span></a><!-- end: mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button --> </div> </div> </div> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-12"> Guardian Life has an A++ (Superior) financial stability rating from AM Best and a record of few complaints with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/nainsurancec.asp">National Association of Insurance Commissioners (NAIC)</a>.<span class="ql-inline-citation" data-cite="39"></span><span class="ql-inline-citation" data-cite="20"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-14"> <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>A++ AM Best rating</p></li> <li><p>Few customer complaints</p></li> <li><p>Policies available to 90-year-old applicants</p></li> <li><p>Pays dividends on whole life policies</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’t apply without an agent</p></li> <li><p>Some policy information is not available online</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-16"> <br/>In business since 1860, Guardian Life received an A++ rating from AM Best for financial stability.<span class="ql-inline-citation" data-cite="39"></span> Fewer than 10% of the companies we reviewed received this rating; New York Life is the only other one on this list. Also like New York Life, 90-year-old applicants to Guardian are eligible to apply for coverage, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/wholelife.asp">whole life insurance</a> policyholders are eligible for dividends.   </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-17"> Guardian also has a low incidence of customer complaints, according to the NAIC. Based on three years of complaints, Guardian received a low number for a company of its size—among the lowest complaint indexes (based on its size) out of the 91 companies we reviewed.<span class="ql-inline-citation" data-cite="20"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-18"> And while you can find copious educational material on the company’s website, finding policy-specific information is difficult to impossible. You’ll need to reach out to an agent for that. You’ll also need to contact an agent to apply. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-19"> <li><strong>Maximum age</strong>: 90 years old</li><li><strong>Policy types</strong>: Term, variable universal life, universal life, whole life</li><li><strong>Coverage amounts</strong>: $250,000 to at least $5 million (term)</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="loc post-content tabbed-sc-block__content tabbed-sc-block__post-content"> <div class="comp tabbed-sc-block--review-link infocat-review-link link" data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock" id="tabbed-sc-block--review-link_1-0-19"> Read the Full <a data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="false" data-tracking-id="PRM Roundup | ProductRecordBlock" href="https://www.investopedia.com/guardian-life-insurance-review-5078357" id="tabbed-sc-block--review-link_1-0-19" rel="noopener nocaes" target="_blank"><span class="">Guardian Life Insurance Review</span></a><!-- end: --></div><!-- end: comp tabbed-sc-block--review-link infocat-review-link link --> </div> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0-2"> <span class="heading-toc" id="toc-pacific-life-insurance"></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 a Positive Customer Experience</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Pacific Life Insurance</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <div class="comp list-sc-item__rating product-rating" id="list-sc-item__rating_1-0-2"> <span class="product-rating__rating-label noskim"> Investopedia's Rating </span> <div alt="4.6 out of 5 stars" class="comp star-rating" id="star-rating_5-0-2"> <span class="star-rating__label">4.6</span> <div class="star-rating__stars" data-rating-caption=""> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-1 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-2 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-3 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-4 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <svg height="0" style="position: absolute;" width="0"> <defs> <lineargradient id="linear-star-rating_5-0-2" x1="0%" x2="100%" y1="0%" y2="0%"> <stop offset="50%" stop-color="#333e8b"></stop> <stop offset="50%" stop-color="#d5d5d5"></stop> </lineargradient> </defs> </svg> <div class="star-rating__quarter-empty star-rating__icon star-rating__star-5 star-rating_star-icon" style="fill: url(#linear-star-rating_5-0-2);"> <svg viewbox="0 0 12.5 12.1" xmlns="http://www.w3.org/2000/svg"><path d="M6.2 0 8.2 4 12.5 4.6 9.4 7.7 10.1 12.1 6.2 10 2.4 12.1 3.1 7.7 0 4.6 4.3 4z"></path></svg> </div> </div> </div></div><!-- end: comp star-rating --> </div><!-- end: comp list-sc-item__rating product-rating --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0-2"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-2"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-2"> <div class="tabbed-sc-block-intro"> <!-- basically identifies commerce, but "isRetailer" is more generic --> <!-- Leave support for 3x2 ratio, default to 2x1 aspect ratio--> <!-- Update the SASS variable used to scale up images smaller than 1500px--> <div class="prm-sc-block-productrecord__imageHolder" style="--imgWidth: 0px"> <figure class="loc productrecord__logo figure-media figure-3x2 figure-landscape mntl-sc-block mntl-sc-block-image figure-high-res"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Pacific Life" class="lazyload figure-3x2 universal-image__image" data-expand="1500" data-src="https://www.investopedia.com/thmb/-qc0pVNtJBqmCCH3mOzrEBpD5Rg=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Pacific_Life-2bf5a1184e4c410b98703ba637bf8b24.jpg" height="1000" width="1500"/> <noscript> <img alt="Pacific Life" class="img--noscript figure-3x2 universal-image__image" height="1000" src="https://www.investopedia.com/thmb/-qc0pVNtJBqmCCH3mOzrEBpD5Rg=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/Pacific_Life-2bf5a1184e4c410b98703ba637bf8b24.jpg" width="1500"/> </noscript> </div> </figure> </div> <div class="prm-sc-block-productrecord__specs"> <!-- Product Attribute List --> <ul class="comp mntl-sc-block mntl-sc-block-html prm-sc-block-productrecord__attributes"> <li class="key-spec infocat-prop__aMBestRating"> <span class="key-spec__title has-tooltip"> <strong>AM Best Rating:</strong> <span class="key-spec__tooltip tooltip-trigger"> <svg class="icon bio-icon--finance"> <use xlink:href="#bio-icon--finance" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </span> <span class="key-spec__tooltip-bubble tooltip-bubble">AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations.</span> </span> A+ </li> <li class="key-spec infocat-prop__acceptsCreditCards"> <span class="key-spec__title"> <strong>Accepts Credit Cards:</strong> </span> No </li> </ul> <!-- CTA Button (commerce button) --> <div class="loc cta productrecord__cta-button" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock - Button"> <a class="mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Covr" data-tracking-container="false" href="http://dotdash.covrtech.com/?utm_carrier=PacificLife&amp;utm_journey=wl" id="mntl-commerce-btn_1-0-2" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Get A Quote</span></a><!-- end: mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button --> </div> </div> </div> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-22"> Pacific Life has an excellent track record with the NAIC, as well as a strong rating in J.D. Power's customer satisfaction study.<span class="ql-inline-citation" data-cite="40"></span><span class="ql-inline-citation" data-cite="31"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-24"> <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 few customer complaints</p></li> <li><p>Term coverage available to 75-year-old applicants<br/></p></li> <li><p>Many accelerated death benefits and riders available</p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>No online quote or application on the website</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-26"> <br/>Pacific Life's complaint rate was among the lowest relative to its size of all 91 insurance companies we reviewed.<span class="ql-inline-citation" data-cite="22"></span> The company is especially good for seniors because it offers senior life insurance in the form of term coverage for applicants up to 75 years of age.<span class="ql-inline-citation" data-cite="41"></span> It also offers universal life policies that guarantee coverage until age 90, extendable to age 121. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-27"> Additionally, Pacific Life offers <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/accelerated_death_benefit.asp">accelerated death benefits</a> in the form of included terminal illness riders. Other companies may charge for this. Like some other insurance companies on this list, the online capabilities at Pacific Life are limited. You can’t get a quote or apply without calling the company or applying through a third-party agent or broker. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-28"> <li><strong>Maximum age</strong>: 75 years old for term life, possibly higher for permanent coverage</li><li><strong>Policy types</strong>: Term, variable universal life, universal life, indexed universal life</li><li><strong>Coverage amounts</strong>: Up to $3 million and higher<span class="ql-inline-citation" data-cite="41"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="loc post-content tabbed-sc-block__content tabbed-sc-block__post-content"> <div class="comp tabbed-sc-block--review-link infocat-review-link link" data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock" id="tabbed-sc-block--review-link_1-0-28"> Read the Full <a data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="false" data-tracking-id="PRM Roundup | ProductRecordBlock" href="https://www.investopedia.com/pacific-life-insurance-review-5184560" id="tabbed-sc-block--review-link_1-0-28" rel="noopener nocaes" target="_blank"><span class="">Pacific Life Insurance Review</span></a><!-- end: --></div><!-- end: comp tabbed-sc-block--review-link infocat-review-link link --> </div> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0-3"> <span class="heading-toc" id="toc-john-hancock-life-insurance"></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 If You Want a Term Policy</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">John Hancock Life Insurance</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <div class="comp list-sc-item__rating product-rating" id="list-sc-item__rating_1-0-3"> <span class="product-rating__rating-label noskim"> Investopedia's Rating </span> <div alt="4.4 out of 5 stars" class="comp star-rating" id="star-rating_5-0-3"> <span class="star-rating__label">4.4</span> <div class="star-rating__stars" data-rating-caption=""> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-1 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-2 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-3 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-4 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <svg height="0" style="position: absolute;" width="0"> <defs> <lineargradient id="linear-star-rating_5-0-3" x1="0%" x2="100%" y1="0%" y2="0%"> <stop offset="50%" stop-color="#333e8b"></stop> <stop offset="50%" stop-color="#d5d5d5"></stop> </lineargradient> </defs> </svg> <div class="star-rating__quarter-full star-rating__icon star-rating__star-5 star-rating_star-icon" style="fill: url(#linear-star-rating_5-0-3);"> <svg viewbox="0 0 12.5 12.1" xmlns="http://www.w3.org/2000/svg"><path d="M6.2 0 8.2 4 12.5 4.6 9.4 7.7 10.1 12.1 6.2 10 2.4 12.1 3.1 7.7 0 4.6 4.3 4z"></path></svg> </div> </div> </div></div><!-- end: comp star-rating --> </div><!-- end: comp list-sc-item__rating product-rating --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0-3"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-3"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-3"> <div class="tabbed-sc-block-intro"> <!-- basically identifies commerce, but "isRetailer" is more generic --> <!-- Leave support for 3x2 ratio, default to 2x1 aspect ratio--> <!-- Update the SASS variable used to scale up images smaller than 1500px--> <div class="prm-sc-block-productrecord__imageHolder" style="--imgWidth: 531px"> <figure class="loc productrecord__logo figure-media figure-2x1 figure-landscape mntl-sc-block mntl-sc-block-image figure-high-res upscaleImg"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="John Hancock" class="lazyload figure-2x1 universal-image__image" data-expand="1500" data-src="https://www.investopedia.com/thmb/llJfw2FYm-Ze_2j8epsRpSQuGlY=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/john-hancock-8c2a878a385549498309fae4713df810.jpg" height="750" width="1500"/> <noscript> <img alt="John Hancock" class="img--noscript figure-2x1 universal-image__image" height="750" src="https://www.investopedia.com/thmb/llJfw2FYm-Ze_2j8epsRpSQuGlY=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/john-hancock-8c2a878a385549498309fae4713df810.jpg" width="1500"/> </noscript> </div> </figure> </div> <div class="prm-sc-block-productrecord__specs"> <!-- Product Attribute List --> <ul class="comp mntl-sc-block mntl-sc-block-html prm-sc-block-productrecord__attributes"> <li class="key-spec infocat-prop__aMBestRating"> <span class="key-spec__title has-tooltip"> <strong>AM Best Rating:</strong> <span class="key-spec__tooltip tooltip-trigger"> <svg class="icon bio-icon--finance"> <use xlink:href="#bio-icon--finance" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </span> <span class="key-spec__tooltip-bubble tooltip-bubble">AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations.</span> </span> A+ </li> <li class="key-spec infocat-prop__acceptsCreditCards"> <span class="key-spec__title"> <strong>Accepts Credit Cards:</strong> </span> No </li> </ul> <!-- CTA Button (commerce button) --> <div class="loc cta productrecord__cta-button" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock - Button"> <a class="mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Covr" data-tracking-container="false" href="http://dotdash.covrtech.com/?utm_carrier=JohnHancock&amp;utm_journey=term" id="mntl-commerce-btn_1-0-3" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Get A Quote</span></a><!-- end: mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button --> </div> </div> </div> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Why We Chose it</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-31"> John Hancock offers the most compelling <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/termlife.asp">term life insurance</a> offerings of our top-ranked companies for seniors. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-33"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>High maximum age for term insurance applicants</p></li> <li><p>Offers insurance for diabetics</p></li> <li><p>Optional critical illness rider doesn’t reduce the policy’s death benefit</p></li> <li><p>Wellness program</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>Most living benefits riders cost extra on term life policies</p></li> <li><p>No online quote, application, or live chat for applicants</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-35"> <br/>John Hancock issues term policies to applicants up to age 80<span class="ql-inline-citation" data-cite="42"></span>, while many competitors have cutoffs at age 75 or younger. Its maximum issue age for other types of insurance is also high, at 90. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-36"> In addition, we like that John Hancock offers a critical illness rider that isn’t an accelerated benefit, so the death benefit doesn’t get reduced if the rider is used. That’s uncommon. The company also caught our eye for its insurance for diabetics as well as its Vitality rewards. Vitality provides incentives for policyholders to live a healthy lifestyle, including potential discounts on senior life insurance premiums.  </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"> John Hancock’s main weaknesses are that most living benefits riders cost extra on term policies, and, like others on this list, it doesn’t allow you to get a quote or apply online without an agent.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-38"> <li><strong>Maximum age</strong>: 90 years old<span class="ql-inline-citation" data-cite="42"></span></li><li><strong>Policy types</strong>: Term, variable universal, index universal, universal</li><li><strong>Coverage amounts</strong>: $250,000-$30 million (term), $50,000-$65 million (permanent)</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="loc post-content tabbed-sc-block__content tabbed-sc-block__post-content"> <div class="comp tabbed-sc-block--review-link infocat-review-link link" data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock" id="tabbed-sc-block--review-link_1-0-38"> Read the Full <a data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="false" data-tracking-id="PRM Roundup | ProductRecordBlock" href="https://www.investopedia.com/john-hancock-life-insurance-review-5075864" id="tabbed-sc-block--review-link_1-0-38" rel="noopener nocaes" target="_blank"><span class="">John Hancock Life Insurance Review</span></a><!-- end: --></div><!-- end: comp tabbed-sc-block--review-link infocat-review-link link --> </div> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> </div> <div class="article-outro article-container"> <div class="comp js-table-scroll structured-content comparison-table prm-comparison-table--finance prm-comparison-table litho-comparison-table" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table" id="comparison-table_1-0"> <span class="heading-toc" id="comparison-table"></span> <h2 class="litho-comparison-table__header">Compare the Best Life Insurance Companies for Seniors of 2024</h2> <table class="litho-comparison-table__table litho-comparison-table__table--pivot"> <thead class="loc tableHead"> <tr class="comp litho-comparison-table__header-row mntl-block" id="litho-comparison-table__header-row_1-0"> <th class="comp mntl-block" id="mntl-block_1-0"> <div class="comp js-table-action prm-comparison-table__collapse-btn mntl-text-block" data-action="toggle" data-class="litho-comparison-table__header-row--collapsed" data-click-action="Collapse" data-click-tracked="true" data-target=".litho-comparison-table__header-row" id="prm-comparison-table__collapse-btn_1-0"></div><!-- end: comp js-table-action prm-comparison-table__collapse-btn mntl-text-block --> </th><!-- end: comp mntl-block --> <th class="comp litho-comparison-table__head-text mntl-text-block" id="litho-comparison-table__head-text_1-0"> Best For</th><!-- end: comp litho-comparison-table__head-text mntl-text-block --> <th class="comp dynamic-properties-header litho-comparison-table__cell-block mntl-block" id="dynamic-properties-header_1-0"> <div class="comp comparison-table__heading-wrapper mntl-block" id="comparison-table__heading-wrapper_1-0"> <span class="comp comparison-table__heading-label mntl-text-block" id="comparison-table__heading-label_1-0"> AM Best Rating</span><!-- end: comp comparison-table__heading-label mntl-text-block --> <span class="comp tooltip-trigger comparison-table__tooltip mntl-block" id="comparison-table__tooltip_1-0"> <svg class="icon bio-icon--finance"> <use xlink:href="#bio-icon--finance" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </span><!-- end: comp tooltip-trigger comparison-table__tooltip mntl-block --> <div class="comp tooltip-bubble comparison-table__tooltip-bubble mntl-text-block" id="comparison-table__tooltip-bubble_1-0"> AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations.</div><!-- end: comp tooltip-bubble comparison-table__tooltip-bubble mntl-text-block --> </div><!-- end: comp comparison-table__heading-wrapper mntl-block --> </th><!-- end: comp dynamic-properties-header litho-comparison-table__cell-block mntl-block --> <th class="comp dynamic-properties-header litho-comparison-table__cell-block mntl-block" id="dynamic-properties-header_1-0-1"> <div class="comp comparison-table__heading-wrapper mntl-block" id="comparison-table__heading-wrapper_1-0-1"> <span class="comp comparison-table__heading-label mntl-text-block" id="comparison-table__heading-label_1-0-1"> Term Life Sample Cost</span><!-- end: comp comparison-table__heading-label mntl-text-block --> </div><!-- end: comp comparison-table__heading-wrapper mntl-block --> </th><!-- end: comp dynamic-properties-header litho-comparison-table__cell-block mntl-block --> <th class="comp dynamic-properties-header litho-comparison-table__cell-block mntl-block" id="dynamic-properties-header_1-0-2"> <div class="comp comparison-table__heading-wrapper mntl-block" id="comparison-table__heading-wrapper_1-0-2"> <span class="comp comparison-table__heading-label mntl-text-block" id="comparison-table__heading-label_1-0-2"> Policy Types</span><!-- end: comp comparison-table__heading-label mntl-text-block --> </div><!-- end: comp comparison-table__heading-wrapper mntl-block --> </th><!-- end: comp dynamic-properties-header litho-comparison-table__cell-block mntl-block --> <th class="comp dynamic-properties-header litho-comparison-table__cell-block mntl-block" id="dynamic-properties-header_1-0-3"> <div class="comp comparison-table__heading-wrapper mntl-block" id="comparison-table__heading-wrapper_1-0-3"> <span class="comp comparison-table__heading-label mntl-text-block" id="comparison-table__heading-label_1-0-3"> Accepts Credit Cards</span><!-- end: comp comparison-table__heading-label mntl-text-block --> </div><!-- end: comp comparison-table__heading-wrapper mntl-block --> </th><!-- end: comp dynamic-properties-header litho-comparison-table__cell-block mntl-block --> <th class="comp litho-comparison-table__head-text mntl-text-block" id="litho-comparison-table__head-text_2-0"></th><!-- end: comp litho-comparison-table__head-text mntl-text-block --> <th class="comp mntl-block" id="mntl-block_2-0"> <div class="comp js-table-action prm-comparison-table__reset-btn mntl-text-block" data-action="remove" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Reset All" data-click-tracked="true" data-target=".litho-comparison-table__product-row--hidden" id="prm-comparison-table__reset-btn_1-0"> Reset All</div><!-- end: comp js-table-action prm-comparison-table__reset-btn mntl-text-block --> </th><!-- end: comp mntl-block --> </tr><!-- end: comp litho-comparison-table__header-row mntl-block --> </thead> <tbody class="loc tableBody"> <tr class="comp js-table-hide-col litho-comparison-table__product-row--0 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_1-0"> <td class="comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block" id="prm-comparison-table__header_1-0"> New York Life</td><!-- end: comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-text mntl-text-block" id="litho-comparison-table__cell-text_1-0"> Best Overall</td><!-- end: comp litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0"> A++</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-1"> N/A</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-2"> Term, Universal (UL), Variable Universal (VUL), Whole</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-3"> No</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_1-0"> <a class="mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Covr" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table - Button" href="https://dotdash.covrtech.com/?utm_carrier=NewYorkLife&amp;utm_journey=bridge" id="mntl-sc-block-commerce__button_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Get A Quote</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_2-0"> <div class="comp js-table-action prm-comparison-table__hide-btn mntl-text-block" data-action="add" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Hide Record | New York Life" data-click-tracked="true" data-target=".litho-comparison-table__product-row--0" id="prm-comparison-table__hide-btn_1-0"> Hide, not for me</div><!-- end: comp js-table-action prm-comparison-table__hide-btn mntl-text-block --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp js-table-hide-col litho-comparison-table__product-row--0 litho-comparison-table__product-row mntl-block --> <tr class="comp js-table-hide-col litho-comparison-table__product-row--1 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_1-0-1"> <td class="comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block" id="prm-comparison-table__header_1-0-1"> Guardian</td><!-- end: comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-text mntl-text-block" id="litho-comparison-table__cell-text_1-0-1"> Very Few Complaints </td><!-- end: comp litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-4"> A++</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-5"> $27.47/month</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-6"> Term, Universal (UL), Whole</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-7"> Yes</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_1-0-1"> <a class="mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Covr" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table - Button" href="http://dotdash.covrtech.com/?utm_carrier=Guardian&amp;utm_journey=bridge" id="mntl-sc-block-commerce__button_1-0-1" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Get A Quote</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_2-0-1"> <div class="comp js-table-action prm-comparison-table__hide-btn mntl-text-block" data-action="add" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Hide Record | Guardian" data-click-tracked="true" data-target=".litho-comparison-table__product-row--1" id="prm-comparison-table__hide-btn_1-0-1"> Hide, not for me</div><!-- end: comp js-table-action prm-comparison-table__hide-btn mntl-text-block --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp js-table-hide-col litho-comparison-table__product-row--1 litho-comparison-table__product-row mntl-block --> <tr class="comp js-table-hide-col litho-comparison-table__product-row--2 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_1-0-2"> <td class="comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block" id="prm-comparison-table__header_1-0-2"> Pacific Life Insurance</td><!-- end: comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-text mntl-text-block" id="litho-comparison-table__cell-text_1-0-2"> Best for a Positive Customer Experience</td><!-- end: comp litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-8"> A+</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-9"> $23.64/month</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-10"> Indexed Universal (IUL), Term, Universal (UL), Variable Universal (VUL), Whole</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-11"> No</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_1-0-2"> <a class="mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Covr" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table - Button" href="http://dotdash.covrtech.com/?utm_carrier=PacificLife&amp;utm_journey=wl" id="mntl-sc-block-commerce__button_1-0-2" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Get A Quote</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_2-0-2"> <div class="comp js-table-action prm-comparison-table__hide-btn mntl-text-block" data-action="add" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Hide Record | Pacific Life Insurance" data-click-tracked="true" data-target=".litho-comparison-table__product-row--2" id="prm-comparison-table__hide-btn_1-0-2"> Hide, not for me</div><!-- end: comp js-table-action prm-comparison-table__hide-btn mntl-text-block --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp js-table-hide-col litho-comparison-table__product-row--2 litho-comparison-table__product-row mntl-block --> <tr class="comp js-table-hide-col litho-comparison-table__product-row--3 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_1-0-3"> <td class="comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block" id="prm-comparison-table__header_1-0-3"> John Hancock Life Insurance</td><!-- end: comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-text mntl-text-block" id="litho-comparison-table__cell-text_1-0-3"> Best If You Want a Term Policy</td><!-- end: comp litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-12"> A+</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-13"> N/A</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-14"> Indexed Universal (IUL), Term, Variable Universal (VUL)</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-15"> No</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_1-0-3"> <a class="mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button" data-affiliate-link-rewriter="utm_source=${DOC_ID}&amp;utm_click=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Covr" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table - Button" href="http://dotdash.covrtech.com/?utm_carrier=JohnHancock&amp;utm_journey=term" id="mntl-sc-block-commerce__button_1-0-3" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Get A Quote</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_2-0-3"> <div class="comp js-table-action prm-comparison-table__hide-btn mntl-text-block" data-action="add" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Hide Record | John Hancock Life Insurance" data-click-tracked="true" data-target=".litho-comparison-table__product-row--3" id="prm-comparison-table__hide-btn_1-0-3"> Hide, not for me</div><!-- end: comp js-table-action prm-comparison-table__hide-btn mntl-text-block --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp js-table-hide-col litho-comparison-table__product-row--3 litho-comparison-table__product-row mntl-block --> </tbody> </table> </div><!-- end: comp js-table-scroll structured-content comparison-table prm-comparison-table--finance prm-comparison-table litho-comparison-table --> <div class="comp structured-content article-outro__content prm-sc-page mntl-sc-page mntl-block" id="article-outro__content_1-0"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0"> *<em>Quotes above are examples of what a 40-year-old in excellent health might pay for a 30-year $250,000 policy</em>. <em>Get life insurance quotes from multiple companies to find your best rate.</em> </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_4-0-1"> <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_4-0-2"> The best senior life insurance company for you will be determined by what type of coverage you’re looking for and your personal preferences. If you want a rock-solid company with a long history of financial stability, look to New York Life and Guardian. They have the added benefit of being the only two companies on this list that pay dividends.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-3"> And while both of those companies have a low incidence of customer complaints, Pacific Life has fewer. Guardian and New York Life issue some policies to applicants as old as 90. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-4"> For term policies, consider John Hancock, especially if you're an older applicant. You’ll need to talk to an agent, but can apply for a 10-year term policy if you’re 80 years old. This is not the case with any other carriers on this list. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-more-about-our-top-insurance-companies"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-5"> <span class="mntl-sc-block-heading__text"> More About Our Top Insurance Companies </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-6"> Here is an overview of some of the key features of the life insurance policies our top companies provide. </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_4-0-7"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th> <b>Companies</b></th> <th> <b>Age Limit</b></th> <th> <b>Policy Types</b></th> <th> <b>J.D. Power 2023 ranking (out of 22 companies)</b></th> <th> <b>AM Best Financial Stability Rating</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td><b>New York Life</b></td> <td>Up to 90 for permanent</td> <td>Term, whole, variable, universal</td> <td>#8</td> <td>A++ (Superior) </td> </tr> <tr> <td><b>Guardian</b></td> <td>Up to 90 for permanent/75 for term</td> <td>Term, whole, variable, universal</td> <td>#12</td> <td>A++ (Superior)</td> </tr> <tr> <td><b>Pacific Life</b> </td> <td>75 for term</td> <td>Term, index, variable, universal</td> <td> #6</td> <td> A+ (Superior)</td> </tr> <tr> <td><b>John Hancock</b></td> <td>Up to 90 for permanent/80 for term</td> <td>Term, index, variable, universal</td> <td>#15</td> <td>A+ (Superior)</td> </tr> </tbody> </table> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <span class="heading-toc" id="toc-how-to-choose-the-right-life-insurance"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-8"> <span class="mntl-sc-block-heading__text"> How to Choose the Right Life Insurance </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_4-0-9"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-life-insurance-companies-4845858">best life insurance companies</a> offer the type of policy you need at a price you can afford and meet the following criteria: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ol class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-10"> <li><strong>An A or above rating from AM Best</strong>: AM Best gives A ratings and above to companies it considers to have an “excellent” (A-, A) or “superior” (A+, A++) ability to meet their ongoing insurance obligations.<span class="ql-inline-citation" data-cite="14"></span> All companies in our best life insurance for seniors list have at least an A+ rating.</li><li><strong>Few customer complaints</strong>: You can see how many complaints a life insurance company has received using the NAIC’s Consumer Insurance Search tool. Look at the insurance company’s “complaint index” for life insurance. An index greater than 1.0 means the company received more complaints than expected for its size, an index less than 1.0 means it received fewer.</li><li><strong>The policy features you want</strong>: Some companies automatically include value-added benefits or riders in their coverage, while other companies charge extra for you to add them. This is particularly the case with accelerated death benefit riders like chronic, critical, and terminal illness riders. Make a note of which companies and policies offer the best living benefits.</li><li><strong>A manageable application process</strong>: Once you’ve determined which companies you like, it’s time to get life insurance quotes and apply for coverage. It’s likely you’ll talk to an agent, which can give insight into how transparent or accessible service may be in the future, so pay attention to the agent’s behavior in your communications with them.</li> </ol><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-alternative-life-insurance-options-for-seniors"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-11"> <span class="mntl-sc-block-heading__text"> Alternative Life Insurance Options for Seniors </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_4-0-12"> If you find yourself unable to afford the premiums of a permanent life insurance policy and you don't qualify term life insurance, there are alternative options. Generally speaking, you can get a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/guaranteed-issue-life-insurance.asp">guaranteed policy</a> or a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/insurance/accelerated-underwriting-easy-life-insurance/">simplified issue</a> policy. Guaranteed policies don't require a medical exam and your health doesn't factor into your eligibility. Simplified issue policies require minimal information about your health. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-13"> In both cases, however, the death benefit your policy includes will likely be much lower than a term or permanent policy. For example, guaranteed benefit policies typically cap the death benefit at $25,000.<br/> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-more-ratings-of-top-life-insurance-companies"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-14"> <span class="mntl-sc-block-heading__text"> More Ratings of Top Life Insurance Companies </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-15"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-life-insurance-companies-4845858">Best Life Insurance Companies</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-life-insurance-for-people-over-50-4846582">Best Life Insurance Companies for People Over 50</a> </li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-whole-life-insurance-4845955">Best Whole Life Insurance Companies</a></li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-universal-life-insurance-4845846">Best Universal Life Insurance Companies</a> </li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-life-insurance-for-children-5088586">Best Children’s Life Insurance Companies</a></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-faq--finance prm-sc-block-faq mntl-sc-block-faq mntl-block" data-click-action="OnPageClick - FAQ Header" data-tracking-container="true" data-tracking-id="PRM Roundup | FAQ" id="mntl-sc-block_4-0-16"> <span class="heading-toc" id="toc-faqs-80b6b2d9-32f9-4ac0-b1a3-72eec4ad2622"></span> <h2 class="comp mntl-sc-block-faq__title mntl-text-block" id="mntl-sc-block-faq__title_1-0"> Frequently Asked Questions</h2><!-- end: comp mntl-sc-block-faq__title mntl-text-block --> <ul class="comp mntl-sc-block-faq__content mntl-accordion" id="mntl-sc-block-faq__content_1-0"> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-0" tabindex="-1"> <h3 class="accordion__title">What Is Senior Life Insurance?</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>Senior life insurance is life insurance that seniors are eligible for. Senior life insurance usually refers to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-burial-insurance-4843161">final expense insurance</a>, which is also called burial insurance or funeral insurance. These policies often limit the death benefit to $25,000 and require few or no health questions and no medical exam, making them easy to qualify for.<br/></p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-1" tabindex="-1"> <h3 class="accordion__title">Do Seniors Need Life Insurance?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-1"> <div class="faq-accordion__item-answer"> <p>While the answer to this question depends on your financial circumstances, generally speaking, yes, seniors need <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-life-insurance-companies-4845858">life insurance</a>. At the very least, a final expense policy can help loved ones cover the cost of a funeral and burial. Term and permanent life policies offer significantly higher death benefits, which can be a financial lifeline if your spouse or partner would be in financial distress if you were to pass.<br/><br/></p><ul><li><strong>Pros</strong>: A life insurance death benefit can provide financial stability for loved ones who depend on you, and, in some cases, you can take out a loan against your policy's cash value to help you pay for expenses like financial emergencies or vacations</li><li><strong>Cons</strong>: Premiums can be very high if you obtain a policy late in life, and you're also likely to pay significantly more if you're dealing with health issues.<br/><br/><br/></li></ul> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-2" tabindex="-1"> <h3 class="accordion__title">What Is the Average Cost of Life Insurance for Seniors?</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>Senior life insurance is more expensive than life insurance for younger individuals. A 60-year-old might pay between $100 and $200 per month for $25,000 worth of guaranteed issue whole life insurance coverage, while a 70-year-old might pay $160 to over $300 per month for the same coverage. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-life-insurance-companies-4845858">Life insurance</a> gets progressively more expensive as you get older.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$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">Which Type of Life Insurance Is Best for Seniors?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-3"> <div class="faq-accordion__item-answer"> <p>Whether you purchase term or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-whole-life-insurance-4845955">whole life insurance</a> as a senior depends on how much coverage you need, for how long, and what you can afford. A term policy may be a good idea if you only need coverage for a limited amount of time, such as the last few years of making your mortgage payments. But if you want to provide for loved ones whenever you pass, get permanent whole life insurance or a burial insurance policy.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-4" tabindex="-1"> <h3 class="accordion__title">How Does a Graded Death Benefit Work?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-4"> <div class="faq-accordion__item-answer"> <p>A policy with a graded death benefit has a waiting period, usually two or three years. If the policyholder dies from natural causes within the waiting period, the beneficiaries don’t get the full death benefit. Instead, the insurance company provides a return of premium plus a small percent. A graded death benefit is a feature of some <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-burial-insurance-4843161">burial insurance</a> and final expense insurance policies. </p><p>For example, if the insured person dies during the first two years of coverage, the policy might pay a return of premiums plus 10%. After the graded death benefit period, or for accidental death at any time, the policy would pay the full death benefit. </p><p>The reason insurance companies have graded death benefits is so they can afford to offer coverage to high-risk applicants at affordable premiums. Otherwise, insurers would need to charge much larger premiums to cover their costs or they’d simply deny coverage. This is because life insurance premiums are based on when the insured person is most likely to die—and the highest risk applicants (the type that guaranteed issue policies are designed for) are most likely to die sooner rather than later.  A graded death benefit helps the company soften this risk so that it can offer affordable coverage.</p><p><br/><br/></p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> </ul><!-- end: comp mntl-sc-block-faq__content mntl-accordion --> <!--end accordion --> </div><!-- end: comp mntl-sc-block prm-sc-block-faq--finance prm-sc-block-faq mntl-sc-block-faq mntl-block --> <span class="heading-toc" id="toc-methodology"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-17"> <span class="mntl-sc-block-heading__text"> Methodology </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-18"> In order to compile our list of the best life insurance companies for seniors, we developed a comprehensive life insurance methodology. We started off by researching what consumers want from life insurance companies, and for that, we looked to third-party consumer studies, including <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.jdpower.com/business/press-releases/2022-us-life-insurance-new-business-study">J.D. Power’s 2022 U.S. Life Insurance New Business Study</a> and the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://lifehappens.org/research/owning-life-insurance-provides-a-clear-path-to-financial-security/">2022 Insurance Barometer Study</a>, by Life Happens and LIMRA. </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"> With those findings in mind, we gathered more than 50 data points on 91 life insurance companies, including ratings for financial strength, customer satisfaction, and customer complaints, as well as information about years in business, online tools, no-exam options, policy types and features, maximum issue age, and available riders. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-20"> Our review process gave preference to companies with superior financial stability, few customer complaints, and a high maximum issue age for policies. In particular, we valued the availability of accelerated death benefit riders and whether they’re included in policies free of charge. Companies received ratings boosts if they provide educational materials, accept credit cards, and make large coverage amounts available. We ranked each company according to the following categories and weights. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-21"> <li><strong>Maximum issue age</strong>: 30%</li><li><strong>Financial stability</strong>: 24.5%</li><li><strong>Consumer complaints and customer service features</strong>: 24.5%</li><li><strong>Policy features and riders</strong>: 16%</li><li><strong>Maximum coverage amount</strong>: 5%</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_4-0-22"> To finalize our list, we considered third-party customer satisfaction ratings, and compared individual offerings between top companies by delving deeper into product specifics and the application process. We used this research to determine the best life insurance for seniors. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp structured-content article-outro__content prm-sc-page mntl-sc-page mntl-block --> </div> <figure class="comp figure-landscape primary-image--roundup primary-image mntl-universal-primary-image primary-image" id="primary-image--roundup_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Two people sit and talk. 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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-24"><p>AM Best. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://ratings.ambest.com/CompanyProfile.aspx?ambnum=6820&amp;AltNum=17026820" rel="nofollow sponsored">New York Life Insurance Company</a>."</p></li> <li class="mntl-sources__source" id="citation-14"><p>AM Best. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.ambest.com/ratings/guide.pdf" rel="nofollow sponsored">Guide to Best’s Financial Strength Ratings - (FSR)</a>.”</p></li> <li class="mntl-sources__source" id="citation-18"><p>National Association of Insurance Commissioners. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://content.naic.org/cis_refined_results.htm?TABLEAU=CIS_COMPLAINTS&amp;COCODE=66915&amp;:refresh">New York Life Ins Co National Complaint Index Report</a>."</p></li> <li class="mntl-sources__source" id="citation-39"><p>AM Best. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.businesswire.com/news/home/20230714107638/en/AM-Best-Affirms-Credit-Ratings-of-Guardian-Life-Insurance-Company-of-America-and-Its-Subsidiaries">AM Best Affirms Credit Ratings of Guardian Life Insurance Company of America and Its Subsidiaries</a>.’</p></li> <li class="mntl-sources__source" id="citation-20"><p>National Association of Insurance Commissioners. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://content.naic.org/cis_refined_results.htm?TABLEAU=CIS_COMPLAINTS&amp;COCODE=64246&amp;:refresh">Guardian Life Ins Co of Amer National Complaint Index Report</a>."</p></li> <li class="mntl-sources__source" id="citation-40"><p>JD Power. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.jdpower.com/sites/default/files/file/2023-10/2023135%20U.S.%20Life%20Insurance%20and%20Annuity_0.pdf">Satisfaction with Life Insurance and Annuity Products Climbs as Customers Embrace Digital, J.D. Power Finds</a>”</p></li> <li class="mntl-sources__source" id="citation-31"><p>National Association of Insurance Commissioners. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://content.naic.org/cis_refined_results.htm?TABLEAU=CIS_COMPLAINTS&amp;COCODE=67466&amp;:refresh">Pacific Life Ins Co National Complaint Index Report</a>."</p></li> <li class="mntl-sources__source" id="citation-22"><p>National Association of Insurance Commissioners. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://content.naic.org/cis_refined_results.htm?TABLEAU=CIS_COMPLAINTS&amp;COCODE=67466&amp;:refresh">Pacific Life Ins Co National Complaint Index Report</a>."</p></li> <li class="mntl-sources__source" id="citation-41"><p>Pacific Life. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://lifeinsurance.pacificlife.com/eliteterm" rel="nofollow sponsored">Pacific Elite Term</a>.”</p></li> <li class="mntl-sources__source" id="citation-42"><p>John Hancock. “<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.johnhancock.com/life-insurance.html" rel="nofollow sponsored">Get the Right Life Insurance Policy for the Protection You Need</a>.”</p></li> </ol> </div> </div></div> <div class="comp prm-recirc related-recirc-section--articles mntl-block" data-tracking-container="true" 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Shopping for senior life insurance may seem daunting. Premiums can be high, plan details confusing, and the ramifications of your decision can be wide-ranging. You'll generally get the best rates and options if you contact companies directly. If you're in good health, consider applying for a policy that requires a medical exam—since rates increase with age and poor health, it may be to your advantage to show the company you're healthy. Our research found New York Life to be the best option due to its long history and top score in our rating system. To choose the best life insurance companies for seniors, we evaluated companies based on their highest maximum issue ages for term and cash-value life insurance (30%), financial stability based on AM Best financial strength ratings (24.5%), incidence of consumer complaints filed with the National Association of Insurance Commissioners (NAIC) and customer service features (24.5%), policy features and available riders (16%), and maximum coverage amounts (5%). ## Best Life Insurance Companies for Seniors of 2024 * **Best Overall:** [New York Life](https://dotdash.covrtech.com/?utm_carrier=NewYorkLife&utm_journey=bridge) * **Very Few Complaints :** [Guardian](http://dotdash.covrtech.com/?utm_carrier=Guardian&utm_journey=bridge) * **Best for a Positive Customer Experience:** [Pacific Life Insurance](http://dotdash.covrtech.com/?utm_carrier=PacificLife&utm_journey=wl) * **Best If You Want a Term Policy:** [John Hancock Life Insurance](http://dotdash.covrtech.com/?utm_carrier=JohnHancock&utm_journey=term) Why Trust Us 91 Companies reviewed 55 Features considered 5,005 Data points analyzed We collected over 5,000 data points from 91 life insurance companies to measure financial stability, customer satisfaction, product and feature variety, and the overall buying experience. We then evaluated each company based on 55 metrics to develop unbiased, comprehensive reviews. [Read our Full Methodology](https://www.investopedia.com/life-insurance-review-methodology-5071427) [Compare life insurance quotes](https://dotdash.covrtech.com/) with our partner Covr Financial from multiple providers before buying. Best Life Insurance Companies for Seniors of 2024 Expand Best Life Insurance Companies for Seniors of 2024 * [Our Top Picks](#summary-list) * [New York Life](#toc-new-york-life) * [Guardian](#toc-guardian) * [Pacific Life Insurance](#toc-pacific-life-insurance) * [John Hancock Life Insurance](#toc-john-hancock-life-insurance) * See More (1) * [Compare Providers](#comparison-table) * [Final Verdict](#toc-final-verdict) * [More on Our Top Companies](#toc-more-about-our-top-insurance-companies) * [How to Choose](#toc-how-to-choose-the-right-life-insurance) * [Alternative Options](#toc-alternative-life-insurance-options-for-seniors) * [More Ratings](#toc-more-ratings-of-top-life-insurance-companies) * [FAQs](#toc-faqs-80b6b2d9-32f9-4ac0-b1a3-72eec4ad2622) * [Methodology](#toc-methodology) ### Best Overall : New York Life Investopedia's Rating 4.8 --- ![New York Life]() :fill(white):max_bytes(150000):strip_icc()/New_York_Life-fe244fbe4c0b4c3a842fa2c15f06f2c7.jpg) * **AM Best Rating:** AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations. A++ * **Accepts Credit Cards:** No [Get A Quote](https://dotdash.covrtech.com/?utm_carrier=NewYorkLife&utm_journey=bridge) Why We Chose It New York Life has been in business since 1845, has an A++ (Superior) AM Best rating, and has paid dividends every year since 1854, and had a higher overall score than another of the other 90 companies we analyzed. Pros & Cons Pros * Policies available to 90-year-old applicants * A++ AM Best rating * Long history of dividend payments * Few customer complaints * Broad selection of riders Cons * Must talk to an agent to get a quote and apply * Limited policy information online Overview New York Life ranks as having the overall best senior life insurance for a number of reasons. It’s one of very few companies we reviewed that issues policies to applicants up to age 90 (most companies cap applicant age at 85). And considering that it was founded in 1845 the company has weathered many financial storms, including multiple recessions and the Great Depression. Its strong financial position has earned it an A++ rating (the highest available) from AM Best. An A++ (Superior) rating means AM Best believes the company has a superior ability to meet its ongoing insurance obligations. The company receives few complaints with the NAIC. Plus, whole life policyholders are eligible for [life insurance dividend payments](https://www.investopedia.com/articles/personal-finance/011816/guide-dividendpaying-whole-life-insurance.asp), and have been receiving them every year since 1854, the longest record for consistent dividend payments of all companies we reviewed. New York Life also offers an array of riders with which to customize your policy, including a disability waiver of premium, a spouse's paid up insurance purchase option, and living benefits. The downside is that you’ll need to provide your phone number and other personal information to get detailed policy information and a quote. Not surprisingly, there’s no online application option either.   * **Maximum age**: 90 years old * **Policy types**: Term, variable universal life, universal life, whole life * **Coverage amounts**: Start at $25,000 (whole life) Read the Full [New York Life Insurance Review](https://www.investopedia.com/new-york-life-insurance-review-5074534) ### Very Few Complaints : Guardian Investopedia's Rating 4.7 --- ![Guardian Life Insurance]() :fill(white):max_bytes(150000):strip_icc()/guardian-direct-0e2cba3724c6431b8596de415fd325ad.jpg) * **AM Best Rating:** AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations. A++ * **Accepts Credit Cards:** Yes [Get A Quote](http://dotdash.covrtech.com/?utm_carrier=Guardian&utm_journey=bridge) Why We Chose It Guardian Life has an A++ (Superior) financial stability rating from AM Best and a record of few complaints with the [National Association of Insurance Commissioners (NAIC)](https://www.investopedia.com/terms/n/nainsurancec.asp). Pros & Cons Pros * A++ AM Best rating * Few customer complaints * Policies available to 90-year-old applicants * Pays dividends on whole life policies Cons * Can’t apply without an agent * Some policy information is not available online Overview In business since 1860, Guardian Life received an A++ rating from AM Best for financial stability. Fewer than 10% of the companies we reviewed received this rating; New York Life is the only other one on this list. Also like New York Life, 90-year-old applicants to Guardian are eligible to apply for coverage, and [whole life insurance](https://www.investopedia.com/terms/w/wholelife.asp) policyholders are eligible for dividends.   Guardian also has a low incidence of customer complaints, according to the NAIC. Based on three years of complaints, Guardian received a low number for a company of its size—among the lowest complaint indexes (based on its size) out of the 91 companies we reviewed. And while you can find copious educational material on the company’s website, finding policy-specific information is difficult to impossible. You’ll need to reach out to an agent for that. You’ll also need to contact an agent to apply. * **Maximum age**: 90 years old * **Policy types**: Term, variable universal life, universal life, whole life * **Coverage amounts**: $250,000 to at least $5 million (term) Read the Full [Guardian Life Insurance Review](https://www.investopedia.com/guardian-life-insurance-review-5078357) ### Best for a Positive Customer Experience : Pacific Life Insurance Investopedia's Rating 4.6 --- ![Pacific Life]() :fill(white):max_bytes(150000):strip_icc()/Pacific_Life-2bf5a1184e4c410b98703ba637bf8b24.jpg) * **AM Best Rating:** AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations. A+ * **Accepts Credit Cards:** No [Get A Quote](http://dotdash.covrtech.com/?utm_carrier=PacificLife&utm_journey=wl) Why We Chose It Pacific Life has an excellent track record with the NAIC, as well as a strong rating in J.D. Power's customer satisfaction study. Pros & Cons Pros * Very few customer complaints * Term coverage available to 75-year-old applicants * Many accelerated death benefits and riders available Cons * No online quote or application on the website Overview Pacific Life's complaint rate was among the lowest relative to its size of all 91 insurance companies we reviewed. The company is especially good for seniors because it offers senior life insurance in the form of term coverage for applicants up to 75 years of age. It also offers universal life policies that guarantee coverage until age 90, extendable to age 121. Additionally, Pacific Life offers [accelerated death benefits](https://www.investopedia.com/terms/a/accelerated_death_benefit.asp) in the form of included terminal illness riders. Other companies may charge for this. Like some other insurance companies on this list, the online capabilities at Pacific Life are limited. You can’t get a quote or apply without calling the company or applying through a third-party agent or broker. * **Maximum age**: 75 years old for term life, possibly higher for permanent coverage * **Policy types**: Term, variable universal life, universal life, indexed universal life * **Coverage amounts**: Up to $3 million and higher Read the Full [Pacific Life Insurance Review](https://www.investopedia.com/pacific-life-insurance-review-5184560) ### Best If You Want a Term Policy : John Hancock Life Insurance Investopedia's Rating 4.4 --- ![John Hancock]() :fill(white):max_bytes(150000):strip_icc()/john-hancock-8c2a878a385549498309fae4713df810.jpg) * **AM Best Rating:** AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations. A+ * **Accepts Credit Cards:** No [Get A Quote](http://dotdash.covrtech.com/?utm_carrier=JohnHancock&utm_journey=term) Why We Chose it John Hancock offers the most compelling [term life insurance](https://www.investopedia.com/terms/t/termlife.asp) offerings of our top-ranked companies for seniors. Pros & Cons Pros * High maximum age for term insurance applicants * Offers insurance for diabetics * Optional critical illness rider doesn’t reduce the policy’s death benefit * Wellness program Cons * Most living benefits riders cost extra on term life policies * No online quote, application, or live chat for applicants Overview John Hancock issues term policies to applicants up to age 80, while many competitors have cutoffs at age 75 or younger. Its maximum issue age for other types of insurance is also high, at 90. In addition, we like that John Hancock offers a critical illness rider that isn’t an accelerated benefit, so the death benefit doesn’t get reduced if the rider is used. That’s uncommon. The company also caught our eye for its insurance for diabetics as well as its Vitality rewards. Vitality provides incentives for policyholders to live a healthy lifestyle, including potential discounts on senior life insurance premiums.  John Hancock’s main weaknesses are that most living benefits riders cost extra on term policies, and, like others on this list, it doesn’t allow you to get a quote or apply online without an agent.  * **Maximum age**: 90 years old * **Policy types**: Term, variable universal, index universal, universal * **Coverage amounts**: $250,000-$30 million (term), $50,000-$65 million (permanent) Read the Full [John Hancock Life Insurance Review](https://www.investopedia.com/john-hancock-life-insurance-review-5075864) ## Compare the Best Life Insurance Companies for Seniors of 2024 | | Best For | AM Best Rating AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations. | Term Life Sample Cost | Policy Types | Accepts Credit Cards | | Reset All | | --- | --- | --- | --- | --- | --- | --- | --- | | New York Life | Best Overall | A++ | N/A | Term, Universal (UL), Variable Universal (VUL), Whole | No | [Get A Quote](https://dotdash.covrtech.com/?utm_carrier=NewYorkLife&utm_journey=bridge) | Hide, not for me | | Guardian | Very Few Complaints | A++ | $27.47/month | Term, Universal (UL), Whole | Yes | [Get A Quote](http://dotdash.covrtech.com/?utm_carrier=Guardian&utm_journey=bridge) | Hide, not for me | | Pacific Life Insurance | Best for a Positive Customer Experience | A+ | $23.64/month | Indexed Universal (IUL), Term, Universal (UL), Variable Universal (VUL), Whole | No | [Get A Quote](http://dotdash.covrtech.com/?utm_carrier=PacificLife&utm_journey=wl) | Hide, not for me | | John Hancock Life Insurance | Best If You Want a Term Policy | A+ | N/A | Indexed Universal (IUL), Term, Variable Universal (VUL) | No | [Get A Quote](http://dotdash.covrtech.com/?utm_carrier=JohnHancock&utm_journey=term) | Hide, not for me | \**Quotes above are examples of what a 40-year-old in excellent health might pay for a 30-year $250,000 policy*. *Get life insurance quotes from multiple companies to find your best rate.* ## Final Verdict The best senior life insurance company for you will be determined by what type of coverage you’re looking for and your personal preferences. If you want a rock-solid company with a long history of financial stability, look to New York Life and Guardian. They have the added benefit of being the only two companies on this list that pay dividends.  And while both of those companies have a low incidence of customer complaints, Pacific Life has fewer. Guardian and New York Life issue some policies to applicants as old as 90. For term policies, consider John Hancock, especially if you're an older applicant. You’ll need to talk to an agent, but can apply for a 10-year term policy if you’re 80 years old. This is not the case with any other carriers on this list. ## More About Our Top Insurance Companies Here is an overview of some of the key features of the life insurance policies our top companies provide. | **Companies** | **Age Limit** | **Policy Types** | **J.D. Power 2023 ranking (out of 22 companies)** | **AM Best Financial Stability Rating** | | --- | --- | --- | --- | --- | | **New York Life** | Up to 90 for permanent | Term, whole, variable, universal | #8 | A++ (Superior) | | **Guardian** | Up to 90 for permanent/75 for term | Term, whole, variable, universal | #12 | A++ (Superior) | | **Pacific Life** | 75 for term | Term, index, variable, universal | #6 | A+ (Superior) | | **John Hancock** | Up to 90 for permanent/80 for term | Term, index, variable, universal | #15 | A+ (Superior) | ## How to Choose the Right Life Insurance The [best life insurance companies](https://www.investopedia.com/best-life-insurance-companies-4845858) offer the type of policy you need at a price you can afford and meet the following criteria: 1. **An A or above rating from AM Best**: AM Best gives A ratings and above to companies it considers to have an “excellent” (A-, A) or “superior” (A+, A++) ability to meet their ongoing insurance obligations. All companies in our best life insurance for seniors list have at least an A+ rating. 2. **Few customer complaints**: You can see how many complaints a life insurance company has received using the NAIC’s Consumer Insurance Search tool. Look at the insurance company’s “complaint index” for life insurance. An index greater than 1.0 means the company received more complaints than expected for its size, an index less than 1.0 means it received fewer. 3. **The policy features you want**: Some companies automatically include value-added benefits or riders in their coverage, while other companies charge extra for you to add them. This is particularly the case with accelerated death benefit riders like chronic, critical, and terminal illness riders. Make a note of which companies and policies offer the best living benefits. 4. **A manageable application process**: Once you’ve determined which companies you like, it’s time to get life insurance quotes and apply for coverage. It’s likely you’ll talk to an agent, which can give insight into how transparent or accessible service may be in the future, so pay attention to the agent’s behavior in your communications with them. ## Alternative Life Insurance Options for Seniors If you find yourself unable to afford the premiums of a permanent life insurance policy and you don't qualify term life insurance, there are alternative options. Generally speaking, you can get a [guaranteed policy](https://www.investopedia.com/terms/g/guaranteed-issue-life-insurance.asp) or a [simplified issue](https://www.investopedia.com/insurance/accelerated-underwriting-easy-life-insurance/) policy. Guaranteed policies don't require a medical exam and your health doesn't factor into your eligibility. Simplified issue policies require minimal information about your health. In both cases, however, the death benefit your policy includes will likely be much lower than a term or permanent policy. For example, guaranteed benefit policies typically cap the death benefit at $25,000. ## More Ratings of Top Life Insurance Companies * [Best Life Insurance Companies](https://www.investopedia.com/best-life-insurance-companies-4845858) * [Best Life Insurance Companies for People Over 50](https://www.investopedia.com/best-life-insurance-for-people-over-50-4846582) * [Best Whole Life Insurance Companies](https://www.investopedia.com/best-whole-life-insurance-4845955) * [Best Universal Life Insurance Companies](https://www.investopedia.com/best-universal-life-insurance-4845846) * [Best Children’s Life Insurance Companies](https://www.investopedia.com/best-life-insurance-for-children-5088586) ## Frequently Asked Questions * ### What Is Senior Life Insurance? Senior life insurance is life insurance that seniors are eligible for. Senior life insurance usually refers to [final expense insurance](https://www.investopedia.com/best-burial-insurance-4843161), which is also called burial insurance or funeral insurance. These policies often limit the death benefit to $25,000 and require few or no health questions and no medical exam, making them easy to qualify for. * ### Do Seniors Need Life Insurance? While the answer to this question depends on your financial circumstances, generally speaking, yes, seniors need [life insurance](https://www.investopedia.com/best-life-insurance-companies-4845858). At the very least, a final expense policy can help loved ones cover the cost of a funeral and burial. Term and permanent life policies offer significantly higher death benefits, which can be a financial lifeline if your spouse or partner would be in financial distress if you were to pass. + **Pros**: A life insurance death benefit can provide financial stability for loved ones who depend on you, and, in some cases, you can take out a loan against your policy's cash value to help you pay for expenses like financial emergencies or vacations + **Cons**: Premiums can be very high if you obtain a policy late in life, and you're also likely to pay significantly more if you're dealing with health issues. * ### What Is the Average Cost of Life Insurance for Seniors? Senior life insurance is more expensive than life insurance for younger individuals. A 60-year-old might pay between $100 and $200 per month for $25,000 worth of guaranteed issue whole life insurance coverage, while a 70-year-old might pay $160 to over $300 per month for the same coverage. [Life insurance](https://www.investopedia.com/best-life-insurance-companies-4845858) gets progressively more expensive as you get older. * ### Which Type of Life Insurance Is Best for Seniors? Whether you purchase term or [whole life insurance](https://www.investopedia.com/best-whole-life-insurance-4845955) as a senior depends on how much coverage you need, for how long, and what you can afford. A term policy may be a good idea if you only need coverage for a limited amount of time, such as the last few years of making your mortgage payments. But if you want to provide for loved ones whenever you pass, get permanent whole life insurance or a burial insurance policy. * ### How Does a Graded Death Benefit Work? A policy with a graded death benefit has a waiting period, usually two or three years. If the policyholder dies from natural causes within the waiting period, the beneficiaries don’t get the full death benefit. Instead, the insurance company provides a return of premium plus a small percent. A graded death benefit is a feature of some [burial insurance](https://www.investopedia.com/best-burial-insurance-4843161) and final expense insurance policies.  For example, if the insured person dies during the first two years of coverage, the policy might pay a return of premiums plus 10%. After the graded death benefit period, or for accidental death at any time, the policy would pay the full death benefit.  The reason insurance companies have graded death benefits is so they can afford to offer coverage to high-risk applicants at affordable premiums. Otherwise, insurers would need to charge much larger premiums to cover their costs or they’d simply deny coverage. This is because life insurance premiums are based on when the insured person is most likely to die—and the highest risk applicants (the type that guaranteed issue policies are designed for) are most likely to die sooner rather than later.  A graded death benefit helps the company soften this risk so that it can offer affordable coverage. ## Methodology In order to compile our list of the best life insurance companies for seniors, we developed a comprehensive life insurance methodology. We started off by researching what consumers want from life insurance companies, and for that, we looked to third-party consumer studies, including [J.D. Power’s 2022 U.S. Life Insurance New Business Study](https://www.jdpower.com/business/press-releases/2022-us-life-insurance-new-business-study) and the [2022 Insurance Barometer Study](https://lifehappens.org/research/owning-life-insurance-provides-a-clear-path-to-financial-security/), by Life Happens and LIMRA. With those findings in mind, we gathered more than 50 data points on 91 life insurance companies, including ratings for financial strength, customer satisfaction, and customer complaints, as well as information about years in business, online tools, no-exam options, policy types and features, maximum issue age, and available riders. Our review process gave preference to companies with superior financial stability, few customer complaints, and a high maximum issue age for policies. In particular, we valued the availability of accelerated death benefit riders and whether they’re included in policies free of charge. Companies received ratings boosts if they provide educational materials, accept credit cards, and make large coverage amounts available. We ranked each company according to the following categories and weights. * **Maximum issue age**: 30% * **Financial stability**: 24.5% * **Consumer complaints and customer service features**: 24.5% * **Policy features and riders**: 16% * **Maximum coverage amount**: 5% To finalize our list, we considered third-party customer satisfaction ratings, and compared individual offerings between top companies by delving deeper into product specifics and the application process. We used this research to determine the best life insurance for seniors. :max_bytes(150000):strip_icc()/GettyImages-1355067000-450b8bbb08d64624ae22d33cf4529161.jpg) :max_bytes(150000):strip_icc()/GettyImages-1355067000-450b8bbb08d64624ae22d33cf4529161.jpg) MoMo Productions / Getty Images Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our [editorial policy.](https://www.investopedia.com/legal-4768893#EditorialPolicy) 1. AM Best. "[New York Life Insurance Company](https://ratings.ambest.com/CompanyProfile.aspx?ambnum=6820&AltNum=17026820)." 2. AM Best. “[Guide to Best’s Financial Strength Ratings - (FSR)](https://www.ambest.com/ratings/guide.pdf).” 3. National Association of Insurance Commissioners. "[New York Life Ins Co National Complaint Index Report](https://content.naic.org/cis_refined_results.htm?TABLEAU=CIS_COMPLAINTS&COCODE=66915&:refresh)." 4. AM Best. “[AM Best Affirms Credit Ratings of Guardian Life Insurance Company of America and Its Subsidiaries](https://www.businesswire.com/news/home/20230714107638/en/AM-Best-Affirms-Credit-Ratings-of-Guardian-Life-Insurance-Company-of-America-and-Its-Subsidiaries).’ 5. National Association of Insurance Commissioners. "[Guardian Life Ins Co of Amer National Complaint Index Report](https://content.naic.org/cis_refined_results.htm?TABLEAU=CIS_COMPLAINTS&COCODE=64246&:refresh)." 6. JD Power. “[Satisfaction with Life Insurance and Annuity Products Climbs as Customers Embrace Digital, J.D. Power Finds](https://www.jdpower.com/sites/default/files/file/2023-10/2023135%20U.S.%20Life%20Insurance%20and%20Annuity_0.pdf)” 7. National Association of Insurance Commissioners. "[Pacific Life Ins Co National Complaint Index Report](https://content.naic.org/cis_refined_results.htm?TABLEAU=CIS_COMPLAINTS&COCODE=67466&:refresh)." 8. National Association of Insurance Commissioners. "[Pacific Life Ins Co National Complaint Index Report](https://content.naic.org/cis_refined_results.htm?TABLEAU=CIS_COMPLAINTS&COCODE=67466&:refresh)." 9. Pacific Life. “[Pacific Elite Term](https://lifeinsurance.pacificlife.com/eliteterm).” 10. John Hancock. “[Get the Right Life Insurance Policy for the Protection You Need](https://www.johnhancock.com/life-insurance.html).” Related Articles [![Whole Life Insurance Companies]() :max_bytes(150000):strip_icc()/GettyImages-1333695712-7b7a11f13ba8430baca0e19dd369d331.jpg) Best Whole Life Insurance Companies of 2024](https://www.investopedia.com/best-whole-life-insurance-4845955) [![Best Life Insurance Companies]() :max_bytes(150000):strip_icc()/GettyImages-580504707-f1e88e44d9bd4d3c9fe88b2535d5a353.jpg) 11 Best Term, Whole, and No-Exam Life Insurance Companies for May 2024](https://www.investopedia.com/best-life-insurance-companies-4845858) [![Life Insurance for Parents]() :max_bytes(150000):strip_icc()/GettyImages-1376105386-faa37fce2be64c0dad2e5da167443c8a.jpg) Best Life Insurance for Parents of 2024](https://www.investopedia.com/best-life-insurance-for-parents-5088231) [![Life Insurance for Smokers]() :max_bytes(150000):strip_icc()/GettyImages-1328522952-650061b997784fba964d1214963b66f2.jpg) Best Life Insurance Companies for Smokers](https://www.investopedia.com/best-life-insurance-for-smokers-5119536) [![Term Life Insurance]() :max_bytes(150000):strip_icc()/GettyImages-1171149733-9206392ac2de4ca2820c94fde3a9a943.jpg) Best Term Life Insurance Companies of 2024](https://www.investopedia.com/best-term-life-insurance-4845961) [![No Medical Exam Life Insurance]() :max_bytes(150000):strip_icc()/GettyImages-1367898695-e0b839856ce64b5a942aaed9b482383d.jpg) Best No-Medical-Exam Life Insurance Companies](https://www.investopedia.com/best-no-medical-exam-life-insurance-5078737) Related Terms [Life Insurance: What It Is, How It Works, and How To Buy a Policy](https://www.investopedia.com/terms/l/lifeinsurance.asp) Life insurance is a contract in which an insurer, in exchange for a premium, guarantees payment to an insured’s beneficiaries when the insured dies. [more](https://www.investopedia.com/terms/l/lifeinsurance.asp) [What Is Life Insurance With Living Benefits?](https://www.investopedia.com/what-is-life-insurance-with-living-benefits-8606326) Life insurance living benefits can provide you with a financial lifeline throughout your life. Learn what they are and how they work. [more](https://www.investopedia.com/what-is-life-insurance-with-living-benefits-8606326) [Final Expense Insurance: What it is, Who Needs it, Pros and Cons](https://www.investopedia.com/final-expense-insurance-4801018) Final expense insurance is a whole life insurance policy that has a small death benefit and is easy to get approved for. [more](https://www.investopedia.com/final-expense-insurance-4801018) [Whole Life Insurance Definition: How It Works, With Examples](https://www.investopedia.com/terms/w/wholelife.asp) Whole life insurance is permanent life insurance that pays a benefit upon the death of the insured and is characterized by level premiums and a savings component. [more](https://www.investopedia.com/terms/w/wholelife.asp) [Term Life Insurance: What It Is, Different Types, Pros and Cons](https://www.investopedia.com/terms/t/termlife.asp) Term life insurance is a guaranteed life benefit paid to beneficiaries of the insured after death. [more](https://www.investopedia.com/terms/t/termlife.asp) [Guaranteed Issue Life Insurance: What it is, How it Works,](https://www.investopedia.com/terms/g/guaranteed-issue-life-insurance.asp) Guaranteed issue life insurance is a small whole life insurance policy with no medical questions or exam. [more](https://www.investopedia.com/terms/g/guaranteed-issue-life-insurance.asp)

Shopping for senior life insurance may seem daunting. Premiums can be high, plan details confusing, and the ramifications of your decision can be wide-ranging. You'll generally get the best rates and options if you contact companies directly. If you're in good health, consider applying for a policy that requires a medical exam—since rates increase with age and poor health, it may be to your advantage to show the company you're healthy. Our research found New York Life to be the best option due to its long history and top score in our rating system. To choose the best life insurance companies for seniors, we evaluated companies based on their highest maximum issue ages for term and cash-value life insurance (30%), financial stability based on AM Best financial strength ratings (24.5%), incidence of consumer complaints filed with the National Association of Insurance Commissioners (NAIC) and customer service features (24.5%), policy features and available riders (16%), and maximum coverage amounts (5%). Best Life Insurance Companies for Seniors of 2024 Best Overall: New York Life Very Few Complaints : Guardian Best for a Positive Customer Experience: Pacific Life Insurance Best If You Want a Term Policy: John Hancock Life Insurance Why Trust Us 91 Companies reviewed 55 Features considered 5,005 Data points analyzed We collected over 5,000 data points from 91 life insurance companies to measure financial stability, customer satisfaction, product and feature variety, and the overall buying experience. We then evaluated each company based on 55 metrics to develop unbiased, comprehensive reviews. Read our Full Methodology Compare life insurance quotes with our partner Covr Financial from multiple providers before buying. Best Life Insurance Companies for Seniors of 2024 Expand Best Life Insurance Companies for Seniors of 2024 Our Top Picks New York Life Guardian Pacific Life Insurance John Hancock Life Insurance See More (1) Compare Providers Final Verdict More on Our Top Companies How to Choose Alternative Options More Ratings FAQs Methodology Best Overall : New York Life Investopedia's Rating 4.8 AM Best Rating: AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations. A++ Accepts Credit Cards: No Get A Quote Why We Chose It New York Life has been in business since 1845, has an A++ (Superior) AM Best rating, and has paid dividends every year since 1854, and had a higher overall score than another of the other 90 companies we analyzed. Pros & Cons Pros Policies available to 90-year-old applicants A++ AM Best rating Long history of dividend payments Few customer complaints Broad selection of riders Cons Must talk to an agent to get a quote and apply Limited policy information online Overview New York Life ranks as having the overall best senior life insurance for a number of reasons. It’s one of very few companies we reviewed that issues policies to applicants up to age 90 (most companies cap applicant age at 85). And considering that it was founded in 1845 the company has weathered many financial storms, including multiple recessions and the Great Depression. Its strong financial position has earned it an A++ rating (the highest available) from AM Best. An A++ (Superior) rating means AM Best believes the company has a superior ability to meet its ongoing insurance obligations. The company receives few complaints with the NAIC. Plus, whole life policyholders are eligible for life insurance dividend payments, and have been receiving them every year since 1854, the longest record for consistent dividend payments of all companies we reviewed. New York Life also offers an array of riders with which to customize your policy, including a disability waiver of premium, a spouse's paid up insurance purchase option, and living benefits. The downside is that you’ll need to provide your phone number and other personal information to get detailed policy information and a quote. Not surprisingly, there’s no online application option either.   Maximum age: 90 years oldPolicy types: Term, variable universal life, universal life, whole lifeCoverage amounts: Start at $25,000 (whole life) Read the Full New York Life Insurance Review Very Few Complaints : Guardian Investopedia's Rating 4.7 AM Best Rating: AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations. A++ Accepts Credit Cards: Yes Get A Quote Why We Chose It Guardian Life has an A++ (Superior) financial stability rating from AM Best and a record of few complaints with the National Association of Insurance Commissioners (NAIC). Pros & Cons Pros A++ AM Best rating Few customer complaints Policies available to 90-year-old applicants Pays dividends on whole life policies Cons Can’t apply without an agent Some policy information is not available online Overview In business since 1860, Guardian Life received an A++ rating from AM Best for financial stability. Fewer than 10% of the companies we reviewed received this rating; New York Life is the only other one on this list. Also like New York Life, 90-year-old applicants to Guardian are eligible to apply for coverage, and whole life insurance policyholders are eligible for dividends.   Guardian also has a low incidence of customer complaints, according to the NAIC. Based on three years of complaints, Guardian received a low number for a company of its size—among the lowest complaint indexes (based on its size) out of the 91 companies we reviewed. And while you can find copious educational material on the company’s website, finding policy-specific information is difficult to impossible. You’ll need to reach out to an agent for that. You’ll also need to contact an agent to apply. Maximum age: 90 years oldPolicy types: Term, variable universal life, universal life, whole lifeCoverage amounts: $250,000 to at least $5 million (term) Read the Full Guardian Life Insurance Review Best for a Positive Customer Experience : Pacific Life Insurance Investopedia's Rating 4.6 AM Best Rating: AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations. A+ Accepts Credit Cards: No Get A Quote Why We Chose It Pacific Life has an excellent track record with the NAIC, as well as a strong rating in J.D. Power's customer satisfaction study. Pros & Cons Pros Very few customer complaints Term coverage available to 75-year-old applicants Many accelerated death benefits and riders available Cons No online quote or application on the website Overview Pacific Life's complaint rate was among the lowest relative to its size of all 91 insurance companies we reviewed. The company is especially good for seniors because it offers senior life insurance in the form of term coverage for applicants up to 75 years of age. It also offers universal life policies that guarantee coverage until age 90, extendable to age 121. Additionally, Pacific Life offers accelerated death benefits in the form of included terminal illness riders. Other companies may charge for this. Like some other insurance companies on this list, the online capabilities at Pacific Life are limited. You can’t get a quote or apply without calling the company or applying through a third-party agent or broker. Maximum age: 75 years old for term life, possibly higher for permanent coveragePolicy types: Term, variable universal life, universal life, indexed universal lifeCoverage amounts: Up to $3 million and higher Read the Full Pacific Life Insurance Review Best If You Want a Term Policy : John Hancock Life Insurance Investopedia's Rating 4.4 AM Best Rating: AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations. A+ Accepts Credit Cards: No Get A Quote Why We Chose it John Hancock offers the most compelling term life insurance offerings of our top-ranked companies for seniors. Pros & Cons Pros High maximum age for term insurance applicants Offers insurance for diabetics Optional critical illness rider doesn’t reduce the policy’s death benefit Wellness program Cons Most living benefits riders cost extra on term life policies No online quote, application, or live chat for applicants Overview John Hancock issues term policies to applicants up to age 80, while many competitors have cutoffs at age 75 or younger. Its maximum issue age for other types of insurance is also high, at 90. In addition, we like that John Hancock offers a critical illness rider that isn’t an accelerated benefit, so the death benefit doesn’t get reduced if the rider is used. That’s uncommon. The company also caught our eye for its insurance for diabetics as well as its Vitality rewards. Vitality provides incentives for policyholders to live a healthy lifestyle, including potential discounts on senior life insurance premiums.  John Hancock’s main weaknesses are that most living benefits riders cost extra on term policies, and, like others on this list, it doesn’t allow you to get a quote or apply online without an agent.  Maximum age: 90 years oldPolicy types: Term, variable universal, index universal, universalCoverage amounts: $250,000-$30 million (term), $50,000-$65 million (permanent) Read the Full John Hancock Life Insurance Review Compare the Best Life Insurance Companies for Seniors of 2024 Best For AM Best Rating AM Best is a credit rating agency that assigns insurance companies a letter grade from “A++” to “D.” A company’s grade indicates its ability to pay its claims and honor its financial obligations. Term Life Sample Cost Policy Types Accepts Credit Cards Reset All New York Life Best Overall A++ N/A Term, Universal (UL), Variable Universal (VUL), Whole No Get A Quote Hide, not for me Guardian Very Few Complaints A++ $27.47/month Term, Universal (UL), Whole Yes Get A Quote Hide, not for me Pacific Life Insurance Best for a Positive Customer Experience A+ $23.64/month Indexed Universal (IUL), Term, Universal (UL), Variable Universal (VUL), Whole No Get A Quote Hide, not for me John Hancock Life Insurance Best If You Want a Term Policy A+ N/A Indexed Universal (IUL), Term, Variable Universal (VUL) No Get A Quote Hide, not for me *Quotes above are examples of what a 40-year-old in excellent health might pay for a 30-year $250,000 policy. Get life insurance quotes from multiple companies to find your best rate. Final Verdict The best senior life insurance company for you will be determined by what type of coverage you’re looking for and your personal preferences. If you want a rock-solid company with a long history of financial stability, look to New York Life and Guardian. They have the added benefit of being the only two companies on this list that pay dividends.  And while both of those companies have a low incidence of customer complaints, Pacific Life has fewer. Guardian and New York Life issue some policies to applicants as old as 90. For term policies, consider John Hancock, especially if you're an older applicant. You’ll need to talk to an agent, but can apply for a 10-year term policy if you’re 80 years old. This is not the case with any other carriers on this list. More About Our Top Insurance Companies Here is an overview of some of the key features of the life insurance policies our top companies provide.  Companies  Age Limit  Policy Types  J.D. Power 2023 ranking (out of 22 companies)  AM Best Financial Stability Rating New York Life Up to 90 for permanent Term, whole, variable, universal #8 A++ (Superior)  Guardian Up to 90 for permanent/75 for term Term, whole, variable, universal #12 A++ (Superior) Pacific Life  75 for term Term, index, variable, universal  #6  A+ (Superior) John Hancock Up to 90 for permanent/80 for term Term, index, variable, universal #15 A+ (Superior) How to Choose the Right Life Insurance The best life insurance companies offer the type of policy you need at a price you can afford and meet the following criteria: An A or above rating from AM Best: AM Best gives A ratings and above to companies it considers to have an “excellent” (A-, A) or “superior” (A+, A++) ability to meet their ongoing insurance obligations. All companies in our best life insurance for seniors list have at least an A+ rating.Few customer complaints: You can see how many complaints a life insurance company has received using the NAIC’s Consumer Insurance Search tool. Look at the insurance company’s “complaint index” for life insurance. An index greater than 1.0 means the company received more complaints than expected for its size, an index less than 1.0 means it received fewer.The policy features you want: Some companies automatically include value-added benefits or riders in their coverage, while other companies charge extra for you to add them. This is particularly the case with accelerated death benefit riders like chronic, critical, and terminal illness riders. Make a note of which companies and policies offer the best living benefits.A manageable application process: Once you’ve determined which companies you like, it’s time to get life insurance quotes and apply for coverage. It’s likely you’ll talk to an agent, which can give insight into how transparent or accessible service may be in the future, so pay attention to the agent’s behavior in your communications with them. Alternative Life Insurance Options for Seniors If you find yourself unable to afford the premiums of a permanent life insurance policy and you don't qualify term life insurance, there are alternative options. Generally speaking, you can get a guaranteed policy or a simplified issue policy. Guaranteed policies don't require a medical exam and your health doesn't factor into your eligibility. Simplified issue policies require minimal information about your health. In both cases, however, the death benefit your policy includes will likely be much lower than a term or permanent policy. For example, guaranteed benefit policies typically cap the death benefit at $25,000. More Ratings of Top Life Insurance Companies Best Life Insurance Companies Best Life Insurance Companies for People Over 50  Best Whole Life Insurance Companies Best Universal Life Insurance Companies  Best Children’s Life Insurance Companies Frequently Asked Questions What Is Senior Life Insurance? Senior life insurance is life insurance that seniors are eligible for. Senior life insurance usually refers to final expense insurance, which is also called burial insurance or funeral insurance. These policies often limit the death benefit to $25,000 and require few or no health questions and no medical exam, making them easy to qualify for. Do Seniors Need Life Insurance? While the answer to this question depends on your financial circumstances, generally speaking, yes, seniors need life insurance. At the very least, a final expense policy can help loved ones cover the cost of a funeral and burial. Term and permanent life policies offer significantly higher death benefits, which can be a financial lifeline if your spouse or partner would be in financial distress if you were to pass.Pros: A life insurance death benefit can provide financial stability for loved ones who depend on you, and, in some cases, you can take out a loan against your policy's cash value to help you pay for expenses like financial emergencies or vacationsCons: Premiums can be very high if you obtain a policy late in life, and you're also likely to pay significantly more if you're dealing with health issues. What Is the Average Cost of Life Insurance for Seniors? Senior life insurance is more expensive than life insurance for younger individuals. A 60-year-old might pay between $100 and $200 per month for $25,000 worth of guaranteed issue whole life insurance coverage, while a 70-year-old might pay $160 to over $300 per month for the same coverage. Life insurance gets progressively more expensive as you get older. Which Type of Life Insurance Is Best for Seniors? Whether you purchase term or whole life insurance as a senior depends on how much coverage you need, for how long, and what you can afford. A term policy may be a good idea if you only need coverage for a limited amount of time, such as the last few years of making your mortgage payments. But if you want to provide for loved ones whenever you pass, get permanent whole life insurance or a burial insurance policy. How Does a Graded Death Benefit Work? A policy with a graded death benefit has a waiting period, usually two or three years. If the policyholder dies from natural causes within the waiting period, the beneficiaries don’t get the full death benefit. Instead, the insurance company provides a return of premium plus a small percent. A graded death benefit is a feature of some burial insurance and final expense insurance policies. For example, if the insured person dies during the first two years of coverage, the policy might pay a return of premiums plus 10%. After the graded death benefit period, or for accidental death at any time, the policy would pay the full death benefit. The reason insurance companies have graded death benefits is so they can afford to offer coverage to high-risk applicants at affordable premiums. Otherwise, insurers would need to charge much larger premiums to cover their costs or they’d simply deny coverage. This is because life insurance premiums are based on when the insured person is most likely to die—and the highest risk applicants (the type that guaranteed issue policies are designed for) are most likely to die sooner rather than later.  A graded death benefit helps the company soften this risk so that it can offer affordable coverage. Methodology In order to compile our list of the best life insurance companies for seniors, we developed a comprehensive life insurance methodology. We started off by researching what consumers want from life insurance companies, and for that, we looked to third-party consumer studies, including J.D. Power’s 2022 U.S. Life Insurance New Business Study and the 2022 Insurance Barometer Study, by Life Happens and LIMRA. With those findings in mind, we gathered more than 50 data points on 91 life insurance companies, including ratings for financial strength, customer satisfaction, and customer complaints, as well as information about years in business, online tools, no-exam options, policy types and features, maximum issue age, and available riders. Our review process gave preference to companies with superior financial stability, few customer complaints, and a high maximum issue age for policies. In particular, we valued the availability of accelerated death benefit riders and whether they’re included in policies free of charge. Companies received ratings boosts if they provide educational materials, accept credit cards, and make large coverage amounts available. We ranked each company according to the following categories and weights. Maximum issue age: 30%Financial stability: 24.5%Consumer complaints and customer service features: 24.5%Policy features and riders: 16%Maximum coverage amount: 5% To finalize our list, we considered third-party customer satisfaction ratings, and compared individual offerings between top companies by delving deeper into product specifics and the application process. We used this research to determine the best life insurance for seniors. MoMo Productions / Getty Images Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. AM Best. "New York Life Insurance Company." AM Best. “Guide to Best’s Financial Strength Ratings - (FSR).” National Association of Insurance Commissioners. "New York Life Ins Co National Complaint Index Report." AM Best. “AM Best Affirms Credit Ratings of Guardian Life Insurance Company of America and Its Subsidiaries.’ National Association of Insurance Commissioners. "Guardian Life Ins Co of Amer National Complaint Index Report." JD Power. “Satisfaction with Life Insurance and Annuity Products Climbs as Customers Embrace Digital, J.D. Power Finds” National Association of Insurance Commissioners. "Pacific Life Ins Co National Complaint Index Report." National Association of Insurance Commissioners. "Pacific Life Ins Co National Complaint Index Report." Pacific Life. “Pacific Elite Term.” John Hancock. “Get the Right Life Insurance Policy for the Protection You Need.” Related Articles Best Whole Life Insurance Companies of 2024 11 Best Term, Whole, and No-Exam Life Insurance Companies for May 2024 Best Life Insurance for Parents of 2024 Best Life Insurance Companies for Smokers Best Term Life Insurance Companies of 2024 Best No-Medical-Exam Life Insurance Companies Related Terms Life Insurance: What It Is, How It Works, and How To Buy a Policy Life insurance is a contract in which an insurer, in exchange for a premium, guarantees payment to an insured’s beneficiaries when the insured dies. more What Is Life Insurance With Living Benefits? Life insurance living benefits can provide you with a financial lifeline throughout your life. Learn what they are and how they work. more Final Expense Insurance: What it is, Who Needs it, Pros and Cons Final expense insurance is a whole life insurance policy that has a small death benefit and is easy to get approved for. more Whole Life Insurance Definition: How It Works, With Examples Whole life insurance is permanent life insurance that pays a benefit upon the death of the insured and is characterized by level premiums and a savings component. more Term Life Insurance: What It Is, Different Types, Pros and Cons Term life insurance is a guaranteed life benefit paid to beneficiaries of the insured after death. more Guaranteed Issue Life Insurance: What it is, How it Works, Guaranteed issue life insurance is a small whole life insurance policy with no medical questions or exam. more

https://www.investopedia.com/ask/answers/why-interest-rates-have-inverse-relationship-bond-prices/

Inverse Relation Between Interest Rates and Bond Prices

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Bonds have an inverse relationship to <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>. When the cost of borrowing money rises (when interest rates rise), bond prices usually fall, and vice-versa. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> At first glance, the negative correlation between <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/interestrate.asp">interest rates</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond.asp">bond</a> prices seems somewhat illogical; however, upon closer examination, it actually begins to make good sense. </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 bonds pay a fixed interest rate that becomes more attractive if interest rates fall, driving up demand and the price of the bond.</li><li>Conversely, if interest rates rise, investors will no longer prefer the lower fixed interest rate paid by a bond, resulting in a decline in its price.</li><li>Zero-coupon bonds provide a clear example of how this mechanism works in practice.<span class="ql-inline-citation" data-cite="13"></span></li></ul></div></div></div> <span class="heading-toc" id="toc-bond-prices-vs-yield"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-heading__text"> Bond Prices vs. Yield </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Bond investors, like all investors, typically try to get the best <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/return.asp">return</a> possible. To achieve this goal, they generally need to keep tabs on the fluctuating costs of borrowing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> An easy way to grasp why bond prices move in the opposite direction of interest rates is to consider <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/z/zero-couponbond.asp">zero-coupon bonds</a>, which don't pay regular interest and instead derive all of their value from the difference between the purchase price and the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/parvalue.asp">par value</a> paid at maturity. </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"> Zero-coupon bonds are issued <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/at-a-discount.asp">at a discount</a><strong> </strong>to par value, with their yields a function of the purchase price, the par value, and the time remaining until maturity; however, zero-coupon bonds also <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/2000-investor-limit.asp">lock in</a> the bond’s yield, which may be attractive to some investors.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <span class="heading-toc" id="toc-zero-coupon-bonds"></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"> Zero-Coupon Bonds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> If a zero-coupon bond is trading at $950 and has a par value of $1,000 (paid at <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturity.asp">maturity</a> in one year), the bond's rate of return<strong> </strong>at the present time is 5.26%: (1,000 - 950) ÷ 950 x 100 = 5.26. In other words, for an individual to pay $950 for this bond, they must be happy with receiving a 5.26% return.<br/><br/>This satisfaction, of course, depends on what else is happening in the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bondmarket.asp">bond market</a>. If current interest rates were to rise, where newly issued bonds were offering a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/y/yield.asp">yield</a> of 10%, then the zero-coupon bond yielding 5.26% would be much less attractive. Who wants a 5.26% yield when they can get 10%? </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> To attract demand, the price of the pre-existing zero-coupon bond would have to decrease enough to match the same return yielded by prevailing interest rates. In this instance, the bond's price would drop from $950 (which gives a 5.26% yield) to approximately $909.09 (which gives a 10% yield). </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 that there is an understanding of how a bond's price moves in relation to interest rate changes, it's easy to see why a bond's price would increase if prevailing interest rates were to drop. If rates dropped to 3%, the zero-coupon bond, with its yield of 5.26%, would suddenly look very attractive. More people would buy the bond, which would push the price up until the bond's yield matched the prevailing 3% rate. In this instance, the price of the bond would increase to approximately $970.87. </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"> Given this price increase, you can see why bondholders, the investors selling their bonds, benefit from a decrease in prevailing interest rates. These examples also show how a bond's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/coupon-rate.asp">coupon rate</a> and, consequently, its <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/market-price.asp">market price</a> are directly affected by national interest rates. To have a shot at attracting investors, newly issued bonds tend to have coupon rates that match or exceed the current national interest rate.<span class="ql-inline-citation" data-cite="14"></span><br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> Zero-Coupon Bond Details </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Zero-coupon bonds tend to be more <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatile</a>, as they do not pay any periodic interest during the life of the bond. Upon maturity, a zero-coupon bondholder receives the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/facevalue.asp">face value</a> of the bond. Thus, the value of these debt securities increases the closer they get to expiring.<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"> Zero-coupon bonds have unique tax implications, too, that investors should understand before investing in them. Even though no periodic interest payment is made on a zero-coupon bond, the annual accumulated return is considered to be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/income.asp">income</a>, which is taxed as interest. </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 bond is assumed to gain value as it approaches maturity, and this gain in value is not viewed as capital gains, which would be taxed at the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capital_gains_tax.asp">capital gains rate</a>, but rather as income.<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> In other words, taxes must be paid on these bonds annually, even though the investor does not receive any money until the bond maturity date. This may be burdensome for some investors; however, there are some ways to limit these tax consequences.<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <span class="heading-toc" id="toc-bond-prices-and-the-fed"></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"> Bond Prices and the Fed </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> When people refer to "the national interest rate" or "the Fed," they're most often referring to 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> set by the <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>. This is the rate of interest charged on the interbank transfer of funds held by the Federal Reserve (Fed) and is widely used as a benchmark for interest rates on all kinds of investments and debt 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_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Fed policy initiatives have a huge effect on the price and the yield of bonds. When the Fed increases the federal funds rate, the price of existing fixed-rate bonds decreases and the yields on new fixed-rate bonds increases. The opposite happens when interest rates go down: existing fixed-rate bond prices go up and new fixed-rate bond yields decline. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_36-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_37-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_38-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The sensitivity of a bond's price to changes in interest rates is known as its duration.<span class="ql-inline-citation" data-cite="10"></span></p></div></div></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_39-0"><span class="heading-toc" id="toc-what-is-the-relationship-between-bond-prices-and-interest-rates"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Relationship Between Bond Prices and Interest Rates?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/stock-analysis/2013/the-top-5-inverse-bond-etfs-tbf-tbx-tmv-sjb-jgbs0204.aspx">relationship between bond prices and interest rates</a> is an inverse one. When interest rates go up, bond prices go down. When interest rates go down, bond prices go up.<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_40-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_41-0"><span class="heading-toc" id="toc-is-it-better-to-buy-bonds-when-interest-rates-are-high-or-low"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is It Better to Buy Bonds When Interest Rates Are High or Low?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>In general, it is better to buy bonds when interest rates are high if your objective is to maximize returns. When interest rates are high, the yield on a bond is higher, so your investment return will be higher compared to when rates are low.<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_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-do-bonds-go-down-when-stocks-go-up"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do Bonds Go Down When Stocks Go Up?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Typically, when stocks go up, bond prices drop. When stocks go up, it draws investors towards investment in stocks as opposed to bonds. As the demand for bonds decreases, so do their prices, in order to make them more attractive to investors.<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_44-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_45-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> Interest rates and bond prices have an inverse relationship. When interest rates go up, the prices of bonds go down, and when interest rates go down, the prices of bonds go up. This happens because when new bonds are issued with the higher paying rate (better yield for the investor), it makes existing bonds with the lower rate less attractive. To make these lower-rate bonds more attractive, the price is reduced to entice investors to purchase them.<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_47-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Correction<em>—August 6, 2023: </em>The correlation between the direction of the federal funds rate and the price and yield of bonds has been corrected to clarify that only new fixed-rate bond yields move, with existing yields holding steady. </p></div>

Bonds have an inverse relationship to [interest rates](https://www.investopedia.com/terms/i/interestrate.asp). When the cost of borrowing money rises (when interest rates rise), bond prices usually fall, and vice-versa. At first glance, the negative correlation between [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) and [bond](https://www.investopedia.com/terms/b/bond.asp) prices seems somewhat illogical; however, upon closer examination, it actually begins to make good sense. ### Key Takeaways * Most bonds pay a fixed interest rate that becomes more attractive if interest rates fall, driving up demand and the price of the bond. * Conversely, if interest rates rise, investors will no longer prefer the lower fixed interest rate paid by a bond, resulting in a decline in its price. * Zero-coupon bonds provide a clear example of how this mechanism works in practice. ## Bond Prices vs. Yield Bond investors, like all investors, typically try to get the best [return](https://www.investopedia.com/terms/r/return.asp) possible. To achieve this goal, they generally need to keep tabs on the fluctuating costs of borrowing. An easy way to grasp why bond prices move in the opposite direction of interest rates is to consider [zero-coupon bonds](https://www.investopedia.com/terms/z/zero-couponbond.asp), which don't pay regular interest and instead derive all of their value from the difference between the purchase price and the [par value](https://www.investopedia.com/terms/p/parvalue.asp) paid at maturity. Zero-coupon bonds are issued [at a discount](https://www.investopedia.com/terms/a/at-a-discount.asp)to par value, with their yields a function of the purchase price, the par value, and the time remaining until maturity; however, zero-coupon bonds also [lock in](https://www.investopedia.com/terms/1/2000-investor-limit.asp) the bond’s yield, which may be attractive to some investors. ## Zero-Coupon Bonds If a zero-coupon bond is trading at $950 and has a par value of $1,000 (paid at [maturity](https://www.investopedia.com/terms/m/maturity.asp) in one year), the bond's rate of returnat the present time is 5.26%: (1,000 - 950) ÷ 950 x 100 = 5.26. In other words, for an individual to pay $950 for this bond, they must be happy with receiving a 5.26% return. This satisfaction, of course, depends on what else is happening in the [bond market](https://www.investopedia.com/terms/b/bondmarket.asp). If current interest rates were to rise, where newly issued bonds were offering a [yield](https://www.investopedia.com/terms/y/yield.asp) of 10%, then the zero-coupon bond yielding 5.26% would be much less attractive. Who wants a 5.26% yield when they can get 10%? To attract demand, the price of the pre-existing zero-coupon bond would have to decrease enough to match the same return yielded by prevailing interest rates. In this instance, the bond's price would drop from $950 (which gives a 5.26% yield) to approximately $909.09 (which gives a 10% yield). Now that there is an understanding of how a bond's price moves in relation to interest rate changes, it's easy to see why a bond's price would increase if prevailing interest rates were to drop. If rates dropped to 3%, the zero-coupon bond, with its yield of 5.26%, would suddenly look very attractive. More people would buy the bond, which would push the price up until the bond's yield matched the prevailing 3% rate. In this instance, the price of the bond would increase to approximately $970.87. Given this price increase, you can see why bondholders, the investors selling their bonds, benefit from a decrease in prevailing interest rates. These examples also show how a bond's [coupon rate](https://www.investopedia.com/terms/c/coupon-rate.asp) and, consequently, its [market price](https://www.investopedia.com/terms/m/market-price.asp) are directly affected by national interest rates. To have a shot at attracting investors, newly issued bonds tend to have coupon rates that match or exceed the current national interest rate. ### Zero-Coupon Bond Details Zero-coupon bonds tend to be more [volatile](https://www.investopedia.com/terms/v/volatility.asp), as they do not pay any periodic interest during the life of the bond. Upon maturity, a zero-coupon bondholder receives the [face value](https://www.investopedia.com/terms/f/facevalue.asp) of the bond. Thus, the value of these debt securities increases the closer they get to expiring. Zero-coupon bonds have unique tax implications, too, that investors should understand before investing in them. Even though no periodic interest payment is made on a zero-coupon bond, the annual accumulated return is considered to be [income](https://www.investopedia.com/terms/i/income.asp), which is taxed as interest. The bond is assumed to gain value as it approaches maturity, and this gain in value is not viewed as capital gains, which would be taxed at the [capital gains rate](https://www.investopedia.com/terms/c/capital_gains_tax.asp), but rather as income. In other words, taxes must be paid on these bonds annually, even though the investor does not receive any money until the bond maturity date. This may be burdensome for some investors; however, there are some ways to limit these tax consequences. ## Bond Prices and the Fed When people refer to "the national interest rate" or "the Fed," they're most often referring to the [federal funds rate](https://www.investopedia.com/terms/f/federalfundsrate.asp) set by the [Federal Open Market Committee (FOMC)](https://www.investopedia.com/terms/f/fomc.asp). This is the rate of interest charged on the interbank transfer of funds held by the Federal Reserve (Fed) and is widely used as a benchmark for interest rates on all kinds of investments and debt securities. Fed policy initiatives have a huge effect on the price and the yield of bonds. When the Fed increases the federal funds rate, the price of existing fixed-rate bonds decreases and the yields on new fixed-rate bonds increases. The opposite happens when interest rates go down: existing fixed-rate bond prices go up and new fixed-rate bond yields decline. ### The sensitivity of a bond's price to changes in interest rates is known as its duration. ## What Is the Relationship Between Bond Prices and Interest Rates? The [relationship between bond prices and interest rates](https://www.investopedia.com/stock-analysis/2013/the-top-5-inverse-bond-etfs-tbf-tbx-tmv-sjb-jgbs0204.aspx) is an inverse one. When interest rates go up, bond prices go down. When interest rates go down, bond prices go up. ## Is It Better to Buy Bonds When Interest Rates Are High or Low? In general, it is better to buy bonds when interest rates are high if your objective is to maximize returns. When interest rates are high, the yield on a bond is higher, so your investment return will be higher compared to when rates are low. ## Do Bonds Go Down When Stocks Go Up? Typically, when stocks go up, bond prices drop. When stocks go up, it draws investors towards investment in stocks as opposed to bonds. As the demand for bonds decreases, so do their prices, in order to make them more attractive to investors. ## The Bottom Line Interest rates and bond prices have an inverse relationship. When interest rates go up, the prices of bonds go down, and when interest rates go down, the prices of bonds go up. This happens because when new bonds are issued with the higher paying rate (better yield for the investor), it makes existing bonds with the lower rate less attractive. To make these lower-rate bonds more attractive, the price is reduced to entice investors to purchase them. Correction*—August 6, 2023:* The correlation between the direction of the federal funds rate and the price and yield of bonds has been corrected to clarify that only new fixed-rate bond yields move, with existing yields holding steady.

Bonds have an inverse relationship to interest rates. When the cost of borrowing money rises (when interest rates rise), bond prices usually fall, and vice-versa. At first glance, the negative correlation between interest rates and bond prices seems somewhat illogical; however, upon closer examination, it actually begins to make good sense. Key Takeaways Most bonds pay a fixed interest rate that becomes more attractive if interest rates fall, driving up demand and the price of the bond.Conversely, if interest rates rise, investors will no longer prefer the lower fixed interest rate paid by a bond, resulting in a decline in its price.Zero-coupon bonds provide a clear example of how this mechanism works in practice. Bond Prices vs. Yield Bond investors, like all investors, typically try to get the best return possible. To achieve this goal, they generally need to keep tabs on the fluctuating costs of borrowing. An easy way to grasp why bond prices move in the opposite direction of interest rates is to consider zero-coupon bonds, which don't pay regular interest and instead derive all of their value from the difference between the purchase price and the par value paid at maturity. Zero-coupon bonds are issued at a discount to par value, with their yields a function of the purchase price, the par value, and the time remaining until maturity; however, zero-coupon bonds also lock in the bond’s yield, which may be attractive to some investors. Zero-Coupon Bonds If a zero-coupon bond is trading at $950 and has a par value of $1,000 (paid at maturity in one year), the bond's rate of return at the present time is 5.26%: (1,000 - 950) ÷ 950 x 100 = 5.26. In other words, for an individual to pay $950 for this bond, they must be happy with receiving a 5.26% return.This satisfaction, of course, depends on what else is happening in the bond market. If current interest rates were to rise, where newly issued bonds were offering a yield of 10%, then the zero-coupon bond yielding 5.26% would be much less attractive. Who wants a 5.26% yield when they can get 10%? To attract demand, the price of the pre-existing zero-coupon bond would have to decrease enough to match the same return yielded by prevailing interest rates. In this instance, the bond's price would drop from $950 (which gives a 5.26% yield) to approximately $909.09 (which gives a 10% yield). Now that there is an understanding of how a bond's price moves in relation to interest rate changes, it's easy to see why a bond's price would increase if prevailing interest rates were to drop. If rates dropped to 3%, the zero-coupon bond, with its yield of 5.26%, would suddenly look very attractive. More people would buy the bond, which would push the price up until the bond's yield matched the prevailing 3% rate. In this instance, the price of the bond would increase to approximately $970.87. Given this price increase, you can see why bondholders, the investors selling their bonds, benefit from a decrease in prevailing interest rates. These examples also show how a bond's coupon rate and, consequently, its market price are directly affected by national interest rates. To have a shot at attracting investors, newly issued bonds tend to have coupon rates that match or exceed the current national interest rate. Zero-Coupon Bond Details Zero-coupon bonds tend to be more volatile, as they do not pay any periodic interest during the life of the bond. Upon maturity, a zero-coupon bondholder receives the face value of the bond. Thus, the value of these debt securities increases the closer they get to expiring. Zero-coupon bonds have unique tax implications, too, that investors should understand before investing in them. Even though no periodic interest payment is made on a zero-coupon bond, the annual accumulated return is considered to be income, which is taxed as interest. The bond is assumed to gain value as it approaches maturity, and this gain in value is not viewed as capital gains, which would be taxed at the capital gains rate, but rather as income. In other words, taxes must be paid on these bonds annually, even though the investor does not receive any money until the bond maturity date. This may be burdensome for some investors; however, there are some ways to limit these tax consequences. Bond Prices and the Fed When people refer to "the national interest rate" or "the Fed," they're most often referring to the federal funds rate set by the Federal Open Market Committee (FOMC). This is the rate of interest charged on the interbank transfer of funds held by the Federal Reserve (Fed) and is widely used as a benchmark for interest rates on all kinds of investments and debt securities. Fed policy initiatives have a huge effect on the price and the yield of bonds. When the Fed increases the federal funds rate, the price of existing fixed-rate bonds decreases and the yields on new fixed-rate bonds increases. The opposite happens when interest rates go down: existing fixed-rate bond prices go up and new fixed-rate bond yields decline. The sensitivity of a bond's price to changes in interest rates is known as its duration. What Is the Relationship Between Bond Prices and Interest Rates? The relationship between bond prices and interest rates is an inverse one. When interest rates go up, bond prices go down. When interest rates go down, bond prices go up. Is It Better to Buy Bonds When Interest Rates Are High or Low? In general, it is better to buy bonds when interest rates are high if your objective is to maximize returns. When interest rates are high, the yield on a bond is higher, so your investment return will be higher compared to when rates are low. Do Bonds Go Down When Stocks Go Up? Typically, when stocks go up, bond prices drop. When stocks go up, it draws investors towards investment in stocks as opposed to bonds. As the demand for bonds decreases, so do their prices, in order to make them more attractive to investors. The Bottom Line Interest rates and bond prices have an inverse relationship. When interest rates go up, the prices of bonds go down, and when interest rates go down, the prices of bonds go up. This happens because when new bonds are issued with the higher paying rate (better yield for the investor), it makes existing bonds with the lower rate less attractive. To make these lower-rate bonds more attractive, the price is reduced to entice investors to purchase them. Correction—August 6, 2023: The correlation between the direction of the federal funds rate and the price and yield of bonds has been corrected to clarify that only new fixed-rate bond yields move, with existing yields holding steady.

https://www.investopedia.com/amc-stock-plunges-after-theater-chain-announces-stock-sale-to-raise-usd250-million-8621539

AMC Stock Plunges After Theater Chain Announces Stock Sale to Raise $250 Million

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>AMC Entertainment announced a stock sale to raise $250 million, and shares sank.</li><li>The theater chain operator said the money was needed in part to make up for a weaker first-quarter box office because of last year's strikes by Hollywood writers and actors.</li><li>Last year, AMC held two other stock sales and a reverse stock split in order to raise cash.</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"> AMC Entertainment (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMC">AMC</a>) shares tumbled over 14% in intraday trading Thursday as the theater chain operator announced another stock sale to generate cash. </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"> AMC wrote in a regulatory filing Thursday that it had entered into an equity distribution agreement with four financial institutions to sell shares of Class A common stock “from time to time” through an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/atthemarket.asp">at-the-market</a> offering, to raise a total of $250 million.<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"> AMC said the money was needed in part because last year’s strikes by Hollywood writers and actors negatively impacted first-quarter box office receipts.   </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The company noted the funds would be used to “bolster liquidity, to repay, refinance, redeem or repurchase its existing indebtedness (including expenses, accrued interest and premium, if any) and for general corporate purposes.” </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 November, shares sank when the company <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/amc-entertainment-shares-plunge-after-announcing-a-stock-sale-to-raise-cash-again-8400200">announced</a> it was putting as much as $350 million of its Class A shares up for sale. That came just two months after it sold 40 million shares, bringing in $325 million. A month prior to that, AMC initiated a 1-for-10 <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/reversesplit.asp">reverse stock split</a> to raise capital. </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"> AMC shares sank more than 14% to $3.70 as of 11:45 a.m. ET. They hit an all-time low of $3.59 last month.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_15-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:68.8%;"> <img alt="AMC" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/EzHRhK30lyxPyVtYkCg9PAuwBQI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AMC_2024-03-28_11-45-39-a8595f5f2cfb4dcd910c29a83dd5a3d9.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/EzHRhK30lyxPyVtYkCg9PAuwBQI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AMC_2024-03-28_11-45-39-a8595f5f2cfb4dcd910c29a83dd5a3d9.png" data-srcset="https://www.investopedia.com/thmb/gkv1P1B98MbS5uu3HbDqXxLtFXQ=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AMC_2024-03-28_11-45-39-a8595f5f2cfb4dcd910c29a83dd5a3d9.png 750w" data-tracking-container="true" height="1098" id="mntl-sc-block-image_1-0" width="1595"/> <noscript> <img alt="AMC" class="img--noscript universal-image__image" height="1098" sizes="750px" src="https://www.investopedia.com/thmb/EzHRhK30lyxPyVtYkCg9PAuwBQI=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/AMC_2024-03-28_11-45-39-a8595f5f2cfb4dcd910c29a83dd5a3d9.png" srcset="https://www.investopedia.com/thmb/gkv1P1B98MbS5uu3HbDqXxLtFXQ=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/AMC_2024-03-28_11-45-39-a8595f5f2cfb4dcd910c29a83dd5a3d9.png 750w" width="1595"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>TradingView</p></span> </figcaption></figure></div>

### Key Takeaways * AMC Entertainment announced a stock sale to raise $250 million, and shares sank. * The theater chain operator said the money was needed in part to make up for a weaker first-quarter box office because of last year's strikes by Hollywood writers and actors. * Last year, AMC held two other stock sales and a reverse stock split in order to raise cash. AMC Entertainment ([AMC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMC)) shares tumbled over 14% in intraday trading Thursday as the theater chain operator announced another stock sale to generate cash. AMC wrote in a regulatory filing Thursday that it had entered into an equity distribution agreement with four financial institutions to sell shares of Class A common stock “from time to time” through an [at-the-market](https://www.investopedia.com/terms/a/atthemarket.asp) offering, to raise a total of $250 million. AMC said the money was needed in part because last year’s strikes by Hollywood writers and actors negatively impacted first-quarter box office receipts.   The company noted the funds would be used to “bolster liquidity, to repay, refinance, redeem or repurchase its existing indebtedness (including expenses, accrued interest and premium, if any) and for general corporate purposes.” In November, shares sank when the company [announced](https://www.investopedia.com/amc-entertainment-shares-plunge-after-announcing-a-stock-sale-to-raise-cash-again-8400200) it was putting as much as $350 million of its Class A shares up for sale. That came just two months after it sold 40 million shares, bringing in $325 million. A month prior to that, AMC initiated a 1-for-10 [reverse stock split](https://www.investopedia.com/terms/r/reversesplit.asp) to raise capital. AMC shares sank more than 14% to $3.70 as of 11:45 a.m. ET. They hit an all-time low of $3.59 last month. ![AMC]() :max_bytes(150000):strip_icc()/AMC_2024-03-28_11-45-39-a8595f5f2cfb4dcd910c29a83dd5a3d9.png) TradingView

Key Takeaways AMC Entertainment announced a stock sale to raise $250 million, and shares sank.The theater chain operator said the money was needed in part to make up for a weaker first-quarter box office because of last year's strikes by Hollywood writers and actors.Last year, AMC held two other stock sales and a reverse stock split in order to raise cash. AMC Entertainment (AMC) shares tumbled over 14% in intraday trading Thursday as the theater chain operator announced another stock sale to generate cash. AMC wrote in a regulatory filing Thursday that it had entered into an equity distribution agreement with four financial institutions to sell shares of Class A common stock “from time to time” through an at-the-market offering, to raise a total of $250 million. AMC said the money was needed in part because last year’s strikes by Hollywood writers and actors negatively impacted first-quarter box office receipts.   The company noted the funds would be used to “bolster liquidity, to repay, refinance, redeem or repurchase its existing indebtedness (including expenses, accrued interest and premium, if any) and for general corporate purposes.” In November, shares sank when the company announced it was putting as much as $350 million of its Class A shares up for sale. That came just two months after it sold 40 million shares, bringing in $325 million. A month prior to that, AMC initiated a 1-for-10 reverse stock split to raise capital. AMC shares sank more than 14% to $3.70 as of 11:45 a.m. ET. They hit an all-time low of $3.59 last month. TradingView

https://www.investopedia.com/cannot-have-roth-ira-5220339

Who Can’t Have a Roth IRA?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Not everyone can have a Roth IRA. If you earn too much or too little, you will not be able to contribute to this type of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ira.asp">individual retirement account (IRA)</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/rothira.asp">Roth IRAs</a> allow tax-free qualified withdrawals if certain conditions are met. Roth IRAs are similar to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/traditionalira.asp">traditional IRAs</a>; how they are taxed is the most striking distinction between the two. Roth IRAs are funded with <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aftertaxcontribution.asp">after-tax dollars</a>, which means the contributions are not tax-deductible.<span class="ql-inline-citation" data-cite="2"></span> But the money is tax-free when you start withdrawing funds. Conversely, traditional IRA deposits are most often made with <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pretaxcontribution.asp">pretax dollars</a>, so you usually get a tax deduction on your contribution, then pay <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/incometax.asp">income tax</a> when you withdraw the money during retirement.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> <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/">Roth IRAs are often better choice than traditional IRAs</a> for some retirement savers; however, Roth IRAs are not available for all savers. </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>Roth individual retirement accounts (Roth IRAs) are open to anyone who earns income in a given tax year, as long as they don’t earn too much or too little.</li><li>If your income is too high, you are barred from contributing to a Roth IRA.</li><li>Conversely, you can only contribute as much as you earn in a given year to your Roth IRA.</li><li>There is no age limit for opening a Roth IRA, and you can keep funding this account long after you retire.</li></ul></div></div></div> <span class="heading-toc" id="toc-income-limits-for-roth-iras"></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"> Income Limits for Roth IRAs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Anyone who has earned income can have a Roth IRA, as long as their income for a given <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxyear.asp">tax year</a> is neither too high nor too low.<span class="ql-inline-citation" data-cite="22"></span> If your annual income is above a certain amount, which the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/irs.asp">Internal Revenue Service (IRS)</a> adjusts periodically, then you become ineligible to contribute.<span class="ql-inline-citation" data-cite="24"></span><span class="ql-inline-citation" data-cite="23"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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 file taxes as a single person, your <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 (MAGI)</a> must be less than $129,000 for the tax year 2022 to contribute the full amount ($138,000 in 2023). Married couples filing jointly must earn less than $204,000 in 2022 ($218,000 in 2023).<span class="ql-inline-citation" data-cite="21"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Above these incomes, the amount that you can contribute to a Roth IRA begins to phase out. In 2022, individuals whose MAGI is $144,000 and above ($153,000 in 2023) and married couples filing jointly whose MAGI is $214,000 and above in 2022 ($228,000 in 2023) cannot contribute to a Roth IRA.<span class="ql-inline-citation" data-cite="21"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Conversely, you can never contribute more to your IRA than your earned income in that tax year. If you don’t earn anything in a tax year, you will be ineligible to contribute to your Roth IRA for that year. You can still hold the account, but you won’t be able to add to it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> It’s also worth paying attention to the definition of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/earnedincome.asp">earned income</a> that the IRS uses to determine eligibility for Roth IRAs. For individuals working for an employer, compensation that is eligible to fund a Roth IRA includes wages, salaries, commissions, bonuses, and other amounts paid to the individual for the services that they perform. It’s generally any amount shown in Box 1 of the individual’s <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/w/w2form.asp">Form W-2</a>.<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_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> For a self-employed person, or a partner or member of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/flow-through.asp">pass-through</a> business, compensation is the individual’s net earnings from their business, less any deduction allowed for contributions made to retirement plans on the individual’s behalf and further reduced by 50% of the individual’s <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/selfemploymenttax.asp">self-employment taxes</a>.<span class="ql-inline-citation" data-cite="17"></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_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Money related to divorce—alimony, child support, or in a settlement—also can be contributed if it is related to taxable alimony received from a divorce settlement executed prior to Dec. 31, 2018.<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"> What sort of funds aren’t eligible? The list includes:<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_25-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> <li>Rental income or other profits from property maintenance</li> <li>Stock dividends and capital gains   </li> <li>Interest income </li> <li>Pension or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/081815/can-variable-annuity-be-rolled-ira.asp">annuity income</a> <br/></li> <li>Passive income earned from a partnership for which you do not provide substantial services<br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> When using this definition of compensation, if your income either is above the Roth IRA limit or is zero for a tax year, then you won’t be able to contribute to a Roth IRA for that year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_30-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_31-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>If your earned income is above a limit set by the IRS, then you won’t be able to contribute to a Roth IRA for that tax year. And you can only contribute as much as you earn in a tax year. If you earn nothing, then you can’t contribute anything for that year.<span class="ql-inline-citation" data-cite="24"></span><span class="ql-inline-citation" data-cite="23"></span></p></div></div></div> <span class="heading-toc" id="toc-age-limits-on-roth-iras"></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"> Age Limits on Roth IRAs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Though Roth IRAs are often thought of as retirement accounts and are most often used in this way, there are no limits on who can contribute to them and when (as long as they meet the income requirements above). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> In other words, there is no age threshold or limit for making <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/081615/basics-roth-ira-contribution-rules.asp">Roth IRA contributions</a>. For example, a teenager with a summer job can establish and fund a Roth. (It might have to be a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/custodialaccount.asp">custodial account</a> if they’re underage.) On the opposite end of the spectrum, an employed person in their 70s can continue to contribute to a Roth IRA.<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_36-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> People of all ages can also contribute to traditional IRAs. In the past, participants in a traditional IRA could not make contributions after age 70½. But with the December 2019 passage of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-secure-act-how-affect-retirement-4692743">Setting Every Community Up for Retirement Enhancement (SECURE) Act</a>, there is no longer an age cutoff on traditional IRA contributions.<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_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Also, the fact that you participate in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/qrp.asp">qualified retirement plan</a> has no bearing on your eligibility to make Roth IRA contributions. So if you have the money and meet the income limitations, you can contribute to a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/401kplan.asp">401(k) plan</a> at work and then contribute to your own Roth IRA.<span class="ql-inline-citation" data-cite="20"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-can-everyone-contribute-to-a-roth-individual-retirement-account-roth-ira"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can Everyone Contribute to a Roth Individual Retirement Account (Roth IRA)?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Anyone who has an earned income can contribute to a Roth individual retirement account (Roth IRA), provided that they meet the income limits. This means that you can have a Roth IRA for anyone and everyone in your family who has earned income. In fact, there’s even an exception for your spouse. Under a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/spousal-ira.asp">spousal IRA</a>, a spouse who hasn’t earned taxable income can make a contribution of up to $6,000 (or $7,000 if age 50 or older) in 2022 as long as the other spouse did. In 2023, the amounts are $6,500 and $7,500, respectively.<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_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-retirees-contribute-to-a-roth-ira"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can Retirees Contribute to a Roth IRA?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Retirees can continue to contribute earned funds to a Roth IRA indefinitely. You cannot contribute an amount that exceeds your earnings, and you can only contribute up to the annual contribution limits set by the Internal Revenue Service (IRS). People with traditional IRAs must start taking <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/requiredminimumdistribution.asp">required minimum distributions</a> when they reach age 72, but there is no such requirement for Roth IRAs.<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_44-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_45-0"><span class="heading-toc" id="toc-can-you-open-a-roth-ira-at-any-age"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can You Open a Roth IRA at Any Age?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There is no age limit to open a Roth IRA, but there are income and contribution limits that investors should be aware of before funding one.<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_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"> Roth IRAs are open to anyone who earns income in a given tax year, as long as they don’t earn too much or too little. If your income is too high, you are barred from contributing to a Roth IRA, and you can only contribute as much as you earn in a given year to your Roth IRA.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_50-0"> Otherwise, the eligibility rules for Roth IRAs are broad. There is no age limit for opening a Roth IRA, and you can keep funding this account long after you retire. </p></div>

Not everyone can have a Roth IRA. If you earn too much or too little, you will not be able to contribute to this type of [individual retirement account (IRA)](https://www.investopedia.com/terms/i/ira.asp). [Roth IRAs](https://www.investopedia.com/terms/r/rothira.asp) allow tax-free qualified withdrawals if certain conditions are met. Roth IRAs are similar to [traditional IRAs](https://www.investopedia.com/terms/t/traditionalira.asp); how they are taxed is the most striking distinction between the two. Roth IRAs are funded with [after-tax dollars](https://www.investopedia.com/terms/a/aftertaxcontribution.asp), which means the contributions are not tax-deductible. But the money is tax-free when you start withdrawing funds. Conversely, traditional IRA deposits are most often made with [pretax dollars](https://www.investopedia.com/terms/p/pretaxcontribution.asp), so you usually get a tax deduction on your contribution, then pay [income tax](https://www.investopedia.com/terms/i/incometax.asp) when you withdraw the money during retirement. [Roth IRAs are often better choice than traditional IRAs](https://www.investopedia.com/retirement/roth-vs-traditional-ira-which-is-right-for-you/) for some retirement savers; however, Roth IRAs are not available for all savers. ### Key Takeaways * Roth individual retirement accounts (Roth IRAs) are open to anyone who earns income in a given tax year, as long as they don’t earn too much or too little. * If your income is too high, you are barred from contributing to a Roth IRA. * Conversely, you can only contribute as much as you earn in a given year to your Roth IRA. * There is no age limit for opening a Roth IRA, and you can keep funding this account long after you retire. ## Income Limits for Roth IRAs Anyone who has earned income can have a Roth IRA, as long as their income for a given [tax year](https://www.investopedia.com/terms/t/taxyear.asp) is neither too high nor too low. If your annual income is above a certain amount, which the [Internal Revenue Service (IRS)](https://www.investopedia.com/terms/i/irs.asp) adjusts periodically, then you become ineligible to contribute. If you file taxes as a single person, your [modified adjusted gross income (MAGI)](https://www.investopedia.com/terms/m/magi.asp) must be less than $129,000 for the tax year 2022 to contribute the full amount ($138,000 in 2023). Married couples filing jointly must earn less than $204,000 in 2022 ($218,000 in 2023). Above these incomes, the amount that you can contribute to a Roth IRA begins to phase out. In 2022, individuals whose MAGI is $144,000 and above ($153,000 in 2023) and married couples filing jointly whose MAGI is $214,000 and above in 2022 ($228,000 in 2023) cannot contribute to a Roth IRA. Conversely, you can never contribute more to your IRA than your earned income in that tax year. If you don’t earn anything in a tax year, you will be ineligible to contribute to your Roth IRA for that year. You can still hold the account, but you won’t be able to add to it. It’s also worth paying attention to the definition of [earned income](https://www.investopedia.com/terms/e/earnedincome.asp) that the IRS uses to determine eligibility for Roth IRAs. For individuals working for an employer, compensation that is eligible to fund a Roth IRA includes wages, salaries, commissions, bonuses, and other amounts paid to the individual for the services that they perform. It’s generally any amount shown in Box 1 of the individual’s [Form W-2](https://www.investopedia.com/terms/w/w2form.asp). For a self-employed person, or a partner or member of a [pass-through](https://www.investopedia.com/terms/f/flow-through.asp) business, compensation is the individual’s net earnings from their business, less any deduction allowed for contributions made to retirement plans on the individual’s behalf and further reduced by 50% of the individual’s [self-employment taxes](https://www.investopedia.com/terms/s/selfemploymenttax.asp). Money related to divorce—alimony, child support, or in a settlement—also can be contributed if it is related to taxable alimony received from a divorce settlement executed prior to Dec. 31, 2018. What sort of funds aren’t eligible? The list includes: * Rental income or other profits from property maintenance * Stock dividends and capital gains * Interest income * Pension or [annuity income](https://www.investopedia.com/ask/answers/081815/can-variable-annuity-be-rolled-ira.asp) * Passive income earned from a partnership for which you do not provide substantial services When using this definition of compensation, if your income either is above the Roth IRA limit or is zero for a tax year, then you won’t be able to contribute to a Roth IRA for that year. ### If your earned income is above a limit set by the IRS, then you won’t be able to contribute to a Roth IRA for that tax year. And you can only contribute as much as you earn in a tax year. If you earn nothing, then you can’t contribute anything for that year. ## Age Limits on Roth IRAs Though Roth IRAs are often thought of as retirement accounts and are most often used in this way, there are no limits on who can contribute to them and when (as long as they meet the income requirements above). In other words, there is no age threshold or limit for making [Roth IRA contributions](https://www.investopedia.com/articles/personal-finance/081615/basics-roth-ira-contribution-rules.asp). For example, a teenager with a summer job can establish and fund a Roth. (It might have to be a [custodial account](https://www.investopedia.com/terms/c/custodialaccount.asp) if they’re underage.) On the opposite end of the spectrum, an employed person in their 70s can continue to contribute to a Roth IRA. People of all ages can also contribute to traditional IRAs. In the past, participants in a traditional IRA could not make contributions after age 70½. But with the December 2019 passage of the [Setting Every Community Up for Retirement Enhancement (SECURE) Act](https://www.investopedia.com/what-is-secure-act-how-affect-retirement-4692743), there is no longer an age cutoff on traditional IRA contributions. Also, the fact that you participate in a [qualified retirement plan](https://www.investopedia.com/terms/q/qrp.asp) has no bearing on your eligibility to make Roth IRA contributions. So if you have the money and meet the income limitations, you can contribute to a [401(k) plan](https://www.investopedia.com/terms/1/401kplan.asp) at work and then contribute to your own Roth IRA. ## Can Everyone Contribute to a Roth Individual Retirement Account (Roth IRA)? Anyone who has an earned income can contribute to a Roth individual retirement account (Roth IRA), provided that they meet the income limits. This means that you can have a Roth IRA for anyone and everyone in your family who has earned income. In fact, there’s even an exception for your spouse. Under a [spousal IRA](https://www.investopedia.com/terms/s/spousal-ira.asp), a spouse who hasn’t earned taxable income can make a contribution of up to $6,000 (or $7,000 if age 50 or older) in 2022 as long as the other spouse did. In 2023, the amounts are $6,500 and $7,500, respectively. ## Can Retirees Contribute to a Roth IRA? Retirees can continue to contribute earned funds to a Roth IRA indefinitely. You cannot contribute an amount that exceeds your earnings, and you can only contribute up to the annual contribution limits set by the Internal Revenue Service (IRS). People with traditional IRAs must start taking [required minimum distributions](https://www.investopedia.com/terms/r/requiredminimumdistribution.asp) when they reach age 72, but there is no such requirement for Roth IRAs. ## Can You Open a Roth IRA at Any Age? There is no age limit to open a Roth IRA, but there are income and contribution limits that investors should be aware of before funding one. ## The Bottom Line Roth IRAs are open to anyone who earns income in a given tax year, as long as they don’t earn too much or too little. If your income is too high, you are barred from contributing to a Roth IRA, and you can only contribute as much as you earn in a given year to your Roth IRA. Otherwise, the eligibility rules for Roth IRAs are broad. There is no age limit for opening a Roth IRA, and you can keep funding this account long after you retire.

Not everyone can have a Roth IRA. If you earn too much or too little, you will not be able to contribute to this type of individual retirement account (IRA). Roth IRAs allow tax-free qualified withdrawals if certain conditions are met. Roth IRAs are similar to traditional IRAs; how they are taxed is the most striking distinction between the two. Roth IRAs are funded with after-tax dollars, which means the contributions are not tax-deductible. But the money is tax-free when you start withdrawing funds. Conversely, traditional IRA deposits are most often made with pretax dollars, so you usually get a tax deduction on your contribution, then pay income tax when you withdraw the money during retirement. Roth IRAs are often better choice than traditional IRAs for some retirement savers; however, Roth IRAs are not available for all savers. Key Takeaways Roth individual retirement accounts (Roth IRAs) are open to anyone who earns income in a given tax year, as long as they don’t earn too much or too little.If your income is too high, you are barred from contributing to a Roth IRA.Conversely, you can only contribute as much as you earn in a given year to your Roth IRA.There is no age limit for opening a Roth IRA, and you can keep funding this account long after you retire. Income Limits for Roth IRAs Anyone who has earned income can have a Roth IRA, as long as their income for a given tax year is neither too high nor too low. If your annual income is above a certain amount, which the Internal Revenue Service (IRS) adjusts periodically, then you become ineligible to contribute. If you file taxes as a single person, your modified adjusted gross income (MAGI) must be less than $129,000 for the tax year 2022 to contribute the full amount ($138,000 in 2023). Married couples filing jointly must earn less than $204,000 in 2022 ($218,000 in 2023). Above these incomes, the amount that you can contribute to a Roth IRA begins to phase out. In 2022, individuals whose MAGI is $144,000 and above ($153,000 in 2023) and married couples filing jointly whose MAGI is $214,000 and above in 2022 ($228,000 in 2023) cannot contribute to a Roth IRA. Conversely, you can never contribute more to your IRA than your earned income in that tax year. If you don’t earn anything in a tax year, you will be ineligible to contribute to your Roth IRA for that year. You can still hold the account, but you won’t be able to add to it. It’s also worth paying attention to the definition of earned income that the IRS uses to determine eligibility for Roth IRAs. For individuals working for an employer, compensation that is eligible to fund a Roth IRA includes wages, salaries, commissions, bonuses, and other amounts paid to the individual for the services that they perform. It’s generally any amount shown in Box 1 of the individual’s Form W-2. For a self-employed person, or a partner or member of a pass-through business, compensation is the individual’s net earnings from their business, less any deduction allowed for contributions made to retirement plans on the individual’s behalf and further reduced by 50% of the individual’s self-employment taxes. Money related to divorce—alimony, child support, or in a settlement—also can be contributed if it is related to taxable alimony received from a divorce settlement executed prior to Dec. 31, 2018. What sort of funds aren’t eligible? The list includes: Rental income or other profits from property maintenance Stock dividends and capital gains    Interest income  Pension or annuity income  Passive income earned from a partnership for which you do not provide substantial services When using this definition of compensation, if your income either is above the Roth IRA limit or is zero for a tax year, then you won’t be able to contribute to a Roth IRA for that year. If your earned income is above a limit set by the IRS, then you won’t be able to contribute to a Roth IRA for that tax year. And you can only contribute as much as you earn in a tax year. If you earn nothing, then you can’t contribute anything for that year. Age Limits on Roth IRAs Though Roth IRAs are often thought of as retirement accounts and are most often used in this way, there are no limits on who can contribute to them and when (as long as they meet the income requirements above). In other words, there is no age threshold or limit for making Roth IRA contributions. For example, a teenager with a summer job can establish and fund a Roth. (It might have to be a custodial account if they’re underage.) On the opposite end of the spectrum, an employed person in their 70s can continue to contribute to a Roth IRA. People of all ages can also contribute to traditional IRAs. In the past, participants in a traditional IRA could not make contributions after age 70½. But with the December 2019 passage of the Setting Every Community Up for Retirement Enhancement (SECURE) Act, there is no longer an age cutoff on traditional IRA contributions. Also, the fact that you participate in a qualified retirement plan has no bearing on your eligibility to make Roth IRA contributions. So if you have the money and meet the income limitations, you can contribute to a 401(k) plan at work and then contribute to your own Roth IRA. Can Everyone Contribute to a Roth Individual Retirement Account (Roth IRA)? Anyone who has an earned income can contribute to a Roth individual retirement account (Roth IRA), provided that they meet the income limits. This means that you can have a Roth IRA for anyone and everyone in your family who has earned income. In fact, there’s even an exception for your spouse. Under a spousal IRA, a spouse who hasn’t earned taxable income can make a contribution of up to $6,000 (or $7,000 if age 50 or older) in 2022 as long as the other spouse did. In 2023, the amounts are $6,500 and $7,500, respectively. Can Retirees Contribute to a Roth IRA? Retirees can continue to contribute earned funds to a Roth IRA indefinitely. You cannot contribute an amount that exceeds your earnings, and you can only contribute up to the annual contribution limits set by the Internal Revenue Service (IRS). People with traditional IRAs must start taking required minimum distributions when they reach age 72, but there is no such requirement for Roth IRAs. Can You Open a Roth IRA at Any Age? There is no age limit to open a Roth IRA, but there are income and contribution limits that investors should be aware of before funding one. The Bottom Line Roth IRAs are open to anyone who earns income in a given tax year, as long as they don’t earn too much or too little. If your income is too high, you are barred from contributing to a Roth IRA, and you can only contribute as much as you earn in a given year to your Roth IRA. Otherwise, the eligibility rules for Roth IRAs are broad. There is no age limit for opening a Roth IRA, and you can keep funding this account long after you retire.

https://www.investopedia.com/property-and-casualty-insurer-travelers-tumbles-after-its-earnings-report-here-is-why-8634905

Property and Casualty Insurer Travelers Tumbles After Its Earnings Report—Here's Why

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>The Travelers Companies posted lower-than-expected profit as its catastrophe losses soared.</li><li>The property and casualty insurer had $712 million in catastrophe claims payouts in the quarter, a 33.1% increase from a year earlier.</li><li>The company also announced a 5% increase in its quarterly dividend.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> The Travelers Companies (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TRV">TRV</a>) shares plunged over 7% Wednesday after the property and casualty insurer posted weaker-than-expected results as it paid more to cover losses from major weather disasters. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The company reported first-quarter <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/eps.asp">earnings per share (EPS)</a> of $4.80 and core earnings per share of $4.69, both short of estimates. Revenue increased 15.7% from a year ago to $11.23 billion, higher than forecasts. However net premiums written, while up 8.4% to $10.18 billion, were lower than anticipated.<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"> Catastrophe losses jumped 33.1% to $712 million, which the company said “resulted from severe wind and hail storms in the central and eastern regions of the United States.”<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"> CEO Alan Schnitzer said that even with the hit it took from paying catastrophe claims, the company’s <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/combinedratio.asp">combined ratio</a> improved 1.5 percentage points to 93.9%, though that missed estimates as well.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Along with the financial report, the company announced an increase in its quarterly <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp">dividend</a> to $1.05 from $1.00, payable on June 28 to shareholders of record on June 10.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Shares of Travelers closed 7.4% lower at $206.67 Wednesday, though even with Wednesday's losses, they remained in positive territory for 2024.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_15-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:65.1%;"> <img alt="TRV" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/5yWUx2jzpzaSg6m_-OzhjQyvEp8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TRV_2024-04-17_16-01-45-de628c653136407f850ceea844c7a774.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/5yWUx2jzpzaSg6m_-OzhjQyvEp8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TRV_2024-04-17_16-01-45-de628c653136407f850ceea844c7a774.png" data-srcset="https://www.investopedia.com/thmb/XdLBRedqoic91Zxhi5_RZ6N5Ez4=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/TRV_2024-04-17_16-01-45-de628c653136407f850ceea844c7a774.png 750w" data-tracking-container="true" height="1015" id="mntl-sc-block-image_1-0" width="1558"/> <noscript> <img alt="TRV" class="img--noscript universal-image__image" height="1015" sizes="750px" src="https://www.investopedia.com/thmb/5yWUx2jzpzaSg6m_-OzhjQyvEp8=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/TRV_2024-04-17_16-01-45-de628c653136407f850ceea844c7a774.png" srcset="https://www.investopedia.com/thmb/XdLBRedqoic91Zxhi5_RZ6N5Ez4=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/TRV_2024-04-17_16-01-45-de628c653136407f850ceea844c7a774.png 750w" width="1558"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-owner"><p>TradingView</p></span> </figcaption></figure> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[email protected]" id="news-tip__email_1-0" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">[email protected]</span></a></div></div>

### Key Takeaways * The Travelers Companies posted lower-than-expected profit as its catastrophe losses soared. * The property and casualty insurer had $712 million in catastrophe claims payouts in the quarter, a 33.1% increase from a year earlier. * The company also announced a 5% increase in its quarterly dividend. The Travelers Companies ([TRV](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TRV)) shares plunged over 7% Wednesday after the property and casualty insurer posted weaker-than-expected results as it paid more to cover losses from major weather disasters. The company reported first-quarter [earnings per share (EPS)](https://www.investopedia.com/terms/e/eps.asp) of $4.80 and core earnings per share of $4.69, both short of estimates. Revenue increased 15.7% from a year ago to $11.23 billion, higher than forecasts. However net premiums written, while up 8.4% to $10.18 billion, were lower than anticipated. Catastrophe losses jumped 33.1% to $712 million, which the company said “resulted from severe wind and hail storms in the central and eastern regions of the United States.” CEO Alan Schnitzer said that even with the hit it took from paying catastrophe claims, the company’s [combined ratio](https://www.investopedia.com/terms/c/combinedratio.asp) improved 1.5 percentage points to 93.9%, though that missed estimates as well.  Along with the financial report, the company announced an increase in its quarterly [dividend](https://www.investopedia.com/terms/d/dividend.asp) to $1.05 from $1.00, payable on June 28 to shareholders of record on June 10.  Shares of Travelers closed 7.4% lower at $206.67 Wednesday, though even with Wednesday's losses, they remained in positive territory for 2024. ![TRV]() :max_bytes(150000):strip_icc()/TRV_2024-04-17_16-01-45-de628c653136407f850ceea844c7a774.png) TradingView Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways The Travelers Companies posted lower-than-expected profit as its catastrophe losses soared.The property and casualty insurer had $712 million in catastrophe claims payouts in the quarter, a 33.1% increase from a year earlier.The company also announced a 5% increase in its quarterly dividend. The Travelers Companies (TRV) shares plunged over 7% Wednesday after the property and casualty insurer posted weaker-than-expected results as it paid more to cover losses from major weather disasters. The company reported first-quarter earnings per share (EPS) of $4.80 and core earnings per share of $4.69, both short of estimates. Revenue increased 15.7% from a year ago to $11.23 billion, higher than forecasts. However net premiums written, while up 8.4% to $10.18 billion, were lower than anticipated. Catastrophe losses jumped 33.1% to $712 million, which the company said “resulted from severe wind and hail storms in the central and eastern regions of the United States.” CEO Alan Schnitzer said that even with the hit it took from paying catastrophe claims, the company’s combined ratio improved 1.5 percentage points to 93.9%, though that missed estimates as well.  Along with the financial report, the company announced an increase in its quarterly dividend to $1.05 from $1.00, payable on June 28 to shareholders of record on June 10.  Shares of Travelers closed 7.4% lower at $206.67 Wednesday, though even with Wednesday's losses, they remained in positive territory for 2024. TradingView Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/ask/answers/what-is-finance/

Types of Finance and Financial Services

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Finance is a broad term that describes activities associated with banking, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/leverage.asp">leverage</a> or debt, credit, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalmarkets.asp">capital markets</a>, money, and investments. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Essentially, finance represents <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/moneymanagement.asp">money management</a> and the process of acquiring needed funds. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/finance.asp">Finance</a> also encompasses the oversight, creation, and study of money, banking, credit, investments, assets, and liabilities that make up financial 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_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Many of the basic concepts in finance originate from <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/microeconomics.asp">microeconomic</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/macroeconomics.asp">macroeconomic</a> theories.<span class="ql-inline-citation" data-cite="5"></span> One of the most fundamental theories is the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/timevalueofmoney.asp">time value of money</a>, which states that a dollar today is worth more than a dollar in the future.<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_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>Finance encompasses banking, leverage or debt, credit, capital markets, money, investments, and the creation and oversight of financial systems.</li><li>Basic financial concepts are based on microeconomic and macroeconomic theories. </li><li>The finance field includes three main subcategories: personal finance, corporate finance, and public (government) finance.</li><li>Consumers and businesses use financial services to acquire financial goods and achieve financial goals. </li><li>The financial services sector is a primary driver of a nation’s economy.</li></ul></div></div></div> <span class="heading-toc" id="toc-types-of-finance"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> Types of Finance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Individuals, businesses, and government entities all need funding to operate. Therefore, the finance field includes three main subcategories: </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>Personal finance</li><li>Corporate finance</li><li>Public (government) finance</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"> 1. Personal Finance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/personalfinance.asp">Personal finance</a> is specific to an individual’s situation and activity. Therefore, related financial strategies depend largely on a person’s earnings, living requirements, goals, and desires. <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/your-annual-financial-planning-check-list.asp">Financial planning</a> involves analyzing the current financial position of individuals to formulate strategies for future needs within financial constraints. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> For example, individuals must save for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/retirement-planning.asp">retirement</a>. That requires saving or investing enough money during their working lives to fund their long-term plans. This type of financial management decision falls under personal finance. </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"> Personal finance covers a range of activities, including using or purchasing financial products such as credit cards, insurance, mortgages, and various types of investments. </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"> Banking is also considered a component of personal finance because individuals use checking and savings accounts as well as online or mobile payment services such as PayPal and Venmo. </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"> 2. Corporate Finance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/corporatefinance.asp">Corporate finance</a> refers to the financial activities related to running a corporation. A division or department usually is set up to oversee those financial activities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> For example, a large company may have to decide whether to raise additional funds through a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond.asp">bond</a> issue or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stock.asp">stock</a> offering. Investment banks may advise the firm on such considerations and help it market the securities. </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"> Startups may receive <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capital.asp">capital</a> from angel investors or venture capitalists in exchange for a percentage of ownership. If a company thrives and decides to go public, it will issue shares on a stock exchange through 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 (IPO)</a> to raise cash. In other cases, to budget its capital properly and effectively, a company with growth goals may need to decide which projects to finance and which to put on hold. </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"> All of these types of decisions fall under corporate finance. </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"> 3. Public Finance </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> Public finance includes taxing, spending, budgeting, and debt-issuance policies that affect how a government pays for the services it provides to the public. It is a part of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fiscalpolicy.asp">fiscal policy</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> The federal and state governments help prevent market failure by overseeing the allocation of resources, the distribution of income, and economic stability. Regular funding is secured mostly through <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxation.asp">taxation</a>. Borrowing from banks, insurance companies, and other nations also helps finance government spending. </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 addition to managing money in day-to-day operations, a government body also has social and fiscal responsibilities. A government is expected to ensure adequate social programs for its taxpaying citizens. It must maintain a stable economy so that people can save and be assured that their money will be safe. </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>Financial services are not the same as financial goods. Financial goods are products, such as mortgages, stocks, bonds, and insurance policies. Financial services are services offered by financial entities. The investment advice and management a financial advisor provides for a client is one example of financial services.<span class="ql-inline-citation" data-cite="2"></span></p></div></div></div> <span class="heading-toc" id="toc-financial-services"></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"> Financial Services </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Financial services are the services that allow consumers and businesses to acquire financial goods. One straightforward example is the financial service offered by a payment system provider when it accepts and transfers funds between payers and recipients. This includes accounts settled via checks, credit and debit cards, and electronic funds transfers.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/030315/what-financial-services-sector.asp">financial services sector</a> is one of the most important segments of the economy. It helps drive a nation’s economy, providing the free flow of capital and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp">liquidity</a> in the marketplace.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> The financial services sector is made up of a variety of financial firms, including banks, investment houses, finance companies, insurance companies, lenders, accounting services, and real estate brokers.<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"> When this sector and a country’s economy are strong, consumer confidence and purchasing power rise. When the financial services sector fails, it can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/news/10-years-later-lessons-financial-crisis/">drag down the economy and lead to a recession</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <span class="heading-toc" id="toc-what-are-financial-activities"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_50-0"> <span class="mntl-sc-block-heading__text"> What Are Financial Activities? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Financial activities are the initiatives and transactions that businesses, governments, and individuals undertake as they seek to further their economic goals. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> They are activities that involve the inflow or outflow of money. Examples include buying and selling products (or assets), issuing stocks, initiating loans, and maintaining accounts. </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"> When a company sells shares and makes debt repayments, it is engaging in financial activities. Similarly, individuals and governments are involved in financial activities when they take out loans and levy taxes, which further specific monetary objectives. </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-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_57-0"><span class="heading-toc" id="toc-what-is-finance"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Finance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The term "finance" refers to financial activities that support the lives of individuals, businesses, and governments. Some of those activities include banking, borrowing, saving, and investing. Finance also refers to the study of money and financial tools that are part of a country's financial system.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_59-0"><span class="heading-toc" id="toc-is-the-financial-services-industry-important"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is the Financial Services Industry Important?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes. Companies that offer financial services have always been important because they help facilitate for individuals and businesses transactions that involve money. The financial services industry is also important for its role in the health of a country's economy. According to EIU research, the financial services industry represents around 20% of the global economy.<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_60-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_61-0"><span class="heading-toc" id="toc-what-is-personal-finance"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is Personal Finance?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Personal finance involves planning, implementing, and managing financial activities that impact individuals. These activities can include earning an income, spending money, saving and investing, and borrowing.</p></div> </div></div>

Finance is a broad term that describes activities associated with banking, [leverage](https://www.investopedia.com/terms/l/leverage.asp) or debt, credit, [capital markets](https://www.investopedia.com/terms/c/capitalmarkets.asp), money, and investments. Essentially, finance represents [money management](https://www.investopedia.com/terms/m/moneymanagement.asp) and the process of acquiring needed funds. [Finance](https://www.investopedia.com/terms/f/finance.asp) also encompasses the oversight, creation, and study of money, banking, credit, investments, assets, and liabilities that make up financial systems. Many of the basic concepts in finance originate from [microeconomic](https://www.investopedia.com/terms/m/microeconomics.asp) and [macroeconomic](https://www.investopedia.com/terms/m/macroeconomics.asp) theories. One of the most fundamental theories is the [time value of money](https://www.investopedia.com/terms/t/timevalueofmoney.asp), which states that a dollar today is worth more than a dollar in the future. ### Key Takeaways * Finance encompasses banking, leverage or debt, credit, capital markets, money, investments, and the creation and oversight of financial systems. * Basic financial concepts are based on microeconomic and macroeconomic theories. * The finance field includes three main subcategories: personal finance, corporate finance, and public (government) finance. * Consumers and businesses use financial services to acquire financial goods and achieve financial goals. * The financial services sector is a primary driver of a nation’s economy. ## Types of Finance Individuals, businesses, and government entities all need funding to operate. Therefore, the finance field includes three main subcategories: * Personal finance * Corporate finance * Public (government) finance ### 1. Personal Finance [Personal finance](https://www.investopedia.com/terms/p/personalfinance.asp) is specific to an individual’s situation and activity. Therefore, related financial strategies depend largely on a person’s earnings, living requirements, goals, and desires. [Financial planning](https://www.investopedia.com/articles/personal-finance/your-annual-financial-planning-check-list.asp) involves analyzing the current financial position of individuals to formulate strategies for future needs within financial constraints. For example, individuals must save for [retirement](https://www.investopedia.com/terms/r/retirement-planning.asp). That requires saving or investing enough money during their working lives to fund their long-term plans. This type of financial management decision falls under personal finance. Personal finance covers a range of activities, including using or purchasing financial products such as credit cards, insurance, mortgages, and various types of investments. Banking is also considered a component of personal finance because individuals use checking and savings accounts as well as online or mobile payment services such as PayPal and Venmo. ### 2. Corporate Finance [Corporate finance](https://www.investopedia.com/terms/c/corporatefinance.asp) refers to the financial activities related to running a corporation. A division or department usually is set up to oversee those financial activities. For example, a large company may have to decide whether to raise additional funds through a [bond](https://www.investopedia.com/terms/b/bond.asp) issue or [stock](https://www.investopedia.com/terms/s/stock.asp) offering. Investment banks may advise the firm on such considerations and help it market the securities. Startups may receive [capital](https://www.investopedia.com/terms/c/capital.asp) from angel investors or venture capitalists in exchange for a percentage of ownership. If a company thrives and decides to go public, it will issue shares on a stock exchange through an [initial public offering (IPO)](https://www.investopedia.com/terms/i/ipo.asp) to raise cash. In other cases, to budget its capital properly and effectively, a company with growth goals may need to decide which projects to finance and which to put on hold. All of these types of decisions fall under corporate finance. ### 3. Public Finance Public finance includes taxing, spending, budgeting, and debt-issuance policies that affect how a government pays for the services it provides to the public. It is a part of [fiscal policy](https://www.investopedia.com/terms/f/fiscalpolicy.asp). The federal and state governments help prevent market failure by overseeing the allocation of resources, the distribution of income, and economic stability. Regular funding is secured mostly through [taxation](https://www.investopedia.com/terms/t/taxation.asp). Borrowing from banks, insurance companies, and other nations also helps finance government spending. In addition to managing money in day-to-day operations, a government body also has social and fiscal responsibilities. A government is expected to ensure adequate social programs for its taxpaying citizens. It must maintain a stable economy so that people can save and be assured that their money will be safe. ### Financial services are not the same as financial goods. Financial goods are products, such as mortgages, stocks, bonds, and insurance policies. Financial services are services offered by financial entities. The investment advice and management a financial advisor provides for a client is one example of financial services. ## Financial Services Financial services are the services that allow consumers and businesses to acquire financial goods. One straightforward example is the financial service offered by a payment system provider when it accepts and transfers funds between payers and recipients. This includes accounts settled via checks, credit and debit cards, and electronic funds transfers. The [financial services sector](https://www.investopedia.com/ask/answers/030315/what-financial-services-sector.asp) is one of the most important segments of the economy. It helps drive a nation’s economy, providing the free flow of capital and [liquidity](https://www.investopedia.com/terms/l/liquidity.asp) in the marketplace. The financial services sector is made up of a variety of financial firms, including banks, investment houses, finance companies, insurance companies, lenders, accounting services, and real estate brokers. When this sector and a country’s economy are strong, consumer confidence and purchasing power rise. When the financial services sector fails, it can [drag down the economy and lead to a recession](https://www.investopedia.com/news/10-years-later-lessons-financial-crisis/). ## What Are Financial Activities? Financial activities are the initiatives and transactions that businesses, governments, and individuals undertake as they seek to further their economic goals. They are activities that involve the inflow or outflow of money. Examples include buying and selling products (or assets), issuing stocks, initiating loans, and maintaining accounts. When a company sells shares and makes debt repayments, it is engaging in financial activities. Similarly, individuals and governments are involved in financial activities when they take out loans and levy taxes, which further specific monetary objectives. ## What Is Finance? The term "finance" refers to financial activities that support the lives of individuals, businesses, and governments. Some of those activities include banking, borrowing, saving, and investing. Finance also refers to the study of money and financial tools that are part of a country's financial system. ## Is the Financial Services Industry Important? Yes. Companies that offer financial services have always been important because they help facilitate for individuals and businesses transactions that involve money. The financial services industry is also important for its role in the health of a country's economy. According to EIU research, the financial services industry represents around 20% of the global economy. ## What Is Personal Finance? Personal finance involves planning, implementing, and managing financial activities that impact individuals. These activities can include earning an income, spending money, saving and investing, and borrowing.

Finance is a broad term that describes activities associated with banking, leverage or debt, credit, capital markets, money, and investments. Essentially, finance represents money management and the process of acquiring needed funds. Finance also encompasses the oversight, creation, and study of money, banking, credit, investments, assets, and liabilities that make up financial systems. Many of the basic concepts in finance originate from microeconomic and macroeconomic theories. One of the most fundamental theories is the time value of money, which states that a dollar today is worth more than a dollar in the future. Key Takeaways Finance encompasses banking, leverage or debt, credit, capital markets, money, investments, and the creation and oversight of financial systems.Basic financial concepts are based on microeconomic and macroeconomic theories. The finance field includes three main subcategories: personal finance, corporate finance, and public (government) finance.Consumers and businesses use financial services to acquire financial goods and achieve financial goals. The financial services sector is a primary driver of a nation’s economy. Types of Finance Individuals, businesses, and government entities all need funding to operate. Therefore, the finance field includes three main subcategories: Personal financeCorporate financePublic (government) finance 1. Personal Finance Personal finance is specific to an individual’s situation and activity. Therefore, related financial strategies depend largely on a person’s earnings, living requirements, goals, and desires. Financial planning involves analyzing the current financial position of individuals to formulate strategies for future needs within financial constraints. For example, individuals must save for retirement. That requires saving or investing enough money during their working lives to fund their long-term plans. This type of financial management decision falls under personal finance. Personal finance covers a range of activities, including using or purchasing financial products such as credit cards, insurance, mortgages, and various types of investments. Banking is also considered a component of personal finance because individuals use checking and savings accounts as well as online or mobile payment services such as PayPal and Venmo. 2. Corporate Finance Corporate finance refers to the financial activities related to running a corporation. A division or department usually is set up to oversee those financial activities. For example, a large company may have to decide whether to raise additional funds through a bond issue or stock offering. Investment banks may advise the firm on such considerations and help it market the securities. Startups may receive capital from angel investors or venture capitalists in exchange for a percentage of ownership. If a company thrives and decides to go public, it will issue shares on a stock exchange through an initial public offering (IPO) to raise cash. In other cases, to budget its capital properly and effectively, a company with growth goals may need to decide which projects to finance and which to put on hold. All of these types of decisions fall under corporate finance. 3. Public Finance Public finance includes taxing, spending, budgeting, and debt-issuance policies that affect how a government pays for the services it provides to the public. It is a part of fiscal policy. The federal and state governments help prevent market failure by overseeing the allocation of resources, the distribution of income, and economic stability. Regular funding is secured mostly through taxation. Borrowing from banks, insurance companies, and other nations also helps finance government spending. In addition to managing money in day-to-day operations, a government body also has social and fiscal responsibilities. A government is expected to ensure adequate social programs for its taxpaying citizens. It must maintain a stable economy so that people can save and be assured that their money will be safe. Financial services are not the same as financial goods. Financial goods are products, such as mortgages, stocks, bonds, and insurance policies. Financial services are services offered by financial entities. The investment advice and management a financial advisor provides for a client is one example of financial services. Financial Services Financial services are the services that allow consumers and businesses to acquire financial goods. One straightforward example is the financial service offered by a payment system provider when it accepts and transfers funds between payers and recipients. This includes accounts settled via checks, credit and debit cards, and electronic funds transfers. The financial services sector is one of the most important segments of the economy. It helps drive a nation’s economy, providing the free flow of capital and liquidity in the marketplace. The financial services sector is made up of a variety of financial firms, including banks, investment houses, finance companies, insurance companies, lenders, accounting services, and real estate brokers. When this sector and a country’s economy are strong, consumer confidence and purchasing power rise. When the financial services sector fails, it can drag down the economy and lead to a recession. What Are Financial Activities? Financial activities are the initiatives and transactions that businesses, governments, and individuals undertake as they seek to further their economic goals. They are activities that involve the inflow or outflow of money. Examples include buying and selling products (or assets), issuing stocks, initiating loans, and maintaining accounts. When a company sells shares and makes debt repayments, it is engaging in financial activities. Similarly, individuals and governments are involved in financial activities when they take out loans and levy taxes, which further specific monetary objectives. What Is Finance? The term "finance" refers to financial activities that support the lives of individuals, businesses, and governments. Some of those activities include banking, borrowing, saving, and investing. Finance also refers to the study of money and financial tools that are part of a country's financial system. Is the Financial Services Industry Important? Yes. Companies that offer financial services have always been important because they help facilitate for individuals and businesses transactions that involve money. The financial services industry is also important for its role in the health of a country's economy. According to EIU research, the financial services industry represents around 20% of the global economy. What Is Personal Finance? Personal finance involves planning, implementing, and managing financial activities that impact individuals. These activities can include earning an income, spending money, saving and investing, and borrowing.

https://www.investopedia.com/why-ftx-plan-to-refund-90-percent-of-recovered-assets-doesnt-add-up-to-90-percent-of-what-customers-lost-8362556

Why FTX's Plan To Refund 90% of Recovered Assets Doesn't Add Up To 90% of Customer Losses

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>Failed crypto exchange FTX proposed a plan this week to refund up to 90% of distributable assets to customers.</li><li>Distributable assets are funds FTX has been able to recover, not the actual amount of funds lost by customers.</li><li>Actual recovery for customers could be lower, according to some FTX creditors.</li><li>Those who withdrew more than $250,000 from FTX in the days prior to its collapse will be able to pay a 15% fee on those funds to avoid potential clawback.</li><li>Refunds to be made in dollars instead of crypto will be the biggest opportunity cost for FTX customers, as crypto value has somewhat rebounded in recent weeks.</li><li>FTX is expected to file the proposal in a U.S. bankruptcy court by Dec. 16 and can execute it once approved by the court.</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"> Failed crypto exchange FTX has announced an updated plan for sending 90% of distributable funds—money it has recovered—to former customers in its bankruptcy proceedings, but that doesn't necessarily mean they will get back 90% of the money they lost.<span class="ql-inline-citation" data-cite="1"></span> FTX is expected to file the proposal in a U.S. bankruptcy court by Dec. 16. </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-money-recovered-not-equal-to-money-owed"></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"> Money Recovered Not Equal to Money Owed </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> As the criminal trial of FTX founder and former Chief Executive Officer (CEO) <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/who-is-sam-bankman-fried-6830274">Sam Bankman-Fried </a>continues, a new plan has been put forward for former customers of the crypto exchange to get some of their money back in 2024. Under the plan offered by FTX's new management, which is headed by CEO and bankruptcy expert John J. Ray III, FTX customers will see 90% of every dollar of recovered assets. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> To be clear, the 90% number refers to the funds FTX is able to gain access to, rather than total customer <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/deposit.asp">deposits</a> at the time of the exchange's collapse. This doesn't necessarily mean customers will gain access to 90% of their assets that were left on the exchange. Rather, customers will gain access to 90% of the funds FTX is able to distribute to their creditors. </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"> FTX and FTX US had an estimated $8.7 billion combined shortfall at the time the crypto firm filed for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bankruptcy.asp">bankruptcy</a>. Roughly $6.9 billion of that shortfall, including a Bahamas real-estate portfolio, had been <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ftx-debtors-have-recovered-usd7-billion-of-usd8-7-billion-owed-7553433">recovered</a> as of September. </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-clawback-from-those-who-withdrew-before-ftx-failed"></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"> Clawback From Those Who Withdrew Before FTX Failed </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> The current FTX management continues to seek access to more funds for their creditors via methods such as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/clawback.asp">clawbacks</a> of customer money. For example, those who withdrew more than $250,000 from FTX in the nine days prior to the exchange's collapse will be able to pay a 15% fee on those funds to avoid potential clawback attempts. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> According to Ikigai Asset Management founder and FTX creditor Travis Kling, this part of the amended plan implies an expected 85% or more recovery for 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_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> "Together, starting in the most challenging financial disaster I have seen, the debtors and their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditor.asp">creditors</a> have created enormous value from a situation that easily could have been a near-total loss for customers," Ray said.<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-opportunity-cost-the-biggest-loss-no-ones-talking-about"></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"> Opportunity Cost: The Biggest Loss No One's Talking About </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> According to court filings, 'Petition Date Value' is defined as the "value of any Claim set forth in U.S. Dollars as of the Petition Date," with the petition date being Nov. 11, 2022.<span class="ql-inline-citation" data-cite="7"></span><span class="ql-inline-citation" data-cite="6"></span> That means you'd be eligible for a dollar amount, not your lost cryptocurrency, based on prices from last November. </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"> Let's consider <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin.asp">bitcoin</a>, the largest cryptocurrency by market capitalization, as a proxy for the broader cryptocurrency markets. On Nov. 11 of last year, the petition date, bitcoin was trading around $17,000. On Friday, it crossed $30,000.<span class="ql-inline-citation" data-cite="8"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> So simply put, if the current plan goes through, you'd likely get 85% of the dollar value of your cryptocurrency held on FTX as of last November, even if the same coins have almost doubled in value today. </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-this-plans-not-final-yet"></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"> This Plan's Not Final Yet </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> There is still room for negotiation about the terms of this proposal between FTX and its creditors prior to the December court filing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> "It depends on how things go behind the scenes between FTX debtors, the Committee of Unsecured Creditors (UCC), and the Ad Hoc Committee over the next two months," Kling told Investopedia when reached for comment on the chances of approval for the plan. </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 a U.S. bankruptcy court approves the proposal, the amended plan could be confirmed in the second quarter of 2024.<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 * Failed crypto exchange FTX proposed a plan this week to refund up to 90% of distributable assets to customers. * Distributable assets are funds FTX has been able to recover, not the actual amount of funds lost by customers. * Actual recovery for customers could be lower, according to some FTX creditors. * Those who withdrew more than $250,000 from FTX in the days prior to its collapse will be able to pay a 15% fee on those funds to avoid potential clawback. * Refunds to be made in dollars instead of crypto will be the biggest opportunity cost for FTX customers, as crypto value has somewhat rebounded in recent weeks. * FTX is expected to file the proposal in a U.S. bankruptcy court by Dec. 16 and can execute it once approved by the court. Failed crypto exchange FTX has announced an updated plan for sending 90% of distributable funds—money it has recovered—to former customers in its bankruptcy proceedings, but that doesn't necessarily mean they will get back 90% of the money they lost. FTX is expected to file the proposal in a U.S. bankruptcy court by Dec. 16. ## Money Recovered Not Equal to Money Owed As the criminal trial of FTX founder and former Chief Executive Officer (CEO) [Sam Bankman-Fried](https://www.investopedia.com/who-is-sam-bankman-fried-6830274) continues, a new plan has been put forward for former customers of the crypto exchange to get some of their money back in 2024. Under the plan offered by FTX's new management, which is headed by CEO and bankruptcy expert John J. Ray III, FTX customers will see 90% of every dollar of recovered assets. To be clear, the 90% number refers to the funds FTX is able to gain access to, rather than total customer [deposits](https://www.investopedia.com/terms/d/deposit.asp) at the time of the exchange's collapse. This doesn't necessarily mean customers will gain access to 90% of their assets that were left on the exchange. Rather, customers will gain access to 90% of the funds FTX is able to distribute to their creditors. FTX and FTX US had an estimated $8.7 billion combined shortfall at the time the crypto firm filed for [bankruptcy](https://www.investopedia.com/terms/b/bankruptcy.asp). Roughly $6.9 billion of that shortfall, including a Bahamas real-estate portfolio, had been [recovered](https://www.investopedia.com/ftx-debtors-have-recovered-usd7-billion-of-usd8-7-billion-owed-7553433) as of September. ## Clawback From Those Who Withdrew Before FTX Failed The current FTX management continues to seek access to more funds for their creditors via methods such as [clawbacks](https://www.investopedia.com/terms/c/clawback.asp) of customer money. For example, those who withdrew more than $250,000 from FTX in the nine days prior to the exchange's collapse will be able to pay a 15% fee on those funds to avoid potential clawback attempts. According to Ikigai Asset Management founder and FTX creditor Travis Kling, this part of the amended plan implies an expected 85% or more recovery for customers. "Together, starting in the most challenging financial disaster I have seen, the debtors and their [creditors](https://www.investopedia.com/terms/c/creditor.asp) have created enormous value from a situation that easily could have been a near-total loss for customers," Ray said. ## Opportunity Cost: The Biggest Loss No One's Talking About According to court filings, 'Petition Date Value' is defined as the "value of any Claim set forth in U.S. Dollars as of the Petition Date," with the petition date being Nov. 11, 2022. That means you'd be eligible for a dollar amount, not your lost cryptocurrency, based on prices from last November. Let's consider [bitcoin](https://www.investopedia.com/terms/b/bitcoin.asp), the largest cryptocurrency by market capitalization, as a proxy for the broader cryptocurrency markets. On Nov. 11 of last year, the petition date, bitcoin was trading around $17,000. On Friday, it crossed $30,000. So simply put, if the current plan goes through, you'd likely get 85% of the dollar value of your cryptocurrency held on FTX as of last November, even if the same coins have almost doubled in value today. ## This Plan's Not Final Yet There is still room for negotiation about the terms of this proposal between FTX and its creditors prior to the December court filing. "It depends on how things go behind the scenes between FTX debtors, the Committee of Unsecured Creditors (UCC), and the Ad Hoc Committee over the next two months," Kling told Investopedia when reached for comment on the chances of approval for the plan. If a U.S. bankruptcy court approves the proposal, the amended plan could be confirmed in the second quarter of 2024. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Failed crypto exchange FTX proposed a plan this week to refund up to 90% of distributable assets to customers.Distributable assets are funds FTX has been able to recover, not the actual amount of funds lost by customers.Actual recovery for customers could be lower, according to some FTX creditors.Those who withdrew more than $250,000 from FTX in the days prior to its collapse will be able to pay a 15% fee on those funds to avoid potential clawback.Refunds to be made in dollars instead of crypto will be the biggest opportunity cost for FTX customers, as crypto value has somewhat rebounded in recent weeks.FTX is expected to file the proposal in a U.S. bankruptcy court by Dec. 16 and can execute it once approved by the court. Failed crypto exchange FTX has announced an updated plan for sending 90% of distributable funds—money it has recovered—to former customers in its bankruptcy proceedings, but that doesn't necessarily mean they will get back 90% of the money they lost. FTX is expected to file the proposal in a U.S. bankruptcy court by Dec. 16. Money Recovered Not Equal to Money Owed As the criminal trial of FTX founder and former Chief Executive Officer (CEO) Sam Bankman-Fried continues, a new plan has been put forward for former customers of the crypto exchange to get some of their money back in 2024. Under the plan offered by FTX's new management, which is headed by CEO and bankruptcy expert John J. Ray III, FTX customers will see 90% of every dollar of recovered assets. To be clear, the 90% number refers to the funds FTX is able to gain access to, rather than total customer deposits at the time of the exchange's collapse. This doesn't necessarily mean customers will gain access to 90% of their assets that were left on the exchange. Rather, customers will gain access to 90% of the funds FTX is able to distribute to their creditors. FTX and FTX US had an estimated $8.7 billion combined shortfall at the time the crypto firm filed for bankruptcy. Roughly $6.9 billion of that shortfall, including a Bahamas real-estate portfolio, had been recovered as of September. Clawback From Those Who Withdrew Before FTX Failed The current FTX management continues to seek access to more funds for their creditors via methods such as clawbacks of customer money. For example, those who withdrew more than $250,000 from FTX in the nine days prior to the exchange's collapse will be able to pay a 15% fee on those funds to avoid potential clawback attempts. According to Ikigai Asset Management founder and FTX creditor Travis Kling, this part of the amended plan implies an expected 85% or more recovery for customers. "Together, starting in the most challenging financial disaster I have seen, the debtors and their creditors have created enormous value from a situation that easily could have been a near-total loss for customers," Ray said. Opportunity Cost: The Biggest Loss No One's Talking About According to court filings, 'Petition Date Value' is defined as the "value of any Claim set forth in U.S. Dollars as of the Petition Date," with the petition date being Nov. 11, 2022. That means you'd be eligible for a dollar amount, not your lost cryptocurrency, based on prices from last November. Let's consider bitcoin, the largest cryptocurrency by market capitalization, as a proxy for the broader cryptocurrency markets. On Nov. 11 of last year, the petition date, bitcoin was trading around $17,000. On Friday, it crossed $30,000. So simply put, if the current plan goes through, you'd likely get 85% of the dollar value of your cryptocurrency held on FTX as of last November, even if the same coins have almost doubled in value today. This Plan's Not Final Yet There is still room for negotiation about the terms of this proposal between FTX and its creditors prior to the December court filing. "It depends on how things go behind the scenes between FTX debtors, the Committee of Unsecured Creditors (UCC), and the Ad Hoc Committee over the next two months," Kling told Investopedia when reached for comment on the chances of approval for the plan. If a U.S. bankruptcy court approves the proposal, the amended plan could be confirmed in the second quarter of 2024. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/best-personal-loans-with-no-credit-check-7101289

Best Personal Loans With No Credit Check for 2024

<div class="comp mntl-external-basic-sublayout-content sc-ad-container article-content list-sc" id="mntl-external-basic-sublayout-content_1-0"><div class="loc content-body"> <svg class="mntl-svg-resource is-hidden"> <defs> <symbol id="featured-partners__info-svg"><svg fill="none" height="13" width="12" xmlns="http://www.w3.org/2000/svg"><path d="M5.5 9h1V6h-1v3zM6 1.5c-2.76 0-5 2.24-5 5s2.24 5 5 5 5-2.24 5-5-2.24-5-5-5zm0 9c-2.205 0-4-1.795-4-4s1.795-4 4-4 4 1.795 4 4-1.795 4-4 4zM5.5 5h1V4h-1v1z" fill="#000" fill-opacity=".95" fill-rule="evenodd"></path></svg></symbol> <symbol id="icon-close"><svg viewbox="0 0 14 14" xmlns="http://www.w3.org/2000/svg"><path d="M6.962 8.376l5.546 5.546 1.414-1.414-5.546-5.546 5.547-5.547L12.509.001 6.962 5.548 1.414 0 0 1.414l5.548 5.548-5.547 5.547 1.414 1.414 5.547-5.547z" fill="current" fill-rule="evenodd" opacity=".6"></path></svg></symbol> <symbol id="icon-reset"><svg fill="current" height="10" width="11" xmlns="http://www.w3.org/2000/svg"><path d="M5 8.571a3.57 3.57 0 0 0 2.982-1.606l1.185.799C8.271 9.112 6.739 10 5 10A5 5 0 1 1 5 0c1.754 0 3.296.903 4.189 2.269l1.553-.914-.502 4.758-4.404-1.871 2.12-1.248C7.313 2.049 6.229 1.429 5 1.429a3.57 3.57 0 1 0 0 7.143z" fill-rule="evenodd"></path></svg></symbol> <symbol id="litho-comparison-table__arrow-icon"><svg fill="none" height="48" width="48" xmlns="http://www.w3.org/2000/svg"><circle cx="24" cy="24" fill="var(--color-1, white)" opacity=".72" r="24"></circle><path d="M30.284 8.697c-.396-.385-1.038-.385-1.434 0L13.927 23.21c-.396.385-.396 1.009 0 1.394s1.038.385 1.434 0l14.923-14.512c.396-.385.396-1.009 0-1.394z" fill="var(--color-2, #333333)"></path><path d="M30.283 39.303c-.396.385-1.038.385-1.434 0L13.926 24.791c-.396-.385-.396-1.009 0-1.394s1.038-.385 1.434 0l14.924 14.512c.396.385.396 1.009 0 1.394z" fill="var(--color-3, #333333)"></path></svg></symbol> <symbol id="bio-icon--finance"><svg viewbox="0 0 34.4 34.4" xmlns="http://www.w3.org/2000/svg"><path d="M17.2 0a17.2 17.2 0 1 0 17.2 17.2A17.2 17.2 0 0 0 17.2 0zm-2.39 28a1.55 1.55 0 0 1-1.59-1.66 10.87 10.87 0 0 1 .43-2.56l1.83-7.41a4.39 4.39 0 0 0 .18-1.05c0-.66-.47-.64-1.57.15l-.64.44-.45-.56c1.69-1.74 3.52-3 5.15-3 1.07 0 1.45.73 1.45 1.66a14.56 14.56 0 0 1-.52 3.11l-1.78 7a4.45 4.45 0 0 0-.14 1c0 .7.52.7 1.54.06l.81-.5.44.56C18.48 26.63 16.7 28 14.81 28zm3.58-17.47a2 2 0 0 1-2.06-2 2.11 2.11 0 0 1 2.18-2.13 2 2 0 0 1 2.09 2 2.14 2.14 0 0 1-2.21 2.13z"></path></svg></symbol> <symbol id="star-icon"><svg viewbox="0 0 12.5 12.1" xmlns="http://www.w3.org/2000/svg"><path d="M6.2 0 8.2 4 12.5 4.6 9.4 7.7 10.1 12.1 6.2 10 2.4 12.1 3.1 7.7 0 4.6 4.3 4z"></path></svg></symbol> </defs> </svg> <span class="comp external-content mntl-external-component" id="external-content_1-0"><div class="u-font-carbon--dd112"> <div class="comp product-roundup-content--finance product-roundup--base product-roundup--base" data-tracking-container="true" data-tracking-id="PRM Roundup | PRM Template" id="product-roundup-content--finance_1-0"> <div class="article-content"> <div class="article-intro article-content__description article-container expert-content structured-content text-passage"> <div class="comp intro-content prm-sc-page mntl-sc-page mntl-block" id="intro-content_1-0"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0"> OppLoans tops our list of best personal loan lenders with no credit checks because it doesn't charge <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/origination-fee.asp">origination fees</a> and offers same-day funding. We collected and analyzed data from over 70 companies and selected the best lenders offering no <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-checking.asp">credit check</a> loans by comparing interest rates, fees, loan amounts, and repayment terms. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp intro-content prm-sc-page mntl-sc-page mntl-block --> <div class="comp js-toc-appear collapsible-summary-list collapsed product-roundup-content__collapsible-summary-list summary-list__collapsible--finance summary-list--finance summary-list--roundup summary-list" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" id="product-roundup-content__collapsible-summary-list_1-0"> <span class="heading-toc" id="summary-list"></span> <h2 class="summary-list__title"> Best Personal Loans With No Credit Check for 2024 </h2> <div class="summary-list__dropdown-toggle"> <div class="summary-list__chevron"></div> <h4 class="summary-list__dropdown-toggle-header-collapsed">Show Full List View</h4> <h4 class="summary-list__dropdown-toggle-header-uncollapsed">Hide Full List View</h4> </div> <ul class="summary-list__content"> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Best Overall:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=c52ec50b-6995-4425-bed4-6c1108667bb1&amp;tag.pref_partner=opploans" rel="nofollow noopener sponsored nocaes" target="_blank">OppLoans</a><!-- end: summary-list__item-top-pick --> </span> </li> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Best for Small Loans:</strong> <a class="summary-list__item-top-pick" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=5dd00d14-43c0-43ca-a904-8f15466c00eb&amp;tag.pref_partner=figloans" rel="nofollow noopener sponsored nocaes" target="_blank">Fig Loans</a><!-- end: summary-list__item-top-pick --> </span> </li> <li class="summary-list__item"> <span class="summary-list__item-top-pick-container"> <strong class="summary-list__item-category">Best With No Origination Fee:</strong> <a class="summary-list__item-top-pick" data-click-action="OffPageClick - External" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List" href="https://www.moneykey.com" rel="nofollow noopener nocaes" target="_blank">Money Key</a><!-- end: summary-list__item-top-pick --> </span> </li> </ul> </div><!-- end: comp js-toc-appear collapsible-summary-list collapsed product-roundup-content__collapsible-summary-list summary-list__collapsible--finance summary-list--finance summary-list--roundup summary-list --> <span class="heading-toc" id="summary-list"></span> <div class="summary-list-app__wrapper" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List"> <div class="summary-list-app__header"> <div id="summaryListApp1"></div> </div> <div class="comp summary-list-app__rows mntl-block" id="summary-list-app__rows_1-0"> <script> window.Mntl = window.Mntl || {}; window.Mntl.VueInGlobe = window.Mntl.VueInGlobe || {}; window.Mntl.VueInGlobe.apps = window.Mntl.VueInGlobe.apps || {}; window.Mntl.VueInGlobe.comps = window.Mntl.VueInGlobe.comps || {}; Mntl.VueInGlobe.apps['summaryListApp'] = window.Mntl.VueInGlobe.apps['summaryListApp'] || {}; Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL = Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL || {}; Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL['card-0'] = { data: function () { return { "superlative":"Best Overall" , "loanAmountRange":"(50000,400000)" } }, template: `` }; </script> <script> window.Mntl = window.Mntl || {}; window.Mntl.VueInGlobe = window.Mntl.VueInGlobe || {}; window.Mntl.VueInGlobe.apps = window.Mntl.VueInGlobe.apps || {}; window.Mntl.VueInGlobe.comps = window.Mntl.VueInGlobe.comps || {}; Mntl.VueInGlobe.apps['summaryListApp'] = window.Mntl.VueInGlobe.apps['summaryListApp'] || {}; Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL = Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL || {}; Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL['card-1'] = { data: function () { return { "superlative":"Best for Small Loans" , "loanAmountRange":"(5000,50000)" } }, template: `` }; </script> <script> window.Mntl = window.Mntl || {}; window.Mntl.VueInGlobe = window.Mntl.VueInGlobe || {}; window.Mntl.VueInGlobe.apps = window.Mntl.VueInGlobe.apps || {}; window.Mntl.VueInGlobe.comps = window.Mntl.VueInGlobe.comps || {}; Mntl.VueInGlobe.apps['summaryListApp'] = window.Mntl.VueInGlobe.apps['summaryListApp'] || {}; Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL = Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL || {}; Mntl.VueInGlobe.apps['summaryListApp'].componentsFromFTL['card-2'] = { data: function () { return { "superlative":"Best With No Origination Fee" , "loanAmountRange":"(20000,250000)" } }, template: `` }; </script> </div><!-- end: comp summary-list-app__rows mntl-block --> <div class="comp summary-list__no-result summary-list-app__list-empty no-results-message--personal-loans no-results-message" id="summary-list-app__list-empty_1-0"> <span class="list-empty--message">If youre not seeing anything in the results that are a good fit for your needs, consider warranties from these companies:</span> <ul class="list-empty--links" data-tracking-container="true" data-tracking-id="PRM Roundup | Summary List"> <li><a data-click-action="OffPageClick - Internal" href="https://www.investopedia.com/best-home-warranties-4777763">Best Home Warranties</a></li> <li><a data-click-action="OffPageClick - Internal" href="https://www.investopedia.com/emergency-loans-for-bad-credit-5075539">Best Emergency Loans for Bad Credit</a></li> <li><a data-click-action="OffPageClick - Internal" href="https://www.investopedia.com/best-personal-loans-for-bad-credit-4774349">Best Personal Loans for Bad Credit</a></li> </ul> </div><!-- end: comp summary-list__no-result summary-list-app__list-empty no-results-message--personal-loans no-results-message --> <div class="comp filter-app__content summary-list-app__rows summary-list--comparison-table summary-list-app__content summary-list--personal-loans filter-app-table-wrapper litho-comparison-table" data-tracking-container="true" id="summary-list--personal-loans_2-0"> <table class="litho-comparison-table__table"> <thead class="loc tableHead"> <tr class="comp summary-list-headers litho-comparison-table__header-row mntl-block" id="litho-comparison-table__header-row_5-0"> <th class="comp litho-comparison-table__head-text mntl-text-block" colspan="2" id="litho-comparison-table__head-text_11-0"> Company</th><!-- end: comp litho-comparison-table__head-text mntl-text-block --> <th class="comp litho-comparison-table__head-text mntl-text-block" id="litho-comparison-table__head-text_12-0"> APR</th><!-- end: comp litho-comparison-table__head-text mntl-text-block --> <th class="comp litho-comparison-table__head-text mntl-text-block" id="litho-comparison-table__head-text_13-0"> Credit Score est.</th><!-- end: comp litho-comparison-table__head-text mntl-text-block --> <th class="comp litho-comparison-table__head-text mntl-text-block" id="litho-comparison-table__head-text_14-0"> Loan Amount</th><!-- end: comp litho-comparison-table__head-text mntl-text-block --> <th class="comp litho-comparison-table__head-text mntl-text-block" id="litho-comparison-table__head-text_15-0"> More Details</th><!-- end: comp litho-comparison-table__head-text mntl-text-block --> </tr><!-- end: comp summary-list-headers litho-comparison-table__header-row mntl-block --> </thead> <tbody class="loc tableBody"> <tr class="comp card-0 filter-app-table-row js-table-hide-col summary-list-row litho-comparison-table__product-row--0 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_5-0"> <td class="comp summary-list-col__superlative litho-comparison-table__cell-text mntl-text-block" id="summary-list-col__superlative_2-0"> Best Overall</td><!-- end: comp summary-list-col__superlative litho-comparison-table__cell-text mntl-text-block --> <td class="comp summary-list-col__record litho-comparison-table__cell-block mntl-block" id="summary-list-col__record_2-0"> <figure class="summary-list-col__image mntl-universal-image universal-image__container"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="OppLoans" class="lazyload summary-list-col__product-image universal-image__image" data-src="https://www.investopedia.com/thmb/zw693bbSqNa06vuUrSfVJJ7l8d4=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/OppLoans-logo-4e3e2ecc63fb4c59895c235a6e2400c6.jpg" height="750" width="1500"/> <noscript> <img alt="OppLoans" class="img--noscript summary-list-col__product-image universal-image__image" height="750" src="https://www.investopedia.com/thmb/zw693bbSqNa06vuUrSfVJJ7l8d4=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/OppLoans-logo-4e3e2ecc63fb4c59895c235a6e2400c6.jpg" width="1500"/> </noscript> </div></figure> </td><!-- end: comp summary-list-col__record litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-1 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-1_2-0"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_4-0"> APR Range</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <strong class="comp summary-list-col__property-value mntl-text-block" id="summary-list-col__property-value_3-0"> 160.00% - 179.00%</strong><!-- end: comp summary-list-col__property-value mntl-text-block --> </td><!-- end: comp summary-list-col__property-1 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp is-not-disclosed summary-list-col__property-2 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-2_2-0"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_5-0"> Recommended Minimum Credit Score</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <div class="comp summary-list-col__property-value summary-list-col__credit-score-container mntl-block" id="summary-list-col__credit-score-container_2-0"> <strong class="comp summary-list-col__property-value-text mntl-text-block" id="summary-list-col__property-value-text_2-0"> Not Disclosed</strong><!-- end: comp summary-list-col__property-value-text mntl-text-block --> <div class="comp summary-list__tooltip-wrapper mntl-block" id="summary-list__tooltip-wrapper_2-0"> <span class="comp tooltip-trigger summary-list__tooltip mntl-block" data-label="Estimated Minimum Credit Score" id="summary-list__tooltip_3-0"> <svg class="icon bio-icon--finance"> <use xlink:href="#bio-icon--finance" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </span><!-- end: comp tooltip-trigger summary-list__tooltip mntl-block --> <div class="comp tooltip-bubble summary-list__tooltip-bubble mntl-text-block" id="summary-list__tooltip-bubble_3-0"> This lender does not disclose its minimum credit score requirements.</div><!-- end: comp tooltip-bubble summary-list__tooltip-bubble mntl-text-block --> </div><!-- end: comp summary-list__tooltip-wrapper mntl-block --> </div><!-- end: comp summary-list-col__property-value summary-list-col__credit-score-container mntl-block --> </td><!-- end: comp is-not-disclosed summary-list-col__property-2 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-3 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-3_2-0"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_6-0"> Loan Amount</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <strong class="comp summary-list-col__property-value mntl-text-block" id="summary-list-col__property-value_4-0"> $500 - $4,000</strong><!-- end: comp summary-list-col__property-value mntl-text-block --> </td><!-- end: comp summary-list-col__property-3 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__user-action litho-comparison-table__cell-block mntl-block" id="summary-list-col__user-action_2-0"> <a class="mntl-text-link js-inline-link ga-tracker__read-more button button--outlined summary-list-col__jump-link" data-tracking-container="true" href="#toc-opploans" id="mntl-text-link_5-0" rel="nocaes"><span class="link__wrapper">See Details</span></a><!-- end: mntl-text-link js-inline-link ga-tracker__read-more button button--outlined summary-list-col__jump-link --> <a class="mntl-sc-block-commerce__button mntl-commerce-btn mntl-text-link summary-list-col__cta-button ga-tracker__read-more" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="false" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=c52ec50b-6995-4425-bed4-6c1108667bb1&amp;tag.pref_partner=opploans" id="mntl-sc-block-commerce__button_5-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-btn mntl-text-link summary-list-col__cta-button ga-tracker__read-more --> </td><!-- end: comp summary-list-col__user-action litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp card-0 filter-app-table-row js-table-hide-col summary-list-row litho-comparison-table__product-row--0 litho-comparison-table__product-row mntl-block --> <tr class="comp card-1 filter-app-table-row js-table-hide-col summary-list-row litho-comparison-table__product-row--1 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_5-0-1"> <td class="comp summary-list-col__superlative litho-comparison-table__cell-text mntl-text-block" id="summary-list-col__superlative_2-0-1"> Best for Small Loans</td><!-- end: comp summary-list-col__superlative litho-comparison-table__cell-text mntl-text-block --> <td class="comp summary-list-col__record litho-comparison-table__cell-block mntl-block" id="summary-list-col__record_2-0-1"> <figure class="summary-list-col__image mntl-universal-image universal-image__container"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Fig Loans" class="lazyload summary-list-col__product-image smaller-image1 universal-image__image" data-src="https://www.investopedia.com/thmb/4SmJNudHdyIFvuOF4gd6Mje1zKw=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/figlogo_lg_2020-6a464eab290643c1acb3b2656252c844.png" height="750" width="1500"/> <noscript> <img alt="Fig Loans" class="img--noscript summary-list-col__product-image smaller-image1 universal-image__image" height="750" src="https://www.investopedia.com/thmb/4SmJNudHdyIFvuOF4gd6Mje1zKw=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/figlogo_lg_2020-6a464eab290643c1acb3b2656252c844.png" width="1500"/> </noscript> </div></figure> </td><!-- end: comp summary-list-col__record litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-1 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-1_2-0-1"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_4-0-1"> APR Range</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <strong class="comp summary-list-col__property-value mntl-text-block" id="summary-list-col__property-value_3-0-1"> 35.99% - 211.00%</strong><!-- end: comp summary-list-col__property-value mntl-text-block --> </td><!-- end: comp summary-list-col__property-1 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp is-not-disclosed summary-list-col__property-2 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-2_2-0-1"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_5-0-1"> Recommended Minimum Credit Score</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <div class="comp summary-list-col__property-value summary-list-col__credit-score-container mntl-block" id="summary-list-col__credit-score-container_2-0-1"> <strong class="comp summary-list-col__property-value-text mntl-text-block" id="summary-list-col__property-value-text_2-0-1"> Not Disclosed</strong><!-- end: comp summary-list-col__property-value-text mntl-text-block --> <div class="comp summary-list__tooltip-wrapper mntl-block" id="summary-list__tooltip-wrapper_2-0-1"> <span class="comp tooltip-trigger summary-list__tooltip mntl-block" data-label="Estimated Minimum Credit Score" id="summary-list__tooltip_3-0-1"> <svg class="icon bio-icon--finance"> <use xlink:href="#bio-icon--finance" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </span><!-- end: comp tooltip-trigger summary-list__tooltip mntl-block --> <div class="comp tooltip-bubble summary-list__tooltip-bubble mntl-text-block" id="summary-list__tooltip-bubble_3-0-1"> This lender does not disclose its minimum credit score requirements.</div><!-- end: comp tooltip-bubble summary-list__tooltip-bubble mntl-text-block --> </div><!-- end: comp summary-list__tooltip-wrapper mntl-block --> </div><!-- end: comp summary-list-col__property-value summary-list-col__credit-score-container mntl-block --> </td><!-- end: comp is-not-disclosed summary-list-col__property-2 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-3 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-3_2-0-1"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_6-0-1"> Loan Amount</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <strong class="comp summary-list-col__property-value mntl-text-block" id="summary-list-col__property-value_4-0-1"> $50 - $500</strong><!-- end: comp summary-list-col__property-value mntl-text-block --> </td><!-- end: comp summary-list-col__property-3 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__user-action litho-comparison-table__cell-block mntl-block" id="summary-list-col__user-action_2-0-1"> <a class="mntl-text-link js-inline-link ga-tracker__read-more button button--outlined summary-list-col__jump-link" data-tracking-container="true" href="#toc-fig-loans" id="mntl-text-link_5-0-1" rel="nocaes"><span class="link__wrapper">See Details</span></a><!-- end: mntl-text-link js-inline-link ga-tracker__read-more button button--outlined summary-list-col__jump-link --> <a class="mntl-sc-block-commerce__button mntl-commerce-btn mntl-text-link summary-list-col__cta-button ga-tracker__read-more" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="false" data-tracking-id="PRM Roundup | Summary List" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=5dd00d14-43c0-43ca-a904-8f15466c00eb&amp;tag.pref_partner=figloans" id="mntl-sc-block-commerce__button_5-0-1" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-btn mntl-text-link summary-list-col__cta-button ga-tracker__read-more --> </td><!-- end: comp summary-list-col__user-action litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp card-1 filter-app-table-row js-table-hide-col summary-list-row litho-comparison-table__product-row--1 litho-comparison-table__product-row mntl-block --> <tr class="comp card-2 filter-app-table-row js-table-hide-col summary-list-row litho-comparison-table__product-row--2 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_5-0-2"> <td class="comp summary-list-col__superlative litho-comparison-table__cell-text mntl-text-block" id="summary-list-col__superlative_2-0-2"> Best With No Origination Fee</td><!-- end: comp summary-list-col__superlative litho-comparison-table__cell-text mntl-text-block --> <td class="comp summary-list-col__record litho-comparison-table__cell-block mntl-block" id="summary-list-col__record_2-0-2"> <figure class="summary-list-col__image mntl-universal-image universal-image__container"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="Money Key" class="lazyload summary-list-col__product-image universal-image__image" data-src="https://www.investopedia.com/thmb/nQ8mxOT0nGZ5YV18wYtjCiJ_z0I=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/monkey_key_1_2000x500-4d5afa0bea7d4131a1668fc2f758e96b.png" height="750" width="1500"/> <noscript> <img alt="Money Key" class="img--noscript summary-list-col__product-image universal-image__image" height="750" src="https://www.investopedia.com/thmb/nQ8mxOT0nGZ5YV18wYtjCiJ_z0I=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/monkey_key_1_2000x500-4d5afa0bea7d4131a1668fc2f758e96b.png" width="1500"/> </noscript> </div></figure> </td><!-- end: comp summary-list-col__record litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-1 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-1_2-0-2"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_4-0-2"> APR Range</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <strong class="comp summary-list-col__property-value mntl-text-block" id="summary-list-col__property-value_3-0-2"> 291.00% - 295.00%</strong><!-- end: comp summary-list-col__property-value mntl-text-block --> </td><!-- end: comp summary-list-col__property-1 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp is-not-disclosed summary-list-col__property-2 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-2_2-0-2"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_5-0-2"> Recommended Minimum Credit Score</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <div class="comp summary-list-col__property-value summary-list-col__credit-score-container mntl-block" id="summary-list-col__credit-score-container_2-0-2"> <strong class="comp summary-list-col__property-value-text mntl-text-block" id="summary-list-col__property-value-text_2-0-2"> Not Disclosed</strong><!-- end: comp summary-list-col__property-value-text mntl-text-block --> <div class="comp summary-list__tooltip-wrapper mntl-block" id="summary-list__tooltip-wrapper_2-0-2"> <span class="comp tooltip-trigger summary-list__tooltip mntl-block" data-label="Estimated Minimum Credit Score" id="summary-list__tooltip_3-0-2"> <svg class="icon bio-icon--finance"> <use xlink:href="#bio-icon--finance" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </span><!-- end: comp tooltip-trigger summary-list__tooltip mntl-block --> <div class="comp tooltip-bubble summary-list__tooltip-bubble mntl-text-block" id="summary-list__tooltip-bubble_3-0-2"> This lender does not disclose its minimum credit score requirements.</div><!-- end: comp tooltip-bubble summary-list__tooltip-bubble mntl-text-block --> </div><!-- end: comp summary-list__tooltip-wrapper mntl-block --> </div><!-- end: comp summary-list-col__property-value summary-list-col__credit-score-container mntl-block --> </td><!-- end: comp is-not-disclosed summary-list-col__property-2 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__property-3 summary-list-col__property litho-comparison-table__cell-block mntl-block" id="summary-list-col__property-3_2-0-2"> <div class="comp summary-list-col__property-name mntl-text-block" id="summary-list-col__property-name_6-0-2"> Loan Amount</div><!-- end: comp summary-list-col__property-name mntl-text-block --> <strong class="comp summary-list-col__property-value mntl-text-block" id="summary-list-col__property-value_4-0-2"> $200 - $2,500</strong><!-- end: comp summary-list-col__property-value mntl-text-block --> </td><!-- end: comp summary-list-col__property-3 summary-list-col__property litho-comparison-table__cell-block mntl-block --> <td class="comp summary-list-col__user-action litho-comparison-table__cell-block mntl-block" id="summary-list-col__user-action_2-0-2"> <a class="mntl-text-link js-inline-link ga-tracker__read-more button button--outlined summary-list-col__jump-link" data-tracking-container="true" href="#toc-money-key" id="mntl-text-link_5-0-2" rel="nocaes"><span class="link__wrapper">See Details</span></a><!-- end: mntl-text-link js-inline-link ga-tracker__read-more button button--outlined summary-list-col__jump-link --> <a class="mntl-sc-block-commerce__button mntl-commerce-btn mntl-text-link summary-list-col__cta-button ga-tracker__read-more" data-click-action="OffPageClick - External" data-retailer-caption="On Money Key" data-tracking-container="false" data-tracking-id="PRM Roundup | Summary List" href="https://www.moneykey.com" id="mntl-sc-block-commerce__button_5-0-2" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-btn mntl-text-link summary-list-col__cta-button ga-tracker__read-more --> </td><!-- end: comp summary-list-col__user-action litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp card-2 filter-app-table-row js-table-hide-col summary-list-row litho-comparison-table__product-row--2 litho-comparison-table__product-row mntl-block --> </tbody> </table> </div><!-- end: comp filter-app__content summary-list-app__rows summary-list--comparison-table summary-list-app__content summary-list--personal-loans filter-app-table-wrapper litho-comparison-table --> </div> <div class="comp product-roundup-expertise-block expertise-block" id="product-roundup-expertise-block_1-0"> <div class="expertise-block__header"> <span class="expertise-block__heading"> Why Trust Us </span> <div class="expertise-block__chevron"></div> </div> <div class="expertise-block__data-points"> <div class="expertise-block__data-point"> <span class="expertise-block__data-point-heading icon-eat-lenders-reviewed"> 70 </span> <div class="expertise-block__data-point-content"> Lenders reviewed </div> </div> <div class="expertise-block__data-point"> <span class="expertise-block__data-point-heading icon-eat-features-considered"> 31 </span> <div class="expertise-block__data-point-content"> Loan features considered </div> </div> <div class="expertise-block__data-point"> <span class="expertise-block__data-point-heading icon-eat-analyzed"> 1,680 </span> <div class="expertise-block__data-point-content"> Data points analyzed </div> </div> <div class="expertise-block__data-point"> <span class="expertise-block__data-point-heading icon-eat-data-sources"> 173 </span> <div class="expertise-block__data-point-content"> Primary data sources used </div> </div> </div> <span class="expertise-block__content"> Investopedia collected key data points from several lenders to identify the most important factors to borrowers. We used this data to review each lender for fees, accessibility, repayment terms, and other features to provide unbiased, comprehensive reviews to ensure our readers make the right borrowing decision for their needs. <div class="expertise-block__section-link"> <a href="https://www.investopedia.com/personal-loan-review-methodology-5088280">Read our Full Methodology</a> </div> </span> </div><!-- end: comp product-roundup-expertise-block expertise-block --> <div class="comp post-intro prm-sc-page mntl-sc-page mntl-block" id="post-intro_1-0"></div><!-- end: comp post-intro prm-sc-page mntl-sc-page mntl-block --> <div class="comp loan-quiz even-loan-block even-loans-quiz--finance mntl-block" id="even-loan-block_1-0"></div><!-- end: comp loan-quiz even-loan-block even-loans-quiz--finance mntl-block --> </div> <div class="article-body"> <div class="loc article-left-nav article-body__left-nav product-roundup__left-nav js-sticky-container"> <div class="comp sticky-toc-widget sticky-toc--finance product-roundup__toc sticky-toc--finance-roundup sticky-toc--roundup sticky-toc--base mntl-sticky-toc mntl-block" data-chop-desktop="false" data-chop-mobile="false" data-desktop-bp="54em" data-tracking-container="true" id="product-roundup__toc_1-0"> <div class="comp toc-wrapper mntl-toc mntl-block" data-chop-mobile="true" data-offset="60" data-tracking-container="true" id="toc-wrapper_1-0"> <div class="comp mntl-toc__inner mntl-block" id="mntl-toc__inner_1-0"> <div class="comp js-toc-toggle mntl-toc__heading mntl-block" data-click-tracked="true" id="mntl-toc__heading_1-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_1-0"> Best Personal Loans With No Credit Check for 2024</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> <div class="comp mntl-toc-toggle mntl-block" id="mntl-toc-toggle_1-0"> <button class="comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block" data-collapsed-text="Expand" data-expanded-text="Expand" id="mntl-toc-toggle__btn_1-0"> Expand</button><!-- end: comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block --> </div><!-- end: comp mntl-toc-toggle mntl-block --> </div><!-- end: comp js-toc-toggle mntl-toc__heading mntl-block --> <div class="comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block" data-click-action="OnPageClick-Best Personal Loans With No Credit Check for 2024" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__mobile-toggle_1-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_2-0"> Best Personal Loans With No Credit Check for 2024</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> </div><!-- end: comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block --> <ul class="comp mntl-toc__list-heading expert-content mntl-toc__list" id="mntl-toc__list_1-0"> <li class="comp toc__listsc-item mntl-toc-list-item mntl-toc__list-item" id="toc__listsc-item_1-0"> <a class="mntl-toc__list-item-link js-mntl-toc-link" href="#summary-list" rel="nocaes"> <span class="link__wrapper">Our Top Picks</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp toc__listsc-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-OppLoans" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_1-0"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-OppLoans" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-opploans" rel="nocaes"> <span class="link__wrapper">OppLoans</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Fig Loans" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_1-0-1"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Fig Loans" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-fig-loans" rel="nocaes"> <span class="link__wrapper">Fig Loans</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp nested-toc-item mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Money Key" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_1-0-2"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Money Key" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-money-key" rel="nocaes"> <span class="link__wrapper">Money Key</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp nested-toc-item mntl-toc-list-item mntl-toc__list-item --> <li class="comp mntl-toc-list-item mntl-toc__list-item" data-click-action="OnPageClick-Compare Providers" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc-list-item_2-0"> <a class="mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Compare Providers" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#comparison-table" rel="nocaes"> <span class="link__wrapper">Compare Providers</span> </a><!-- end: mntl-toc__list-item-link js-mntl-toc-link --></li><!-- end: comp mntl-toc-list-item mntl-toc__list-item --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-The Bottom Line" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-the-bottom-line" id="mntl-toc__list-item-link_1-0" rel="nocaes"><span class="link__wrapper">The Bottom Line</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-1"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-1"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Guide to Choosing the Best Personal Loans With No Credit Check" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-guide-to-choosing-the-best-personal-loans-with-no-credit-check" id="mntl-toc__list-item-link_1-0-1" rel="nocaes"><span class="link__wrapper">Guide to Choosing the Best Personal Loans With No Credit Check</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-2"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-2"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-How to Get a Personal Loan With No Credit Check" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-to-get-a-personal-loan-with-no-credit-check" id="mntl-toc__list-item-link_1-0-2" rel="nocaes"><span class="link__wrapper">How to Get a Personal Loan With No Credit Check</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-3"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-3"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Comparing Personal Loans With No Credit Check" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-comparing-personal-loans-with-no-credit-check" id="mntl-toc__list-item-link_1-0-3" rel="nocaes"><span class="link__wrapper">Comparing Personal Loans With No Credit Check</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-4"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-4"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Alternatives to No Credit Check Personal Loans" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-alternatives-to-no-credit-check-personal-loans" id="mntl-toc__list-item-link_1-0-4" rel="nocaes"><span class="link__wrapper">Alternatives to No Credit Check Personal 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_1-0-5"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-5"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Why You Should Trust Us" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-why-you-should-trust-us" id="mntl-toc__list-item-link_1-0-5" rel="nocaes"><span class="link__wrapper">Why You Should Trust Us</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-6"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-6"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Frequently Asked Questions (FAQs)" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-frequently-asked-questions-faqs-a7e8b125-ee5a-43e0-8458-6d6e9e774ad2" id="mntl-toc__list-item-link_1-0-6" rel="nocaes"><span class="link__wrapper">Frequently Asked Questions (FAQs)</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_1-0-7"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-7"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-How We Pick the Best No Credit Check Personal Loans" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-we-pick-the-best-no-credit-check-personal-loans" id="mntl-toc__list-item-link_1-0-7" rel="nocaes"><span class="link__wrapper">How We Pick the Best No Credit Check Personal 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_1-0-8"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_1-0-8"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Guide to No Credit Check Personal Loans" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-guide-to-no-credit-check-personal-loans" id="mntl-toc__list-item-link_1-0-8" rel="nocaes"><span class="link__wrapper">Guide to No Credit Check Personal Loans</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> </ul><!-- end: comp mntl-toc__list-heading expert-content mntl-toc__list --> </div><!-- end: comp mntl-toc__inner mntl-block --> </div><!-- end: comp toc-wrapper mntl-toc mntl-block --> </div><!-- end: comp sticky-toc-widget sticky-toc--finance product-roundup__toc sticky-toc--finance-roundup sticky-toc--roundup sticky-toc--base mntl-sticky-toc mntl-block --> </div> <div class="loc article-body__inner article-body__inner"> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0"> <span class="heading-toc" id="toc-opploans"></span> <h3 class="comp list-sc-item__heading split-text--roundup-title split-text" data-click-action="Null" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Header" id="list-sc-item__heading_1-0"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best Overall</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">OppLoans</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <div class="comp list-sc-item__rating product-rating" id="list-sc-item__rating_1-0"> <span class="product-rating__rating-label noskim"> Investopedia's Rating </span> <div alt="2.9 out of 5 stars" class="comp star-rating" id="star-rating_5-0"> <span class="star-rating__label">2.9</span> <div class="star-rating__stars" data-rating-caption=""> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-1 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-2 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <svg height="0" style="position: absolute;" width="0"> <defs> <lineargradient id="linear-star-rating_5-0" x1="0%" x2="100%" y1="0%" y2="0%"> <stop offset="80%" stop-color="#333e8b"></stop> <stop offset="80%" stop-color="#d5d5d5"></stop> </lineargradient> </defs> </svg> <div class="star-rating__quarter-empty star-rating__icon star-rating__star-3 star-rating_star-icon" style="fill: url(#linear-star-rating_5-0);"> <svg viewbox="0 0 12.5 12.1" xmlns="http://www.w3.org/2000/svg"><path d="M6.2 0 8.2 4 12.5 4.6 9.4 7.7 10.1 12.1 6.2 10 2.4 12.1 3.1 7.7 0 4.6 4.3 4z"></path></svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__empty-star star-rating__icon star-rating__star-4 star-rating_star-icon" style="fill: #d5d5d5;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__empty-star star-rating__icon star-rating__star-5 star-rating_star-icon" style="fill: #d5d5d5;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> </div></div><!-- end: comp star-rating --> </div><!-- end: comp list-sc-item__rating product-rating --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0"/><!-- 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"> <!-- basically identifies commerce, but "isRetailer" is more generic --> <!-- Leave support for 3x2 ratio, default to 2x1 aspect ratio--> <!-- Update the SASS variable used to scale up images smaller than 1500px--> <div class="prm-sc-block-productrecord__imageHolder" style="--imgWidth: 10px"> <figure class="loc productrecord__logo figure-media figure-2x1 figure-landscape mntl-sc-block mntl-sc-block-image figure-high-res upscaleImg"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="OppLoans logo" class="lazyload figure-2x1 universal-image__image" data-expand="1500" data-src="https://www.investopedia.com/thmb/zw693bbSqNa06vuUrSfVJJ7l8d4=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/OppLoans-logo-4e3e2ecc63fb4c59895c235a6e2400c6.jpg" height="750" width="1500"/> <noscript> <img alt="OppLoans logo" class="img--noscript figure-2x1 universal-image__image" height="750" src="https://www.investopedia.com/thmb/zw693bbSqNa06vuUrSfVJJ7l8d4=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/OppLoans-logo-4e3e2ecc63fb4c59895c235a6e2400c6.jpg" width="1500"/> </noscript> </div> </figure> </div> <div class="prm-sc-block-productrecord__specs"> <!-- Product Attribute List --> <ul class="comp mntl-sc-block mntl-sc-block-html prm-sc-block-productrecord__attributes"> <li class="key-spec infocat-prop__fixedAPRPercentageRange"> <span class="key-spec__title"> <strong>APR Range:</strong> </span> 160.00% - 179.00% </li> <li class="key-spec infocat-prop__loanAmountRange"> <span class="key-spec__title"> <strong>Loan Amount:</strong> </span> $500 - $4,000 </li> <li class="key-spec infocat-prop__earliestRepayment"> <span class="key-spec__title"> <strong>Loan Terms:</strong> </span> 9 months - 18 months </li> </ul> <!-- CTA Button (commerce button) --> <div class="loc cta productrecord__cta-button" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock - Button"> <a class="mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="false" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=c52ec50b-6995-4425-bed4-6c1108667bb1&amp;tag.pref_partner=opploans" id="mntl-commerce-btn_1-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button --> </div> </div> </div> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-2"> OppLoans performs a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/soft-inquiry.asp">soft credit check</a> for approval—not a hard <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-inquiry.asp">credit inquiry</a>—so there's no impact on your credit history or credit score. Your information comes from Clarity Services and Experian, your bank account transactions, and your cash flow. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-3"> Expect triple-digit <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apr.asp">annual percentage rates (APRs)</a>. But, shorter loan terms can minimize your interest charges. Consider the total cost if you borrow $3,000 with an APR of 160% and repay over 9 or 12 months: </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_3-0-4"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style="width: 93px;"></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td></td> <td><b>9 Months</b></td> <td><b>12 Months</b></td> </tr> <tr> <td><b>Total Cost</b></td> <td>$2,326.83</td> <td>$3,175.17</td> </tr> </tbody> </table> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-5"> You may be able to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/refinance.asp">refinance</a> your loan after you’ve paid at least 15% or $400 of your balance as long as it's in good standing. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-7"> <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>Same-day funding available</p></li> <li><p>No origination fees</p></li> <li><p>Credit bureau reporting</p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>High interest rates</p></li> <li><p>No co-signer option</p></li> <li><p>Not available in all states</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Qualifications</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-9"> To qualify for an OppLoans personal loan, you must meet the following requirements: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-10"> <li>Be 18 years or older</li><li>Have a valid checking or savings account</li><li>Have regular income received through direct deposit</li><li>Only available in 40 states: Alabama, Alaska, Arizona, Arkansas, California, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, and Wyoming<span class="ql-inline-citation" data-cite="18"></span><br/></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="loc post-content tabbed-sc-block__content tabbed-sc-block__post-content"> <div class="comp tabbed-sc-block--review-link infocat-review-link link" data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock" id="tabbed-sc-block--review-link_1-0-10"> Read the Full <a data-click-action="OffPageClick - Internal [FullProductReview]" data-tracking-container="false" data-tracking-id="PRM Roundup | ProductRecordBlock" href="https://www.investopedia.com/opploans-personal-loans-review-5069762" id="tabbed-sc-block--review-link_1-0-10" rel="noopener nocaes" target="_blank"><span class="">OppLoans Personal Loans Review for 2024</span></a><!-- end: --></div><!-- end: comp tabbed-sc-block--review-link infocat-review-link link --> </div> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0-1"> <span class="heading-toc" id="toc-fig-loans"></span> <h3 class="comp list-sc-item__heading split-text--roundup-title split-text" data-click-action="Null" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard - Header" id="list-sc-item__heading_1-0-1"> <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Best for Small Loans</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Fig Loans</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <div class="comp list-sc-item__rating product-rating" id="list-sc-item__rating_1-0-1"> <span class="product-rating__rating-label noskim"> Investopedia's Rating </span> <div alt="2.6 out of 5 stars" class="comp star-rating" id="star-rating_5-0-1"> <span class="star-rating__label">2.6</span> <div class="star-rating__stars" data-rating-caption=""> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-1 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-2 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <svg height="0" style="position: absolute;" width="0"> <defs> <lineargradient id="linear-star-rating_5-0-1" x1="0%" x2="100%" y1="0%" y2="0%"> <stop offset="50%" stop-color="#333e8b"></stop> <stop offset="50%" stop-color="#d5d5d5"></stop> </lineargradient> </defs> </svg> <div class="star-rating__quarter-empty star-rating__icon star-rating__star-3 star-rating_star-icon" style="fill: url(#linear-star-rating_5-0-1);"> <svg viewbox="0 0 12.5 12.1" xmlns="http://www.w3.org/2000/svg"><path d="M6.2 0 8.2 4 12.5 4.6 9.4 7.7 10.1 12.1 6.2 10 2.4 12.1 3.1 7.7 0 4.6 4.3 4z"></path></svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__empty-star star-rating__icon star-rating__star-4 star-rating_star-icon" style="fill: #d5d5d5;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__empty-star star-rating__icon star-rating__star-5 star-rating_star-icon" style="fill: #d5d5d5;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> </div></div><!-- end: comp star-rating --> </div><!-- end: comp list-sc-item__rating product-rating --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0-1"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-1"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-1"> <div class="tabbed-sc-block-intro"> <!-- basically identifies commerce, but "isRetailer" is more generic --> <!-- Leave support for 3x2 ratio, default to 2x1 aspect ratio--> <!-- Update the SASS variable used to scale up images smaller than 1500px--> <div class="prm-sc-block-productrecord__imageHolder" style="--imgWidth: 225px"> <figure class="loc productrecord__logo figure-media figure-3x2 figure-landscape mntl-sc-block mntl-sc-block-image figure-high-res upscaleImg"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Fig loans logo" class="lazyload figure-3x2 universal-image__image" data-expand="1500" data-src="https://www.investopedia.com/thmb/8EAJ4wUeouu1br18tYhSPdnCr-I=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/figlogo_lg_2020-6a464eab290643c1acb3b2656252c844.png" height="1000" width="1500"/> <noscript> <img alt="Fig loans logo" class="img--noscript figure-3x2 universal-image__image" height="1000" src="https://www.investopedia.com/thmb/8EAJ4wUeouu1br18tYhSPdnCr-I=/fit-in/1500x1000/filters:format(png):fill(white):max_bytes(150000):strip_icc()/figlogo_lg_2020-6a464eab290643c1acb3b2656252c844.png" width="1500"/> </noscript> </div> </figure> </div> <div class="prm-sc-block-productrecord__specs"> <!-- Product Attribute List --> <ul class="comp mntl-sc-block mntl-sc-block-html prm-sc-block-productrecord__attributes"> <li class="key-spec infocat-prop__fixedAPRPercentageRange"> <span class="key-spec__title"> <strong>APR Range:</strong> </span> 35.99% - 211.00% </li> <li class="key-spec infocat-prop__loanAmountRange"> <span class="key-spec__title"> <strong>Loan Amount:</strong> </span> $50 - $500 </li> <li class="key-spec infocat-prop__earliestRepayment"> <span class="key-spec__title"> <strong>Loan Terms:</strong> </span> 1 Month - 10 Months </li> </ul> <!-- CTA Button (commerce button) --> <div class="loc cta productrecord__cta-button" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock - Button"> <a class="mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="false" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=5dd00d14-43c0-43ca-a904-8f15466c00eb&amp;tag.pref_partner=figloans" id="mntl-commerce-btn_1-0-1" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button --> </div> </div> </div> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-13"> Fig Loans offers smaller loans of up to $800, making it a good option if you: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-14"> <li>Don’t have large borrowing needs, which prevents you from overborrowing</li><li>Don't want a credit check</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-15"> Fig Loans uses your recent bank deposit information to determine your eligibility. You may qualify if you have a steady source of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/income.asp">income</a> and a positive bank balance. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-16"> <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> can be in the triple digits, which can be pretty costly. Even so, rates are less expensive and more flexible compared to 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>. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-18"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Early payoff discount</p></li> <li><p>Credit bureau reporting</p></li> <li><p>Next-day funding</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>High APR</p></li> <li><p>Only available in six states</p></li> <li><p>Not available for active duty military</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Qualifications</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-20"> To qualify for a loan from Fig Loans, you must meet the following qualifications: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-21"> <li>Have a valid checking or savings account (with a positive balance)</li><li>Have at least $1,400 monthly income for the past three months</li><li>Must not be an activity duty member of the military or family member of an active duty military member</li><li>Only available in Florida, Illinois, Missouri, Ohio, Texas, and Utah<br/></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> <div class="comp mntl-sc-list-item structured-content list-sc-item mntl-block" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard" id="list-sc-item_1-0-2"> <span class="heading-toc" id="toc-money-key"></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 With No Origination Fee</span> </span> </span>: <span class="split-text__item"> <span class="split-text__secondary-wrapper"> <span class="split-text__item-secondary">Money Key</span> </span> </span></h3><!-- end: comp list-sc-item__heading split-text--roundup-title split-text --> <div class="comp list-sc-item__rating product-rating" id="list-sc-item__rating_1-0-2"> <span class="product-rating__rating-label noskim"> Investopedia's Rating </span> <div alt="2.9 out of 5 stars" class="comp star-rating" id="star-rating_5-0-2"> <span class="star-rating__label">2.9</span> <div class="star-rating__stars" data-rating-caption=""> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-1 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__full-star star-rating__icon star-rating__star-2 star-rating_star-icon" style="fill: #333e8b;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <svg height="0" style="position: absolute;" width="0"> <defs> <lineargradient id="linear-star-rating_5-0-2" x1="0%" x2="100%" y1="0%" y2="0%"> <stop offset="80%" stop-color="#333e8b"></stop> <stop offset="80%" stop-color="#d5d5d5"></stop> </lineargradient> </defs> </svg> <div class="star-rating__quarter-empty star-rating__icon star-rating__star-3 star-rating_star-icon" style="fill: url(#linear-star-rating_5-0-2);"> <svg viewbox="0 0 12.5 12.1" xmlns="http://www.w3.org/2000/svg"><path d="M6.2 0 8.2 4 12.5 4.6 9.4 7.7 10.1 12.1 6.2 10 2.4 12.1 3.1 7.7 0 4.6 4.3 4z"></path></svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__empty-star star-rating__icon star-rating__star-4 star-rating_star-icon" style="fill: #d5d5d5;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> <div class="star-rating__wrapper"> <div class="star-rating__empty-star star-rating__icon star-rating__star-5 star-rating_star-icon" style="fill: #d5d5d5;"> <svg class="icon star-icon"> <use xlink:href="#star-icon" xmlns:xlink="http://www.w3.org/1999/xlink"></use> </svg> </div> </div> </div></div><!-- end: comp star-rating --> </div><!-- end: comp list-sc-item__rating product-rating --> <hr class="comp list-sc-item__header-break mntl-block" id="list-sc-item__header-break_1-0-2"/><!-- end: comp list-sc-item__header-break mntl-block --> <div class="comp list-sc-item__content mntl-block" id="list-sc-item__content_1-0-2"> <div class="comp list-sc-item__intro mntl-block" id="list-sc-item__intro_1-0-2"> <div class="tabbed-sc-block-intro"> <!-- basically identifies commerce, but "isRetailer" is more generic --> <!-- Leave support for 3x2 ratio, default to 2x1 aspect ratio--> <!-- Update the SASS variable used to scale up images smaller than 1500px--> <div class="prm-sc-block-productrecord__imageHolder" style="--imgWidth: 0px"> <figure class="loc productrecord__logo figure-media figure-2x1 figure-landscape mntl-sc-block mntl-sc-block-image figure-high-res"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="monkey key" class="lazyload figure-2x1 universal-image__image" data-expand="1500" data-src="https://www.investopedia.com/thmb/nQ8mxOT0nGZ5YV18wYtjCiJ_z0I=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/monkey_key_1_2000x500-4d5afa0bea7d4131a1668fc2f758e96b.png" height="750" width="1500"/> <noscript> <img alt="monkey key" class="img--noscript figure-2x1 universal-image__image" height="750" src="https://www.investopedia.com/thmb/nQ8mxOT0nGZ5YV18wYtjCiJ_z0I=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/monkey_key_1_2000x500-4d5afa0bea7d4131a1668fc2f758e96b.png" width="1500"/> </noscript> </div> </figure> </div> <div class="prm-sc-block-productrecord__specs"> <!-- Product Attribute List --> <ul class="comp mntl-sc-block mntl-sc-block-html prm-sc-block-productrecord__attributes"> <li class="key-spec infocat-prop__fixedAPRPercentageRange"> <span class="key-spec__title"> <strong>APR Range:</strong> </span> 291.00% - 295.00% </li> <li class="key-spec infocat-prop__loanAmountRange"> <span class="key-spec__title"> <strong>Loan Amount:</strong> </span> $200 - $2,500 </li> <li class="key-spec infocat-prop__earliestRepayment"> <span class="key-spec__title"> <strong>Loan Terms:</strong> </span> 6 Months - 12 Months </li> </ul> <!-- CTA Button (commerce button) --> <div class="loc cta productrecord__cta-button" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductRecordBlock - Button"> <a class="mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button" data-click-action="OffPageClick - External" data-retailer-caption="On Money Key" data-tracking-container="false" href="https://www.moneykey.com" id="mntl-commerce-btn_1-0-2" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-commerce-btn mntl-text-link mntl-sc-block-commerce__button --> </div> </div> </div> </div> <div class="tabbed-sc-block tabbed-sc-block--no-tabs tabbed-sc-block--full-accordion" data-click-action="OnPageClick-Product Tab Click" data-tracking-container="true" data-tracking-id="PRM Roundup | ProductCard"> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Why We Chose It</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="1"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-24"> Money Key's loans are available if you need money fast and don't qualify for bank loans. There’s no credit check and you may be approved if you have: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-25"> <li>Income</li><li>A bank account</li><li>Valid contact information</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-26"> You can get your money the same day if you're approved and there are no origination fees. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/repayment.asp">Repayment</a> is based on your pay dates, so if you’re paid weekly, biweekly, or semi-monthly, you’ll have two payments due each month.  </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-27"> Money Key's rates are the highest on our list, so you'll pay more in the end. Paying your loan off early can help you save on finance charges. If you choose to repay it early, there are <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>. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content is-active is-initial-load" data-tab-index="2"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_3-0-29"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Same-day funding</p></li> <li><p>Low minimum loan amount</p></li> <li><p>No prepayment penalty</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>Available only in seven states</p></li> <li><p>High APR</p></li> <li><p>No refinancing option</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="3"> <span class="tabbed-sc-block__text">Qualifications</span> </div> <div class="tabbed-sc-block__content js-tabbed-content" data-tab-index="3"> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-31"> To qualify for a Money Key loan, you must: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_3-0-32"> <li>Be of legal age to contract in your state</li><li>Be a U.S. citizen or permanent resident</li><li>Have an active bank account</li><li>Have a regular source of income</li><li>Have a valid contact number and an active email address</li><li>Money Key loans are only available in Delaware, Idaho, Mississippi, Missouri, Texas, Utah, and Wisconsin</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> </div><!-- end: comp list-sc-item__intro mntl-block --> </div><!-- end: comp list-sc-item__content mntl-block --> </div><!-- end: comp mntl-sc-list-item structured-content list-sc-item mntl-block --> </div> <div class="article-outro article-container"> <div class="comp js-table-scroll structured-content comparison-table prm-comparison-table--finance prm-comparison-table litho-comparison-table" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table" id="comparison-table_1-0"> <span class="heading-toc" id="comparison-table"></span> <h2 class="litho-comparison-table__header">Compare the Best Personal Loans With No Credit Check for 2024</h2> <table class="litho-comparison-table__table litho-comparison-table__table--pivot"> <thead class="loc tableHead"> <tr class="comp litho-comparison-table__header-row mntl-block" id="litho-comparison-table__header-row_1-0"> <th class="comp mntl-block" id="mntl-block_1-0"> <div class="comp js-table-action prm-comparison-table__collapse-btn mntl-text-block" data-action="toggle" data-class="litho-comparison-table__header-row--collapsed" data-click-action="Collapse" data-click-tracked="true" data-target=".litho-comparison-table__header-row" id="prm-comparison-table__collapse-btn_1-0"></div><!-- end: comp js-table-action prm-comparison-table__collapse-btn mntl-text-block --> </th><!-- end: comp mntl-block --> <th class="comp litho-comparison-table__head-text mntl-text-block" id="litho-comparison-table__head-text_1-0"> Best For</th><!-- end: comp litho-comparison-table__head-text mntl-text-block --> <th class="comp dynamic-properties-header litho-comparison-table__cell-block mntl-block" id="dynamic-properties-header_1-0"> <div class="comp comparison-table__heading-wrapper mntl-block" id="comparison-table__heading-wrapper_1-0"> <span class="comp comparison-table__heading-label mntl-text-block" id="comparison-table__heading-label_1-0"> APR Range</span><!-- end: comp comparison-table__heading-label mntl-text-block --> </div><!-- end: comp comparison-table__heading-wrapper mntl-block --> </th><!-- end: comp dynamic-properties-header litho-comparison-table__cell-block mntl-block --> <th class="comp dynamic-properties-header litho-comparison-table__cell-block mntl-block" id="dynamic-properties-header_1-0-1"> <div class="comp comparison-table__heading-wrapper mntl-block" id="comparison-table__heading-wrapper_1-0-1"> <span class="comp comparison-table__heading-label mntl-text-block" id="comparison-table__heading-label_1-0-1"> Average Origination Fee</span><!-- end: comp comparison-table__heading-label mntl-text-block --> </div><!-- end: comp comparison-table__heading-wrapper mntl-block --> </th><!-- end: comp dynamic-properties-header litho-comparison-table__cell-block mntl-block --> <th class="comp dynamic-properties-header litho-comparison-table__cell-block mntl-block" id="dynamic-properties-header_1-0-2"> <div class="comp comparison-table__heading-wrapper mntl-block" id="comparison-table__heading-wrapper_1-0-2"> <span class="comp comparison-table__heading-label mntl-text-block" id="comparison-table__heading-label_1-0-2"> Late Fee</span><!-- end: comp comparison-table__heading-label mntl-text-block --> </div><!-- end: comp comparison-table__heading-wrapper mntl-block --> </th><!-- end: comp dynamic-properties-header litho-comparison-table__cell-block mntl-block --> <th class="comp dynamic-properties-header litho-comparison-table__cell-block mntl-block" id="dynamic-properties-header_1-0-3"> <div class="comp comparison-table__heading-wrapper mntl-block" id="comparison-table__heading-wrapper_1-0-3"> <span class="comp comparison-table__heading-label mntl-text-block" id="comparison-table__heading-label_1-0-3"> Time to Receive Loan</span><!-- end: comp comparison-table__heading-label mntl-text-block --> </div><!-- end: comp comparison-table__heading-wrapper mntl-block --> </th><!-- end: comp dynamic-properties-header litho-comparison-table__cell-block mntl-block --> <th class="comp dynamic-properties-header litho-comparison-table__cell-block mntl-block" id="dynamic-properties-header_1-0-4"> <div class="comp comparison-table__heading-wrapper mntl-block" id="comparison-table__heading-wrapper_1-0-4"> <span class="comp comparison-table__heading-label mntl-text-block" id="comparison-table__heading-label_1-0-4"> Loan Amount</span><!-- end: comp comparison-table__heading-label mntl-text-block --> </div><!-- end: comp comparison-table__heading-wrapper mntl-block --> </th><!-- end: comp dynamic-properties-header litho-comparison-table__cell-block mntl-block --> <th class="comp dynamic-properties-header litho-comparison-table__cell-block mntl-block" id="dynamic-properties-header_1-0-5"> <div class="comp comparison-table__heading-wrapper mntl-block" id="comparison-table__heading-wrapper_1-0-5"> <span class="comp comparison-table__heading-label mntl-text-block" id="comparison-table__heading-label_1-0-5"> Latest Repayment</span><!-- end: comp comparison-table__heading-label mntl-text-block --> </div><!-- end: comp comparison-table__heading-wrapper mntl-block --> </th><!-- end: comp dynamic-properties-header litho-comparison-table__cell-block mntl-block --> <th class="comp litho-comparison-table__head-text mntl-text-block" id="litho-comparison-table__head-text_2-0"></th><!-- end: comp litho-comparison-table__head-text mntl-text-block --> <th class="comp mntl-block" id="mntl-block_2-0"> <div class="comp js-table-action prm-comparison-table__reset-btn mntl-text-block" data-action="remove" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Reset All" data-click-tracked="true" data-target=".litho-comparison-table__product-row--hidden" id="prm-comparison-table__reset-btn_1-0"> Reset All</div><!-- end: comp js-table-action prm-comparison-table__reset-btn mntl-text-block --> </th><!-- end: comp mntl-block --> </tr><!-- end: comp litho-comparison-table__header-row mntl-block --> </thead> <tbody class="loc tableBody"> <tr class="comp js-table-hide-col litho-comparison-table__product-row--0 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_1-0"> <td class="comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block" id="prm-comparison-table__header_1-0"> OppLoans</td><!-- end: comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-text mntl-text-block" id="litho-comparison-table__cell-text_1-0"> Best Overall</td><!-- end: comp litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0"> 160.00% - 179.00%</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-1"> 0.00%</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-2"> $0</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-3"> 0 days</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-4"> $500 - $4,000</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-5"> 18 months</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_1-0"> <a class="mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table - Button" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=c52ec50b-6995-4425-bed4-6c1108667bb1&amp;tag.pref_partner=opploans" id="mntl-sc-block-commerce__button_1-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_2-0"> <div class="comp js-table-action prm-comparison-table__hide-btn mntl-text-block" data-action="add" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Hide Record | OppLoans" data-click-tracked="true" data-target=".litho-comparison-table__product-row--0" id="prm-comparison-table__hide-btn_1-0"> Hide, not for me</div><!-- end: comp js-table-action prm-comparison-table__hide-btn mntl-text-block --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp js-table-hide-col litho-comparison-table__product-row--0 litho-comparison-table__product-row mntl-block --> <tr class="comp js-table-hide-col litho-comparison-table__product-row--1 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_1-0-1"> <td class="comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block" id="prm-comparison-table__header_1-0-1"> Fig Loans</td><!-- end: comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-text mntl-text-block" id="litho-comparison-table__cell-text_1-0-1"> Best for Small Loans</td><!-- end: comp litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-6"> 35.99% - 211.00%</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-7"> Not Disclosed</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-8"> $0</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-9"> 0 days</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-10"> $50 - $500</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-11"> 10 Months</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_1-0-1"> <a class="mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button" data-affiliate-link-rewriter="tag.docid=${DOC_ID}&amp;tag.reqid=${REQUEST_ID}" data-click-action="OffPageClick - External" data-retailer-caption="On Fiona" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table - Button" href="https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=5dd00d14-43c0-43ca-a904-8f15466c00eb&amp;tag.pref_partner=figloans" id="mntl-sc-block-commerce__button_1-0-1" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_2-0-1"> <div class="comp js-table-action prm-comparison-table__hide-btn mntl-text-block" data-action="add" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Hide Record | Fig Loans" data-click-tracked="true" data-target=".litho-comparison-table__product-row--1" id="prm-comparison-table__hide-btn_1-0-1"> Hide, not for me</div><!-- end: comp js-table-action prm-comparison-table__hide-btn mntl-text-block --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp js-table-hide-col litho-comparison-table__product-row--1 litho-comparison-table__product-row mntl-block --> <tr class="comp js-table-hide-col litho-comparison-table__product-row--2 litho-comparison-table__product-row mntl-block" id="litho-comparison-table__product-row_1-0-2"> <td class="comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block" id="prm-comparison-table__header_1-0-2"> Money Key</td><!-- end: comp prm-comparison-table__header litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-text mntl-text-block" id="litho-comparison-table__cell-text_1-0-2"> Best With No Origination Fee</td><!-- end: comp litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-12"> 291.00% - 295.00%</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-13"> 0.00%</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-14"> $0.00</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-15"> N/A</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-16"> $200 - $2,500</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block" id="dynamic-properties-value_1-0-17"> 12 Months</td><!-- end: comp dynamic-properties-value litho-comparison-table__cell-text mntl-text-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_1-0-2"> <a class="mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button" data-click-action="OffPageClick - External" data-retailer-caption="On Money Key" data-tracking-container="true" data-tracking-id="PRM Roundup | Comparison Table - Button" href="https://www.moneykey.com" id="mntl-sc-block-commerce__button_1-0-2" rel="noopener nofollow nocaes" target="_blank"><span class="link__wrapper">Check Rates</span></a><!-- end: mntl-sc-block-commerce__button mntl-commerce-button js-extended-commerce__button commerce-button --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> <td class="comp litho-comparison-table__cell-block mntl-block" id="litho-comparison-table__cell-block_2-0-2"> <div class="comp js-table-action prm-comparison-table__hide-btn mntl-text-block" data-action="add" data-class="litho-comparison-table__product-row--hidden" data-click-action="OnPageClick-Hide Record | Money Key" data-click-tracked="true" data-target=".litho-comparison-table__product-row--2" id="prm-comparison-table__hide-btn_1-0-2"> Hide, not for me</div><!-- end: comp js-table-action prm-comparison-table__hide-btn mntl-text-block --> </td><!-- end: comp litho-comparison-table__cell-block mntl-block --> </tr><!-- end: comp js-table-hide-col litho-comparison-table__product-row--2 litho-comparison-table__product-row mntl-block --> </tbody> </table> <span class="litho-comparison-table__footnote">*APR ranges for some companies include a discount for automatic payments or existing bank customers.</span> </div><!-- end: comp js-table-scroll structured-content comparison-table prm-comparison-table--finance prm-comparison-table litho-comparison-table --> <div class="comp structured-content article-outro__content prm-sc-page mntl-sc-page mntl-block" id="article-outro__content_1-0"> <span class="heading-toc" id="toc-the-bottom-line"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-1"> Personal loans with no credit check are an option for quick and easy borrowing if you have poor or no credit. OppLoans tops our list because of its wide availability, range of loan amounts, and lower APRs. But, Fig Loans and Money Key suit most smaller borrowing needs and have short repayment periods, but they are only available in a handful of states. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-tip mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_4-0-2"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p>The Consumer Financial Protection Bureau suggests that you check your credit report once a year.<span class="ql-inline-citation" data-cite="17"></span> You can get free reports from the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-finance/top-three-credit-bureaus/">three major credit reporting agencies</a>. You can also check your credit score using a credit score service or your credit card statement. The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/us-department-housing-urban-development-hud.asp">U.S. Department of Housing and Urban Development (HUD)</a> can also help you access credit counselors who can pull and review your credit report with you.<span class="ql-inline-citation" data-cite="16"></span> Doing so can help you identify problems and correct mistakes so you won't be affected in the future.</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-guide-to-choosing-the-best-personal-loans-with-no-credit-check"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-3"> <span class="mntl-sc-block-heading__text"> Guide to Choosing the Best Personal Loans With No Credit Check </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <h3 class="comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_4-0-4"> <span class="mntl-sc-block-subheading__text"> What Is a No Credit Check Personal Loan, and How Does It Work? </span> </h3><!-- end: comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-5"> A no credit check personal loan is a type of loan that relies on non-traditional information rather than credit information for loan approval. For instance, lenders may consider a borrower’s bank deposit history instead of their credit score. </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"> These loans are convenient if you have bad credit or you haven’t established a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-history.asp">credit history</a> yet.<span class="ql-inline-citation" data-cite="12"></span> However, they can be risky and tend to have much higher interest rates compared to personal loans that do check credit. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_4-0-7"> <span class="mntl-sc-block-subheading__text"> Pros and Cons of Personal Loans With No Credit Check<br/> </span> </h3><!-- end: comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_4-0-8"> <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>Better chances of approval</p></li> <li><p>Quick funding</p></li> <li><p>Helps establish or improve your credit score</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>High APRs</p></li> <li><p>Not as common</p></li> <li><p>Shorter repayment terms</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> <h3 class="comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_4-0-9"> <span class="mntl-sc-block-subheading__text"> Pros Explained  </span> </h3><!-- end: comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-10"> <li><strong>Higher odds of approval</strong>: You may be able to borrow a no credit check personal loan with only a bank account and a steady source of income.</li> <li><strong>Fast funding</strong>: Lenders often make funds available no later than the next business day after approval. Some offer same-day funding.</li> <li><strong>Credit bureau reporting</strong>: Many lenders report your loan history 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>, which can help establish or improve your credit score.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_4-0-11"> <span class="mntl-sc-block-subheading__text"> Cons Explained<br/> </span> </h3><!-- end: comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-12"> <li><strong>Higher APRs</strong>: Interest rates on no credit check personal loans are significantly higher than traditional personal loans. Rates may be higher which significantly increases the cost of borrowing. </li> <li><strong>Less availability</strong>: Personal loans that don’t require a credit check are less common, so there are fewer lenders to choose from. In addition, loans are often available only in specific states.</li> <li><strong>Shorter repayment terms</strong>: Because of the high-risk nature of no credit check loans, loans typically have to be repaid in 18 months or less. Personal loans from traditional lenders may have <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/repayment.asp">repayment</a> terms of up to seven years.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-how-to-get-a-personal-loan-with-no-credit-check"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-13"> <span class="mntl-sc-block-heading__text"> How to Get a Personal Loan With No Credit Check </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_4-0-14"> Understand what you need and can afford to repay. This can help prevent you from borrowing more than you're capable of repaying. After you've shopped around and chosen a lender, you'll need to submit an application and provide your personal, employment, and income information. In addition to your application details, lenders may also ask for your driver's license and bank details or copies of your bank statements to review your deposits and determine eligibility. </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"> Here are some other common details that lenders may require on an application: </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>Your age:</strong> Lenders cannot discriminate based on age. However, some states require that borrowers meet minimum age requirements before they can enter a legal financial contract with a lender.</li> <li><strong>Legal residency:</strong> Just like age, lenders can't turn you down because of your national origin. They may ask you about your residency status to determine whether you can pay back the loan. Keep in mind that non-residents and non-citizens may still qualify, but it may be tougher to be approved.</li> <li><strong>Income: </strong>Almost all lenders ask you for your income and employment information. This is to ensure that your source of income is enough to repay the loan. Some companies may have an income threshold before you can borrow.</li> <li><strong><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dti.asp">Debt-to-income (DTI) ratio</a>: </strong>This ratio represents how much of your income goes to pay off your debts every month. As such, it helps lenders see how much of a risk you are if they approve you for a loan.</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_4-0-17"> If you meet the qualifications, your loan application will be approved. You'll have a chance to review the loan amount and terms, including cost and repayment details. Accept the loan if you agree to the terms, and you'll often receive funds by the next business day. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_4-0-18"> <span class="mntl-sc-block-subheading__text"> Where to Get a No Credit Check Loan </span> </h3><!-- end: comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-19"> There are several places to find no credit check loans. The loan amount, interest rate, and repayment terms will vary depending on the lender. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-20"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-online-personal-loans-5071376">Online lenders</a></li> <li>Payday lenders</li> <li>Auto title lenders</li> <li>Pawn shops</li> <li>Banks or credit unions (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/secured-loans-5076025">secured loans</a>)</li> <li>Family or friends</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_4-0-21"> <span class="mntl-sc-block-subheading__text"> The Cost of No Credit Check Loans<br/> </span> </h3><!-- end: comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-22"> Several financial functions decide how much your no credit check personal loan costs to close as well as carry. Let's take a look at what these costs are and why these costs are higher compared to other types of personal loans. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-23"> First, let's talk about <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>. No credit check loans typically carry higher interest rates to compensate for the increased risk assumed by the lender. Even if there's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/collateral.asp">collateral</a> involved, a lender may not risk lending money to someone they have not comprehensively reviewed for cheap. Even our top no credit check personal loan option OppLoan carries with it an APR range of 160% to 179%.<span class="ql-inline-citation" data-cite="15"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-24"> Next, lenders may impose various fees when they <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/u/underwriting.asp">underwrite</a> or close the loan. One of the most common charges is the origination fee. OppLoan's fee is $0, though other lenders may incur a charge as part of the process of getting financing.<br/> </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"> Last, the loan term and loan amount can dictate your cost. The good news here is short-term loans with quick repayment periods may have lower overall costs but higher monthly payments. In the case of OppLoan, your loan wouldn't be able to be longer than 18%. This is favorable to the lender as long, drawn-out loan terms mean you're carrying interest for longer.<span class="ql-inline-citation" data-cite="12"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-comparing-personal-loans-with-no-credit-check"></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"> Comparing Personal Loans With No Credit Check  </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"> If you’re comparing no credit check lenders, there are several features to consider to narrow down your options: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-28"> <li><strong>APRs</strong>: This is the total annual cost of borrowing money. The higher the APR, the more expensive the loan.</li> <li><strong>Fees</strong>: Look for upfront <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/disclosure.asp">disclosure</a> of all fees before you accept the loan.</li> <li><strong>Co-signer availability</strong>: Some lenders may not allow you to add a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/co_sign.asp">co-signer</a> to your no credit check loan application.</li> <li><strong>State availability</strong>: Many lenders only provide loans in a few states. Verify that loans are available in your state before applying.</li> <li><strong>Loan use restrictions</strong>: If you have a specific need in mind, determine whether you're allowed to use the loan for that purpose.</li> <li><strong>Funds timing</strong>: For urgent borrowing, look for lenders that offer same-day funding. Check to see whether there's an application cutoff time for same-day funding.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp mntl-sc-block prm-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_4-0-29"> <iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp lazyload mntl-sc-block-iframe__uri mntl-block" data-src="https://datawrapper.dwcdn.net/lgshq" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Average APR by credit score"></iframe><!-- end: comp lazyload mntl-sc-block-iframe__uri mntl-block --> </div><!-- end: comp mntl-sc-block prm-sc-block-iframe mntl-sc-block-iframe mntl-block --> <h3 class="comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_4-0-30"> <span class="mntl-sc-block-subheading__text"> Types of No Credit Check Loans<br> </br></span> </h3><!-- end: comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-31"> This article is primarily about personal loans. However, there are several other types of no credit check loans you can use to secure financing for a variety of reasons. These types of no credit check loans may include but aren't necessarily limited to:<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_4-0-32"> <li><strong>No credit check personal loans: </strong>Some lenders offer personal loans without conducting a traditional credit check. These loans are unsecured, meaning there is no tangible asset backing them up as collateral. Instead, approval may be based on income or your employment verification. </li> <li><strong>Title loans: </strong><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/titleloan.asp">Title loans</a> are loans that use your car title as collateral to secure the loan. The loan amount is based on the appraised value of the vehicle. If you fail to repay the loan according to the agreed-upon terms, you risk losing your vehicle. In this case, the lender may not make a credit check since credit history plays less of a factor (since the loan may be fully covered by collateral). </li> <li><strong>Cash advances:</strong> <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cashadvance.asp">Cash advances</a> allow borrowers to withdraw cash against their credit card's credit limit. The borrower would have already gone through the credit check stage when they received the credit card; the loan against this credit limit may not require an additional credit check. </li> <li><strong>Pawn shop loans:</strong> <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/112415/how-pawnshops-make-money.asp">Pawn shop</a> loans involve using valuable items as collateral for a short-term loan. You can receive a no credit check pawn shop loan based on the appraised value of your item. If you aren’t able to repay the loan, your pawned item is forfeited. Because the pawn shop holds collateral, they often do not require a credit check. </li> <li><strong>Guarantor loans: </strong>Guarantor loans involve a co-signer or guarantor with good credit agreeing to repay the loan if the borrower defaults. This arrangement helps someone with a low credit score or small credit history obtain credit. Depending on the strength of the co-signer or guarantor’s financial health, the lender may not require a credit check from the other borrower.</li> <li><strong>Emergency loans: </strong><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/emergency-loans-for-bad-credit-5075539">Emergency loans</a> are other types of loans intended to address urgent financial needs. They’re meant to have a quick application and approval process so you can get your loan money quickly. Be mindful that though no credit check is usually needed, energy loans may have much less favorable loan terms. </li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-alternatives-to-no-credit-check-personal-loans"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-33"> <span class="mntl-sc-block-heading__text"> Alternatives to No Credit Check Personal Loans </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-34"> No credit check personal loans may not suit all borrowing needs or cost preferences. Consider these alternatives: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-35"> <li><strong>Secured loans</strong>: Secured loans, such as those that use your car or savings as collateral, are a useful choice if you don't have excellent credit. Because the loan is backed by collateral, you’re more likely to qualify for a loan and get a lower rate than with an unsecured loan.<span class="ql-inline-citation" data-cite="13"></span></li> <li><strong>Bad credit loans</strong>: <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 loans</a> are loans for people with credit in the poor to fair range, meaning a score between 300 and 669. They have higher-than-average APRs, but their rates will likely be lower than you’d get with no credit check loans or payday loans.</li> <li><strong>Credit union loans</strong>: Some credit unions have personal loans specifically designed for people with poor credit or no credit who are facing emergency expenses. They usually have lower APRs than you’d find with other lenders and less stringent eligibility requirements. You can find a local credit union by using the National Credit Union Administration’s locator tool.</li> <li><strong>Co-signed loans</strong>: Some lenders allow you to apply with a co-signer (someone with good credit and a source of income). Co-signed loans may improve your chances of qualifying for a traditional personal loan or qualifying with better rates.</li> <li><strong>Buy now, pay later (BNPL) loans</strong>: <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-buy-now-pay-later-apps-5186864">BNPL loans allow</a> you to spread payments for purchases over a few weeks or months. Depending on the service and the merchant you choose, the APRs and fees can be relatively low.<span class="ql-inline-citation" data-cite="14"></span> Some don't charge any fees or interest.</li> <li><strong>Payday advance apps</strong>: If you’re currently employed and need a relatively small amount of money to pay for an emergency expense, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/the-best-cash-advance-apps-7973242">cash advance apps</a> like Earnin or Dave allow you to get an advance of your next paycheck. You can get as much as $500 in most states with no credit checks or interest charges.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_4-0-36"> <span class="mntl-sc-block-subheading__text"> Should You Apply for a Personal Loan With No Credit Check? </span> </h3><!-- end: comp mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-37"> You might apply for a no credit check personal loan for quick funding or your credit history makes it difficult to get approved for a traditional loan. Since there's no credit check, applying won't trigger a new credit inquiry or affect your credit score. Lenders look for consistent income history to determine loan eligibility, so you'll need to have a reliable source of income to get approved. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-38"> If you're ultimately approved, the funds can be used for a variety of short-term needs including car or home repairs or emergency medical expenses. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-39"> Because of the risk and cost associated with personal loans with no credit check, it wouldn't be financially wise to use these loans for optional spending like shopping, gifts, or leisure travel. Make sure you can afford the payments. Some lenders report loan activity to credit bureaus, even when there's no credit check for the initial loan. Late and missed payments can impact your credit score. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-why-you-should-trust-us"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-40"> <span class="mntl-sc-block-heading__text"> Why You Should Trust Us<br/> </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-41"> Investopedia collected and analyzed hundreds of key data points from over 70 companies across three months to identify the most important factors for readers choosing a lending company that doesn't perform credit checks. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-42"> We used this data to review each company for fees, repayment terms, income requirements, and other features to provide unbiased, comprehensive reviews to ensure our readers make the right decision for their needs. Investopedia launched in 1999 and has helped millions of readers around the world become educated on personal finance. </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_4-0-43"> <span class="heading-toc" id="toc-frequently-asked-questions-faqs-a7e8b125-ee5a-43e0-8458-6d6e9e774ad2"></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's the Maximum Amount You Can Get With a No Credit Check Personal Loan?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-0"> <div class="faq-accordion__item-answer"> <p>No credit check personal loan amounts vary by lender. While many only allow you to borrow a small amount, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/opploans-personal-loans-review-5069762">OppLoans</a> offers a maximum loan amount of $4,000.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$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 High Are Interest Rates for No Credit Check Loans?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-1"> <div class="faq-accordion__item-answer"> <p>Interest rates for no credit check loans tend to be significantly higher than <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/personal-interest.asp">traditional personal loans</a>. Among the lenders we reviewed, the highest rate was up to 295%.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-2" tabindex="-1"> <h3 class="accordion__title">What's the Difference Between a Soft and Hard Credit Inquiry?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-2"> <div class="faq-accordion__item-answer"> <p>Credit checks allow companies to view your credit history. Lenders use them to evaluate your creditworthiness and determine if you're eligible for credit. A soft credit inquiry doesn't hurt your credit score. Soft inquiries are commonly used for pre-approval purposes and background checks. A hard inquiry, on the other hand, appears on your credit report and impacts your credit score. It provides your lender with your full credit history when you apply for credit.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-3" tabindex="-1"> <h3 class="accordion__title">What Are Some of the Drawbacks of No Credit Check Loans?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-3"> <div class="faq-accordion__item-answer"> <p>No credit check loans are a great option for anyone with bad credit, no credit, or just doesn't want an inquiry to impact their score. Some of the disadvantages of these types of loans include high interest rates and extra fees, which can increase the overall cost of your loan.</p><p>Keep in mind that you aren't <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/easiest-personal-loans-approved-7644059">guaranteed approval</a> with no credit check. That's because you can be denied because of insufficient income, lack of banking activity, unemployment, identify verification problems, and other reasons.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-4" tabindex="-1"> <h3 class="accordion__title">How Do I Establish a Credit History if I Have None?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-4"> <div class="faq-accordion__item-answer"> <p>There are several ways you can begin to lay down a foundation for your credit history if you have no credit. Apply for a secured credit card through your bank or financial institution. The bank generally holds a deposit that is the equivalent of your credit line as security until it feels you have developed a good track record. You may also consider becoming an authorized user on someone else's card or applying for a store credit card. Once you've established your credit history, make sure that you make payments on time and use your credit judiciously to keep your credit score in tact.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$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 Should I Look Out for When Shopping for a No Credit Check Loan?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-5"> <div class="faq-accordion__item-answer"> <p>No credit check loans do not rely on your credit history to be approved, which can be great if you have no or bad credit. But there are some factors to consider before you agree to anything. This means you should do your due diligence and research the pros and cons of borrowing using a no credit check loan thoroughly. Compare APRs, loan terms, and conditions. Approach some lenders with caution as their terms and conditions may lead you further into debt. And be sure to read the fine print of any contract before you sign.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-6" tabindex="-1"> <h3 class="accordion__title">What Are Some Alternatives to No Credit Check Loans?</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-6"> <div class="faq-accordion__item-answer"> <p>You may easily qualify for a loan with no credit check. Keep in mind that these loans often come with higher fees and unfavorable loan terms. That's why you may want to consider some alternatives, including:</p><ul><li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-secured-personal-loans-5114143">Personal loans with co-signers or co-borrowers</a></li><li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-secured-loans-for-bad-credit-7255752">Secured personal loans</a></li><li>Loans from family or friends</li></ul><p>These options may help save you money in the long run.<br/></p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> <li class="accordion__item js-accordion-item is-active"> <div class="accordion__header js-accordion-trigger" id="mntl-sc-block-faq__content_1-section-7" tabindex="-1"> <h3 class="accordion__title">Companies We Reviewed</h3> </div><!--end accordion__header--> <div class="accordion__body"> <div class="comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content" id="mntl-sc-block-faq__accordion-content_1-0-section-7"> <div class="faq-accordion__item-answer"> <p>We researched and reviewed more than 70 banks to find the best lenders you see above on this list. While we write individual reviews for most companies we research, we do not always write reviews for companies we would not recommend. These are the banks we researched, along with links to individual company reviews, to help you learn more before making a decision: </p><p><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/freedom-plus-personal-loans-review-4800935">Achieve</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/affinity-federal-credit-union-personal-loans-review-8410017">Affinity Federal Credit Union</a>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/alliant-credit-union-personal-loans-review-8401682">Alliant Credit Union</a>, <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/american-express-personal-loans-review-5069612">American Express</a>, <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/avant-personal-loans-review-4802261">Avant</a>, <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/axos-bank-personal-loans-review-8408454">Axos Bank</a>, Bankers Healthcare Group, <a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-egg-personal-loans-review-4802359">Best Egg</a>, <a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/bethpage-federal-credit-union-personal-loans-review-8365116">Bethpage Federal Credit Union</a>, <a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/blue-federal-credit-union-personal-loans-review-8374431">Blue Federal Credit Union</a>, Boatloan.com, <a data-component="link" data-ordinal="10" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/becu-personal-loans-review-5211750">Boeing Employees' Credit Union</a>, CapexMD, <a data-component="link" data-ordinal="11" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/citibank-personal-loans-review-4799909">Citibank</a>, <a data-component="link" data-ordinal="12" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/connexus-credit-union-personal-loans-review-8407390">Connexus Credit Union</a>, <a data-component="link" data-ordinal="13" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/discover-personal-loans-review-4799530">Discover</a>, Dividend Finance, <a data-component="link" data-ordinal="14" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ent-credit-union-personal-loans-review-8373870">ENT Credit Union</a>, Fig Loans, <a data-component="link" data-ordinal="15" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/first-tech-federal-credit-union-personal-loans-review-5070073">First Tech Federal Credit Union</a>, Future Family, GoodLeap, <a data-component="link" data-ordinal="16" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/greenstate-credit-union-personal-loans-review-8408463">Greenstate Credit Union</a>, <a data-component="link" data-ordinal="17" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/payoff-personal-loans-review-4842918">Happy Money</a>, <a data-component="link" data-ordinal="18" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/hiway-credit-union-personal-loans-review-8411068">Hiway Credit Union</a>,<a data-component="link" data-ordinal="19" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/lake-michigan-credit-union-personal-loans-review-8384413">Lake Michigan Credit Union</a>,<a data-component="link" data-ordinal="20" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/laurel-road-personal-loans-review-4799934"> Laurel Road</a>, <a data-component="link" data-ordinal="21" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/lendingclub-personal-loans-review-4800191">LendingClub</a>, <a data-component="link" data-ordinal="22" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/lendingpoint-personal-loans-review-4842605">LendingPoint</a>, <a data-component="link" data-ordinal="23" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/lendingusa-personal-loans-review-8404359">LendingUSA</a>, <a data-component="link" data-ordinal="24" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/liberty-federal-credit-union-personal-loans-review-8408457">Liberty Federal Credit Union</a>, <a data-component="link" data-ordinal="25" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/lightstream-personal-loans-review-4800841">LightStream</a>, Lyon Financial, Mariner, Money Key, <a data-component="link" data-ordinal="26" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mountain-america-credit-union-personal-loans-review-8391160">Mountain America Credit Union</a>, <a data-component="link" data-ordinal="27" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/nasa-federal-credit-union-personal-loans-review-8384484">NASA Federal Credit Union</a>, <a data-component="link" data-ordinal="28" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/navy-federal-credit-union-personal-loans-review-4844366">Navy Federal Credit Union</a>, <a data-component="link" data-ordinal="29" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/netcredit-personal-loans-review-6890038">Netcredit</a>, <a data-component="link" data-ordinal="30" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/first-midwest-bank-personal-loans-review-5070056">Old National Bank</a>, <a data-component="link" data-ordinal="31" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/onemain-financial-personal-loans-review-4843162">OneMain Financial</a>, <a data-component="link" data-ordinal="32" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/opploans-personal-loans-review-5069762">OppLoans</a>, <a data-component="link" data-ordinal="33" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/patelco-credit-union-personal-loans-review-8364504">Patelco Credit Union</a>, <a data-component="link" data-ordinal="34" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/penfed-personal-loans-review-4800862">PenFed</a>, <a data-component="link" data-ordinal="35" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personify-financial-personal-loans-review-8363570">Personify Financial</a>, <a data-component="link" data-ordinal="36" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/pnc-personal-loan-review-4846471">PNC Bank</a>, <a data-component="link" data-ordinal="37" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/prosper-personal-loans-review-4843741">Prosper</a>, <a data-component="link" data-ordinal="38" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/reach-financial-personal-loans-review-8383953">Reach Financial</a>, <a data-component="link" data-ordinal="39" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/regions-personal-loans-review-5072600">Regions</a>, <a data-component="link" data-ordinal="40" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/reprise-financial-personal-loans-review-8408473">Reprise</a>, <a data-component="link" data-ordinal="41" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/rocket-loans-personal-loans-review-5069748">Rocket Loans</a>, <a data-component="link" data-ordinal="42" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/santander-bank-personal-loans-review-5211820">Santander</a>, <a data-component="link" data-ordinal="43" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/service-credit-union-personal-loans-review-8410020">Service Federal Credit Union</a>, <a data-component="link" data-ordinal="44" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sofi-personal-loans-review-4797398">SoFi</a>, Southeast Financial, <a data-component="link" data-ordinal="45" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/summit-credit-union-personal-loans-review-8414132">Summit Credit Union</a>, SunPower, <a data-component="link" data-ordinal="46" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/td-bank-personal-loans-review-4801451">TD Bank</a>, <a data-component="link" data-ordinal="47" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/teachers-federal-credit-union-personal-loan-review-8399783">Teachers Federal Credit Union</a>, Trident Funding, <a data-component="link" data-ordinal="48" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/truist-personal-loans-review-5210721">Truist</a>,<a data-component="link" data-ordinal="49" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/us-bank-personal-loans-review-4843013"> U.S. Bank</a>, <a data-component="link" data-ordinal="50" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/universal-credit-personal-loans-review-8410022">Universal Credit</a>,<a data-component="link" data-ordinal="51" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/upgrade-personal-loans-review-4842832"> Upgrade</a>, <a data-component="link" data-ordinal="52" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/upstart-personal-loans-review-4843810">Upstart</a>, <a data-component="link" data-ordinal="53" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/usaa-personal-loans-review-4845449">USAA</a>, Vantage Recreational Finance, <a data-component="link" data-ordinal="54" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/wells-fargo-personal-loans-review-4842091">Wells Fargo</a>.</p> </div> </div><!-- end: comp class com.about.mantle.model.extended.docv2.sc.blocks.StructuredContentFaqEx$Faq mntl-sc-block-faq__accordion-content --> </div><!--end accordion__body--> </li><!--end accordion__item--> </ul><!-- end: comp mntl-sc-block-faq__content mntl-accordion --> <!--end accordion --> </div><!-- end: comp mntl-sc-block prm-sc-block-faq--finance prm-sc-block-faq mntl-sc-block-faq mntl-block --> <span class="heading-toc" id="toc-how-we-pick-the-best-no-credit-check-personal-loans"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-44"> <span class="mntl-sc-block-heading__text"> How We Pick the Best No Credit Check Personal Loans </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-45"> To evaluate and rank personal loan providers we collected hundreds of data points across more than 70 lenders, including traditional banks, credit unions, fintechs, and special interest finance companies. We researched and evaluated APRs, loan amounts and terms, fees, customer experience, and much more. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-46"> To rank the lenders in our database and to generate star ratings, we weighted the data we collected, based in part on what consumers told us were the most important features of a personal loan and lender in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investopedia-2023-personal-loan-borrower-survey-8383574">survey we conducted</a>. We grouped those factors into four broad areas: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-47"> <li>Loan costs (advertised APR, fees, and six other factors): 29.25%</li><li>Loan terms (loan amount, repayment term, and three other factors): 22.25%</li><li>Borrowing requirements (credit score, membership requirement, and six other factors): 28.5%</li><li>Additional features (online application, pre-qualification, and eight other factors): 20%</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-48"> Learn more about how we evaluated personal loans in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-loan-review-methodology-5088280">our complete methodology</a>. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-guide-to-no-credit-check-personal-loans"></span> <h2 class="comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_4-0-49"> <span class="mntl-sc-block-heading__text"> Guide to No Credit Check Personal Loans<br/> </span> </h2><!-- end: comp mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-50"> Learn more about personal loans: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_4-0-51"> <li><strong><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-loan-5076027">What is a personal loan?</a>:</strong> A personal loan is an installment loan that can help you cover different personal expenses. Loans can be secured or unsecured, and are taken through banks, credit unions, and other financial institutions.</li> <li><strong><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-personal-loans-work-7484814">How do personal loans work?</a>: </strong>When you take out a personal loan, your lender deposits the proceeds as a lump sum in your account. Most lenders require that you pay your loan back in regular installments, usually monthly, plus interest.</li> <li><strong><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/111715/when-are-personal-loans-good-idea.asp">When are personal loans a good idea?</a>:</strong> You can use a personal loan for any purpose, including debt consolidation, to buy a new car, or to take a vacation. But before you apply, make sure you can repay the loan to ensure you don't damage your credit.</li> <li><strong><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-get-a-personal-loan-7642254">How to get a personal loan</a>: </strong>There are several steps to getting a personal loan. Do your research on lenders and rates and see if you pre-qualify. Make a formal application (if necessary) and sign your loan documents when you're approved. After you receive your funds, begin repaying your loan.</li> <li><strong><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/010516/how-apply-personal-loan.asp">How to apply for a personal loan</a>:</strong> Applying for a personal loan is fairly easy. Before you apply, though, review your finances and decide how much you need and can afford to borrow. Review the lenders that are available to you, see if you pre-qualify, and submit your application online or in person.</li> <li><strong><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-use-personal-loan-7562541">How to use a personal loan</a>: </strong>You can use a personal loan for any reason. Personal loans are helpful when you want to consolidate debt, make home improvements, cover emergencies, or make large purchases.</li> <li><strong><a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/where-to-get-a-personal-loan-other-than-a-bank-7643189">Where to get a personal loan</a>: </strong>You can apply for and get a personal loan from a bank or credit union. You may also want to consider other financial institutions and online lenders. Requirements and interest rates vary based on the lender you choose.</li> <li><strong><a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/041415/pros-cons-personal-loans-vs-credit-cards.asp">Personal loans vs. credit cards</a>:</strong> Personal loans are installment loans that usually come with fixed rates and can only be used once. Credit cards have revolving credit lines, which means you can use them more than once, and require at least a minimum payment.</li> <li><strong><a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/7-alternatives-personal-loan-7567417">Alternatives to personal loans</a>: </strong>Some of the common alternatives to personal loans include credit cards, lines of credit, payday loans, and retirement loans among others.</li> <li><strong><a data-component="link" data-ordinal="10" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-loan-calculator-5082130">Personal loan calculator</a>: </strong>A personal loan calculator can help you figure out your loan payments and overall costs before you apply.</li> <li><strong><a data-component="link" data-ordinal="11" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/personal-loan-review-methodology-5088280">Personal loans methodology</a>: </strong>Review our methodology to see how we came up with our lists of best personal loans.</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div><!-- end: comp structured-content article-outro__content prm-sc-page mntl-sc-page mntl-block --> </div> <figure class="comp figure-landscape primary-image--roundup primary-image mntl-universal-primary-image primary-image" id="primary-image--roundup_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:66.6%;"> <img alt="Business woman thinking about personal loans" class="primary-image__image mntl-primary-image--blurry" height="1000" onload="(function(e){e.classList.add('loaded')})(this)" sizes="750px" 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OppLoans tops our list of best personal loan lenders with no credit checks because it doesn't charge [origination fees](https://www.investopedia.com/terms/o/origination-fee.asp) and offers same-day funding. We collected and analyzed data from over 70 companies and selected the best lenders offering no [credit check](https://www.investopedia.com/terms/c/credit-checking.asp) loans by comparing interest rates, fees, loan amounts, and repayment terms. ## Best Personal Loans With No Credit Check for 2024 #### Show Full List View #### Hide Full List View * **Best Overall:** [OppLoans](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=c52ec50b-6995-4425-bed4-6c1108667bb1&tag.pref_partner=opploans) * **Best for Small Loans:** [Fig Loans](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=5dd00d14-43c0-43ca-a904-8f15466c00eb&tag.pref_partner=figloans) * **Best With No Origination Fee:** [Money Key](https://www.moneykey.com) If youre not seeing anything in the results that are a good fit for your needs, consider warranties from these companies: * [Best Home Warranties](https://www.investopedia.com/best-home-warranties-4777763) * [Best Emergency Loans for Bad Credit](https://www.investopedia.com/emergency-loans-for-bad-credit-5075539) * [Best Personal Loans for Bad Credit](https://www.investopedia.com/best-personal-loans-for-bad-credit-4774349) | Company | | APR | Credit Score est. | Loan Amount | More Details | | --- | --- | --- | --- | --- | --- | | Best Overall | OppLoans OppLoans | APR Range **160.00% - 179.00%** | Recommended Minimum Credit Score **Not Disclosed** This lender does not disclose its minimum credit score requirements. | Loan Amount **$500 - $4,000** | [See Details](#toc-opploans) [Check Rates](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=c52ec50b-6995-4425-bed4-6c1108667bb1&tag.pref_partner=opploans) | | Best for Small Loans | Fig Loans Fig Loans | APR Range **35.99% - 211.00%** | Recommended Minimum Credit Score **Not Disclosed** This lender does not disclose its minimum credit score requirements. | Loan Amount **$50 - $500** | [See Details](#toc-fig-loans) [Check Rates](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=5dd00d14-43c0-43ca-a904-8f15466c00eb&tag.pref_partner=figloans) | | Best With No Origination Fee | Money Key Money Key | APR Range **291.00% - 295.00%** | Recommended Minimum Credit Score **Not Disclosed** This lender does not disclose its minimum credit score requirements. | Loan Amount **$200 - $2,500** | [See Details](#toc-money-key) [Check Rates](https://www.moneykey.com) | Why Trust Us 70 Lenders reviewed 31 Loan features considered 1,680 Data points analyzed 173 Primary data sources used Investopedia collected key data points from several lenders to identify the most important factors to borrowers. We used this data to review each lender for fees, accessibility, repayment terms, and other features to provide unbiased, comprehensive reviews to ensure our readers make the right borrowing decision for their needs. [Read our Full Methodology](https://www.investopedia.com/personal-loan-review-methodology-5088280) Best Personal Loans With No Credit Check for 2024 Expand Best Personal Loans With No Credit Check for 2024 * [Our Top Picks](#summary-list) * [OppLoans](#toc-opploans) * [Fig Loans](#toc-fig-loans) * [Money Key](#toc-money-key) * [Compare Providers](#comparison-table) * [The Bottom Line](#toc-the-bottom-line) * [Guide to Choosing the Best Personal Loans With No Credit Check](#toc-guide-to-choosing-the-best-personal-loans-with-no-credit-check) * [How to Get a Personal Loan With No Credit Check](#toc-how-to-get-a-personal-loan-with-no-credit-check) * [Comparing Personal Loans With No Credit Check](#toc-comparing-personal-loans-with-no-credit-check) * [Alternatives to No Credit Check Personal Loans](#toc-alternatives-to-no-credit-check-personal-loans) * [Why You Should Trust Us](#toc-why-you-should-trust-us) * [Frequently Asked Questions (FAQs)](#toc-frequently-asked-questions-faqs-a7e8b125-ee5a-43e0-8458-6d6e9e774ad2) * [How We Pick the Best No Credit Check Personal Loans](#toc-how-we-pick-the-best-no-credit-check-personal-loans) * [Guide to No Credit Check Personal Loans](#toc-guide-to-no-credit-check-personal-loans) ### Best Overall : OppLoans Investopedia's Rating 2.9 --- ![OppLoans logo]() :fill(white):max_bytes(150000):strip_icc()/OppLoans-logo-4e3e2ecc63fb4c59895c235a6e2400c6.jpg) * **APR Range:** 160.00% - 179.00% * **Loan Amount:** $500 - $4,000 * **Loan Terms:** 9 months - 18 months [Check Rates](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=c52ec50b-6995-4425-bed4-6c1108667bb1&tag.pref_partner=opploans) Why We Chose It OppLoans performs a [soft credit check](https://www.investopedia.com/terms/s/soft-inquiry.asp) for approval—not a hard [credit inquiry](https://www.investopedia.com/terms/c/credit-inquiry.asp)—so there's no impact on your credit history or credit score. Your information comes from Clarity Services and Experian, your bank account transactions, and your cash flow. Expect triple-digit [annual percentage rates (APRs)](https://www.investopedia.com/terms/a/apr.asp). But, shorter loan terms can minimize your interest charges. Consider the total cost if you borrow $3,000 with an APR of 160% and repay over 9 or 12 months: | | **9 Months** | **12 Months** | | --- | --- | --- | | **Total Cost** | $2,326.83 | $3,175.17 | You may be able to [refinance](https://www.investopedia.com/terms/r/refinance.asp) your loan after you’ve paid at least 15% or $400 of your balance as long as it's in good standing. Pros & Cons Pros * Same-day funding available * No origination fees * Credit bureau reporting Cons * High interest rates * No co-signer option * Not available in all states Qualifications To qualify for an OppLoans personal loan, you must meet the following requirements: * Be 18 years or older * Have a valid checking or savings account * Have regular income received through direct deposit * Only available in 40 states: Alabama, Alaska, Arizona, Arkansas, California, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, and Wyoming Read the Full [OppLoans Personal Loans Review for 2024](https://www.investopedia.com/opploans-personal-loans-review-5069762) ### Best for Small Loans : Fig Loans Investopedia's Rating 2.6 --- ![Fig loans logo]() :fill(white):max_bytes(150000):strip_icc()/figlogo_lg_2020-6a464eab290643c1acb3b2656252c844.png) * **APR Range:** 35.99% - 211.00% * **Loan Amount:** $50 - $500 * **Loan Terms:** 1 Month - 10 Months [Check Rates](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=5dd00d14-43c0-43ca-a904-8f15466c00eb&tag.pref_partner=figloans) Why We Chose It Fig Loans offers smaller loans of up to $800, making it a good option if you: * Don’t have large borrowing needs, which prevents you from overborrowing * Don't want a credit check Fig Loans uses your recent bank deposit information to determine your eligibility. You may qualify if you have a steady source of [income](https://www.investopedia.com/terms/i/income.asp) and a positive bank balance. [Interest rates](https://www.investopedia.com/terms/i/interestrate.asp) can be in the triple digits, which can be pretty costly. Even so, rates are less expensive and more flexible compared to a [payday loan](https://www.investopedia.com/terms/p/payday-loans.asp). Pros & Cons Pros * Early payoff discount * Credit bureau reporting * Next-day funding Cons * High APR * Only available in six states * Not available for active duty military Qualifications To qualify for a loan from Fig Loans, you must meet the following qualifications: * Have a valid checking or savings account (with a positive balance) * Have at least $1,400 monthly income for the past three months * Must not be an activity duty member of the military or family member of an active duty military member * Only available in Florida, Illinois, Missouri, Ohio, Texas, and Utah ### Best With No Origination Fee : Money Key Investopedia's Rating 2.9 --- ![monkey key]() :fill(white):max_bytes(150000):strip_icc()/monkey_key_1_2000x500-4d5afa0bea7d4131a1668fc2f758e96b.png) * **APR Range:** 291.00% - 295.00% * **Loan Amount:** $200 - $2,500 * **Loan Terms:** 6 Months - 12 Months [Check Rates](https://www.moneykey.com) Why We Chose It Money Key's loans are available if you need money fast and don't qualify for bank loans. There’s no credit check and you may be approved if you have: * Income * A bank account * Valid contact information You can get your money the same day if you're approved and there are no origination fees. [Repayment](https://www.investopedia.com/terms/r/repayment.asp) is based on your pay dates, so if you’re paid weekly, biweekly, or semi-monthly, you’ll have two payments due each month.  Money Key's rates are the highest on our list, so you'll pay more in the end. Paying your loan off early can help you save on finance charges. If you choose to repay it early, there are [prepayment penalty](https://www.investopedia.com/terms/p/prepaymentpenalty.asp). Pros & Cons Pros * Same-day funding * Low minimum loan amount * No prepayment penalty Cons * Available only in seven states * High APR * No refinancing option Qualifications To qualify for a Money Key loan, you must: * Be of legal age to contract in your state * Be a U.S. citizen or permanent resident * Have an active bank account * Have a regular source of income * Have a valid contact number and an active email address * Money Key loans are only available in Delaware, Idaho, Mississippi, Missouri, Texas, Utah, and Wisconsin ## Compare the Best Personal Loans With No Credit Check for 2024 | | Best For | APR Range | Average Origination Fee | Late Fee | Time to Receive Loan | Loan Amount | Latest Repayment | | Reset All | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | OppLoans | Best Overall | 160.00% - 179.00% | 0.00% | $0 | 0 days | $500 - $4,000 | 18 months | [Check Rates](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=c52ec50b-6995-4425-bed4-6c1108667bb1&tag.pref_partner=opploans) | Hide, not for me | | Fig Loans | Best for Small Loans | 35.99% - 211.00% | Not Disclosed | $0 | 0 days | $50 - $500 | 10 Months | [Check Rates](https://fiona.com/partner/investopedialoans/loans?preferred_offer_partner=5dd00d14-43c0-43ca-a904-8f15466c00eb&tag.pref_partner=figloans) | Hide, not for me | | Money Key | Best With No Origination Fee | 291.00% - 295.00% | 0.00% | $0.00 | N/A | $200 - $2,500 | 12 Months | [Check Rates](https://www.moneykey.com) | Hide, not for me | \*APR ranges for some companies include a discount for automatic payments or existing bank customers. ## The Bottom Line Personal loans with no credit check are an option for quick and easy borrowing if you have poor or no credit. OppLoans tops our list because of its wide availability, range of loan amounts, and lower APRs. But, Fig Loans and Money Key suit most smaller borrowing needs and have short repayment periods, but they are only available in a handful of states. The Consumer Financial Protection Bureau suggests that you check your credit report once a year. You can get free reports from the [three major credit reporting agencies](https://www.investopedia.com/personal-finance/top-three-credit-bureaus/). You can also check your credit score using a credit score service or your credit card statement. The [U.S. Department of Housing and Urban Development (HUD)](https://www.investopedia.com/terms/u/us-department-housing-urban-development-hud.asp) can also help you access credit counselors who can pull and review your credit report with you. Doing so can help you identify problems and correct mistakes so you won't be affected in the future. ## Guide to Choosing the Best Personal Loans With No Credit Check ### What Is a No Credit Check Personal Loan, and How Does It Work? A no credit check personal loan is a type of loan that relies on non-traditional information rather than credit information for loan approval. For instance, lenders may consider a borrower’s bank deposit history instead of their credit score. These loans are convenient if you have bad credit or you haven’t established a [credit history](https://www.investopedia.com/terms/c/credit-history.asp) yet. However, they can be risky and tend to have much higher interest rates compared to personal loans that do check credit. ### Pros and Cons of Personal Loans With No Credit Check Pros * Better chances of approval * Quick funding * Helps establish or improve your credit score Cons * High APRs * Not as common * Shorter repayment terms ### Pros Explained * **Higher odds of approval**: You may be able to borrow a no credit check personal loan with only a bank account and a steady source of income. * **Fast funding**: Lenders often make funds available no later than the next business day after approval. Some offer same-day funding. * **Credit bureau reporting**: Many lenders report your loan history to the [credit bureaus](https://www.investopedia.com/terms/c/creditbureau.asp), which can help establish or improve your credit score. ### Cons Explained * **Higher APRs**: Interest rates on no credit check personal loans are significantly higher than traditional personal loans. Rates may be higher which significantly increases the cost of borrowing. * **Less availability**: Personal loans that don’t require a credit check are less common, so there are fewer lenders to choose from. In addition, loans are often available only in specific states. * **Shorter repayment terms**: Because of the high-risk nature of no credit check loans, loans typically have to be repaid in 18 months or less. Personal loans from traditional lenders may have [repayment](https://www.investopedia.com/terms/r/repayment.asp) terms of up to seven years. ## How to Get a Personal Loan With No Credit Check Understand what you need and can afford to repay. This can help prevent you from borrowing more than you're capable of repaying. After you've shopped around and chosen a lender, you'll need to submit an application and provide your personal, employment, and income information. In addition to your application details, lenders may also ask for your driver's license and bank details or copies of your bank statements to review your deposits and determine eligibility. Here are some other common details that lenders may require on an application: * **Your age:** Lenders cannot discriminate based on age. However, some states require that borrowers meet minimum age requirements before they can enter a legal financial contract with a lender. * **Legal residency:** Just like age, lenders can't turn you down because of your national origin. They may ask you about your residency status to determine whether you can pay back the loan. Keep in mind that non-residents and non-citizens may still qualify, but it may be tougher to be approved. * **Income:**Almost all lenders ask you for your income and employment information. This is to ensure that your source of income is enough to repay the loan. Some companies may have an income threshold before you can borrow. * **[Debt-to-income (DTI) ratio](https://www.investopedia.com/terms/d/dti.asp):**This ratio represents how much of your income goes to pay off your debts every month. As such, it helps lenders see how much of a risk you are if they approve you for a loan. If you meet the qualifications, your loan application will be approved. You'll have a chance to review the loan amount and terms, including cost and repayment details. Accept the loan if you agree to the terms, and you'll often receive funds by the next business day. ### Where to Get a No Credit Check Loan There are several places to find no credit check loans. The loan amount, interest rate, and repayment terms will vary depending on the lender. * [Online lenders](https://www.investopedia.com/best-online-personal-loans-5071376) * Payday lenders * Auto title lenders * Pawn shops * Banks or credit unions ([secured loans](https://www.investopedia.com/secured-loans-5076025)) * Family or friends ### The Cost of No Credit Check Loans Several financial functions decide how much your no credit check personal loan costs to close as well as carry. Let's take a look at what these costs are and why these costs are higher compared to other types of personal loans. First, let's talk about [interest rates](https://www.investopedia.com/terms/i/interestrate.asp). No credit check loans typically carry higher interest rates to compensate for the increased risk assumed by the lender. Even if there's [collateral](https://www.investopedia.com/terms/c/collateral.asp) involved, a lender may not risk lending money to someone they have not comprehensively reviewed for cheap. Even our top no credit check personal loan option OppLoan carries with it an APR range of 160% to 179%. Next, lenders may impose various fees when they [underwrite](https://www.investopedia.com/terms/u/underwriting.asp) or close the loan. One of the most common charges is the origination fee. OppLoan's fee is $0, though other lenders may incur a charge as part of the process of getting financing. Last, the loan term and loan amount can dictate your cost. The good news here is short-term loans with quick repayment periods may have lower overall costs but higher monthly payments. In the case of OppLoan, your loan wouldn't be able to be longer than 18%. This is favorable to the lender as long, drawn-out loan terms mean you're carrying interest for longer. ## Comparing Personal Loans With No Credit Check If you’re comparing no credit check lenders, there are several features to consider to narrow down your options: * **APRs**: This is the total annual cost of borrowing money. The higher the APR, the more expensive the loan. * **Fees**: Look for upfront [disclosure](https://www.investopedia.com/terms/d/disclosure.asp) of all fees before you accept the loan. * **Co-signer availability**: Some lenders may not allow you to add a [co-signer](https://www.investopedia.com/terms/c/co_sign.asp) to your no credit check loan application. * **State availability**: Many lenders only provide loans in a few states. Verify that loans are available in your state before applying. * **Loan use restrictions**: If you have a specific need in mind, determine whether you're allowed to use the loan for that purpose. * **Funds timing**: For urgent borrowing, look for lenders that offer same-day funding. Check to see whether there's an application cutoff time for same-day funding. ### Types of No Credit Check Loans This article is primarily about personal loans. However, there are several other types of no credit check loans you can use to secure financing for a variety of reasons. These types of no credit check loans may include but aren't necessarily limited to: * **No credit check personal loans:** Some lenders offer personal loans without conducting a traditional credit check. These loans are unsecured, meaning there is no tangible asset backing them up as collateral. Instead, approval may be based on income or your employment verification. * **Title loans:** [Title loans](https://www.investopedia.com/terms/t/titleloan.asp) are loans that use your car title as collateral to secure the loan. The loan amount is based on the appraised value of the vehicle. If you fail to repay the loan according to the agreed-upon terms, you risk losing your vehicle. In this case, the lender may not make a credit check since credit history plays less of a factor (since the loan may be fully covered by collateral). * **Cash advances:** [Cash advances](https://www.investopedia.com/terms/c/cashadvance.asp) allow borrowers to withdraw cash against their credit card's credit limit. The borrower would have already gone through the credit check stage when they received the credit card; the loan against this credit limit may not require an additional credit check. * **Pawn shop loans:** [Pawn shop](https://www.investopedia.com/articles/personal-finance/112415/how-pawnshops-make-money.asp) loans involve using valuable items as collateral for a short-term loan. You can receive a no credit check pawn shop loan based on the appraised value of your item. If you aren’t able to repay the loan, your pawned item is forfeited. Because the pawn shop holds collateral, they often do not require a credit check. * **Guarantor loans:** Guarantor loans involve a co-signer or guarantor with good credit agreeing to repay the loan if the borrower defaults. This arrangement helps someone with a low credit score or small credit history obtain credit. Depending on the strength of the co-signer or guarantor’s financial health, the lender may not require a credit check from the other borrower. * **Emergency loans:** [Emergency loans](https://www.investopedia.com/emergency-loans-for-bad-credit-5075539) are other types of loans intended to address urgent financial needs. They’re meant to have a quick application and approval process so you can get your loan money quickly. Be mindful that though no credit check is usually needed, energy loans may have much less favorable loan terms. ## Alternatives to No Credit Check Personal Loans No credit check personal loans may not suit all borrowing needs or cost preferences. Consider these alternatives: * **Secured loans**: Secured loans, such as those that use your car or savings as collateral, are a useful choice if you don't have excellent credit. Because the loan is backed by collateral, you’re more likely to qualify for a loan and get a lower rate than with an unsecured loan. * **Bad credit loans**: [Bad credit loans](https://www.investopedia.com/best-personal-loans-for-bad-credit-4774349) are loans for people with credit in the poor to fair range, meaning a score between 300 and 669. They have higher-than-average APRs, but their rates will likely be lower than you’d get with no credit check loans or payday loans. * **Credit union loans**: Some credit unions have personal loans specifically designed for people with poor credit or no credit who are facing emergency expenses. They usually have lower APRs than you’d find with other lenders and less stringent eligibility requirements. You can find a local credit union by using the National Credit Union Administration’s locator tool. * **Co-signed loans**: Some lenders allow you to apply with a co-signer (someone with good credit and a source of income). Co-signed loans may improve your chances of qualifying for a traditional personal loan or qualifying with better rates. * **Buy now, pay later (BNPL) loans**: [BNPL loans allow](https://www.investopedia.com/best-buy-now-pay-later-apps-5186864) you to spread payments for purchases over a few weeks or months. Depending on the service and the merchant you choose, the APRs and fees can be relatively low. Some don't charge any fees or interest. * **Payday advance apps**: If you’re currently employed and need a relatively small amount of money to pay for an emergency expense, [cash advance apps](https://www.investopedia.com/the-best-cash-advance-apps-7973242) like Earnin or Dave allow you to get an advance of your next paycheck. You can get as much as $500 in most states with no credit checks or interest charges. ### Should You Apply for a Personal Loan With No Credit Check? You might apply for a no credit check personal loan for quick funding or your credit history makes it difficult to get approved for a traditional loan. Since there's no credit check, applying won't trigger a new credit inquiry or affect your credit score. Lenders look for consistent income history to determine loan eligibility, so you'll need to have a reliable source of income to get approved. If you're ultimately approved, the funds can be used for a variety of short-term needs including car or home repairs or emergency medical expenses. Because of the risk and cost associated with personal loans with no credit check, it wouldn't be financially wise to use these loans for optional spending like shopping, gifts, or leisure travel. Make sure you can afford the payments. Some lenders report loan activity to credit bureaus, even when there's no credit check for the initial loan. Late and missed payments can impact your credit score. ## Why You Should Trust Us Investopedia collected and analyzed hundreds of key data points from over 70 companies across three months to identify the most important factors for readers choosing a lending company that doesn't perform credit checks. We used this data to review each company for fees, repayment terms, income requirements, and other features to provide unbiased, comprehensive reviews to ensure our readers make the right decision for their needs. Investopedia launched in 1999 and has helped millions of readers around the world become educated on personal finance. ## Frequently Asked Questions * ### What's the Maximum Amount You Can Get With a No Credit Check Personal Loan? No credit check personal loan amounts vary by lender. While many only allow you to borrow a small amount, [OppLoans](https://www.investopedia.com/opploans-personal-loans-review-5069762) offers a maximum loan amount of $4,000. * ### How High Are Interest Rates for No Credit Check Loans? Interest rates for no credit check loans tend to be significantly higher than [traditional personal loans](https://www.investopedia.com/terms/p/personal-interest.asp). Among the lenders we reviewed, the highest rate was up to 295%. * ### What's the Difference Between a Soft and Hard Credit Inquiry? Credit checks allow companies to view your credit history. Lenders use them to evaluate your creditworthiness and determine if you're eligible for credit. A soft credit inquiry doesn't hurt your credit score. Soft inquiries are commonly used for pre-approval purposes and background checks. A hard inquiry, on the other hand, appears on your credit report and impacts your credit score. It provides your lender with your full credit history when you apply for credit. * ### What Are Some of the Drawbacks of No Credit Check Loans? No credit check loans are a great option for anyone with bad credit, no credit, or just doesn't want an inquiry to impact their score. Some of the disadvantages of these types of loans include high interest rates and extra fees, which can increase the overall cost of your loan. Keep in mind that you aren't [guaranteed approval](https://www.investopedia.com/easiest-personal-loans-approved-7644059) with no credit check. That's because you can be denied because of insufficient income, lack of banking activity, unemployment, identify verification problems, and other reasons. * ### How Do I Establish a Credit History if I Have None? There are several ways you can begin to lay down a foundation for your credit history if you have no credit. Apply for a secured credit card through your bank or financial institution. The bank generally holds a deposit that is the equivalent of your credit line as security until it feels you have developed a good track record. You may also consider becoming an authorized user on someone else's card or applying for a store credit card. Once you've established your credit history, make sure that you make payments on time and use your credit judiciously to keep your credit score in tact. * ### What Should I Look Out for When Shopping for a No Credit Check Loan? No credit check loans do not rely on your credit history to be approved, which can be great if you have no or bad credit. But there are some factors to consider before you agree to anything. This means you should do your due diligence and research the pros and cons of borrowing using a no credit check loan thoroughly. Compare APRs, loan terms, and conditions. Approach some lenders with caution as their terms and conditions may lead you further into debt. And be sure to read the fine print of any contract before you sign. * ### What Are Some Alternatives to No Credit Check Loans? You may easily qualify for a loan with no credit check. Keep in mind that these loans often come with higher fees and unfavorable loan terms. That's why you may want to consider some alternatives, including: + [Personal loans with co-signers or co-borrowers](https://www.investopedia.com/best-secured-personal-loans-5114143) + [Secured personal loans](https://www.investopedia.com/best-secured-loans-for-bad-credit-7255752) + Loans from family or friendsThese options may help save you money in the long run. * ### Companies We Reviewed We researched and reviewed more than 70 banks to find the best lenders you see above on this list. While we write individual reviews for most companies we research, we do not always write reviews for companies we would not recommend. These are the banks we researched, along with links to individual company reviews, to help you learn more before making a decision:  [Achieve](https://www.investopedia.com/freedom-plus-personal-loans-review-4800935), [Affinity Federal Credit Union](https://www.investopedia.com/affinity-federal-credit-union-personal-loans-review-8410017), [Alliant Credit Union](https://www.investopedia.com/alliant-credit-union-personal-loans-review-8401682), [American Express](https://www.investopedia.com/american-express-personal-loans-review-5069612), [Avant](https://www.investopedia.com/avant-personal-loans-review-4802261), [Axos Bank](https://www.investopedia.com/axos-bank-personal-loans-review-8408454), Bankers Healthcare Group, [Best Egg](https://www.investopedia.com/best-egg-personal-loans-review-4802359), [Bethpage Federal Credit Union](https://www.investopedia.com/bethpage-federal-credit-union-personal-loans-review-8365116), [Blue Federal Credit Union](https://www.investopedia.com/blue-federal-credit-union-personal-loans-review-8374431), Boatloan.com, [Boeing Employees' Credit Union](https://www.investopedia.com/becu-personal-loans-review-5211750), CapexMD, [Citibank](https://www.investopedia.com/citibank-personal-loans-review-4799909), [Connexus Credit Union](https://www.investopedia.com/connexus-credit-union-personal-loans-review-8407390), [Discover](https://www.investopedia.com/discover-personal-loans-review-4799530), Dividend Finance, [ENT Credit Union](https://www.investopedia.com/ent-credit-union-personal-loans-review-8373870), Fig Loans, [First Tech Federal Credit Union](https://www.investopedia.com/first-tech-federal-credit-union-personal-loans-review-5070073), Future Family, GoodLeap, [Greenstate Credit Union](https://www.investopedia.com/greenstate-credit-union-personal-loans-review-8408463), [Happy Money](https://www.investopedia.com/payoff-personal-loans-review-4842918), [Hiway Credit Union](https://www.investopedia.com/hiway-credit-union-personal-loans-review-8411068),[Lake Michigan Credit Union](https://www.investopedia.com/lake-michigan-credit-union-personal-loans-review-8384413),[Laurel Road](https://www.investopedia.com/laurel-road-personal-loans-review-4799934), [LendingClub](https://www.investopedia.com/lendingclub-personal-loans-review-4800191), [LendingPoint](https://www.investopedia.com/lendingpoint-personal-loans-review-4842605), [LendingUSA](https://www.investopedia.com/lendingusa-personal-loans-review-8404359), [Liberty Federal Credit Union](https://www.investopedia.com/liberty-federal-credit-union-personal-loans-review-8408457), [LightStream](https://www.investopedia.com/lightstream-personal-loans-review-4800841), Lyon Financial, Mariner, Money Key, [Mountain America Credit Union](https://www.investopedia.com/mountain-america-credit-union-personal-loans-review-8391160), [NASA Federal Credit Union](https://www.investopedia.com/nasa-federal-credit-union-personal-loans-review-8384484), [Navy Federal Credit Union](https://www.investopedia.com/navy-federal-credit-union-personal-loans-review-4844366), [Netcredit](https://www.investopedia.com/netcredit-personal-loans-review-6890038), [Old National Bank](https://www.investopedia.com/first-midwest-bank-personal-loans-review-5070056), [OneMain Financial](https://www.investopedia.com/onemain-financial-personal-loans-review-4843162), [OppLoans](https://www.investopedia.com/opploans-personal-loans-review-5069762), [Patelco Credit Union](https://www.investopedia.com/patelco-credit-union-personal-loans-review-8364504), [PenFed](https://www.investopedia.com/penfed-personal-loans-review-4800862), [Personify Financial](https://www.investopedia.com/personify-financial-personal-loans-review-8363570), [PNC Bank](https://www.investopedia.com/pnc-personal-loan-review-4846471), [Prosper](https://www.investopedia.com/prosper-personal-loans-review-4843741), [Reach Financial](https://www.investopedia.com/reach-financial-personal-loans-review-8383953), [Regions](https://www.investopedia.com/regions-personal-loans-review-5072600), [Reprise](https://www.investopedia.com/reprise-financial-personal-loans-review-8408473), [Rocket Loans](https://www.investopedia.com/rocket-loans-personal-loans-review-5069748), [Santander](https://www.investopedia.com/santander-bank-personal-loans-review-5211820), [Service Federal Credit Union](https://www.investopedia.com/service-credit-union-personal-loans-review-8410020), [SoFi](https://www.investopedia.com/sofi-personal-loans-review-4797398), Southeast Financial, [Summit Credit Union](https://www.investopedia.com/summit-credit-union-personal-loans-review-8414132), SunPower, [TD Bank](https://www.investopedia.com/td-bank-personal-loans-review-4801451), [Teachers Federal Credit Union](https://www.investopedia.com/teachers-federal-credit-union-personal-loan-review-8399783), Trident Funding, [Truist](https://www.investopedia.com/truist-personal-loans-review-5210721),[U.S. Bank](https://www.investopedia.com/us-bank-personal-loans-review-4843013), [Universal Credit](https://www.investopedia.com/universal-credit-personal-loans-review-8410022),[Upgrade](https://www.investopedia.com/upgrade-personal-loans-review-4842832), [Upstart](https://www.investopedia.com/upstart-personal-loans-review-4843810), [USAA](https://www.investopedia.com/usaa-personal-loans-review-4845449), Vantage Recreational Finance, [Wells Fargo](https://www.investopedia.com/wells-fargo-personal-loans-review-4842091). ## How We Pick the Best No Credit Check Personal Loans To evaluate and rank personal loan providers we collected hundreds of data points across more than 70 lenders, including traditional banks, credit unions, fintechs, and special interest finance companies. We researched and evaluated APRs, loan amounts and terms, fees, customer experience, and much more. To rank the lenders in our database and to generate star ratings, we weighted the data we collected, based in part on what consumers told us were the most important features of a personal loan and lender in a [survey we conducted](https://www.investopedia.com/investopedia-2023-personal-loan-borrower-survey-8383574). We grouped those factors into four broad areas: * Loan costs (advertised APR, fees, and six other factors): 29.25% * Loan terms (loan amount, repayment term, and three other factors): 22.25% * Borrowing requirements (credit score, membership requirement, and six other factors): 28.5% * Additional features (online application, pre-qualification, and eight other factors): 20% Learn more about how we evaluated personal loans in [our complete methodology](https://www.investopedia.com/personal-loan-review-methodology-5088280). ## Guide to No Credit Check Personal Loans Learn more about personal loans: * **[What is a personal loan?](https://www.investopedia.com/personal-loan-5076027):** A personal loan is an installment loan that can help you cover different personal expenses. Loans can be secured or unsecured, and are taken through banks, credit unions, and other financial institutions. * **[How do personal loans work?](https://www.investopedia.com/how-personal-loans-work-7484814):**When you take out a personal loan, your lender deposits the proceeds as a lump sum in your account. Most lenders require that you pay your loan back in regular installments, usually monthly, plus interest. * **[When are personal loans a good idea?](https://www.investopedia.com/articles/personal-finance/111715/when-are-personal-loans-good-idea.asp):** You can use a personal loan for any purpose, including debt consolidation, to buy a new car, or to take a vacation. But before you apply, make sure you can repay the loan to ensure you don't damage your credit. * **[How to get a personal loan](https://www.investopedia.com/how-to-get-a-personal-loan-7642254):**There are several steps to getting a personal loan. Do your research on lenders and rates and see if you pre-qualify. Make a formal application (if necessary) and sign your loan documents when you're approved. After you receive your funds, begin repaying your loan. * **[How to apply for a personal loan](https://www.investopedia.com/articles/personal-finance/010516/how-apply-personal-loan.asp):** Applying for a personal loan is fairly easy. Before you apply, though, review your finances and decide how much you need and can afford to borrow. Review the lenders that are available to you, see if you pre-qualify, and submit your application online or in person. * **[How to use a personal loan](https://www.investopedia.com/how-use-personal-loan-7562541):**You can use a personal loan for any reason. Personal loans are helpful when you want to consolidate debt, make home improvements, cover emergencies, or make large purchases. * **[Where to get a personal loan](https://www.investopedia.com/where-to-get-a-personal-loan-other-than-a-bank-7643189):**You can apply for and get a personal loan from a bank or credit union. You may also want to consider other financial institutions and online lenders. Requirements and interest rates vary based on the lender you choose. * **[Personal loans vs. credit cards](https://www.investopedia.com/articles/personal-finance/041415/pros-cons-personal-loans-vs-credit-cards.asp):** Personal loans are installment loans that usually come with fixed rates and can only be used once. Credit cards have revolving credit lines, which means you can use them more than once, and require at least a minimum payment. * **[Alternatives to personal loans](https://www.investopedia.com/7-alternatives-personal-loan-7567417):**Some of the common alternatives to personal loans include credit cards, lines of credit, payday loans, and retirement loans among others. * **[Personal loan calculator](https://www.investopedia.com/personal-loan-calculator-5082130):**A personal loan calculator can help you figure out your loan payments and overall costs before you apply. * **[Personal loans methodology](https://www.investopedia.com/personal-loan-review-methodology-5088280):**Review our methodology to see how we came up with our lists of best personal loans. :max_bytes(150000):strip_icc()/Primary-Image-best-personal-loans-with-no-credit-check-of-2023-7101289-eca316b51d8d4d6c9cd10edb4bbc865c.jpg) :max_bytes(150000):strip_icc()/Primary-Image-best-personal-loans-with-no-credit-check-of-2023-7101289-eca316b51d8d4d6c9cd10edb4bbc865c.jpg) krisanapong detraphiphat / 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. OppLoans. "[Rates, Terms and Licenses](https://www.opploans.com/rates-and-terms/) 2. Consumer Financial Protection Bureau. "[Credit reports and scores](https://www.consumerfinance.gov/consumer-tools/credit-reports-and-scores/)." 3. Consumer Financial Protection Bureau. "[Where can I get my credit scores?](https://www.consumerfinance.gov/ask-cfpb/where-can-i-get-my-credit-scores-en-316/)" 4. OppLoans. "[The Ultimate Guide to No Credit Check](https://www.opploans.com/oppu/no-credit-check-loans/no-credit-check-loan/).” 5. OppLoans. "[Online Personal Loans.](https://www.opploans.com/personal-loans/?utm_campaign=aff&utm_source=ir&utm_medium=ir&AffiliateID=10078&ClickID=0K2TU%3ARt7xyPTI2Wle38aXixUkFS9mWXPWk9ws0&irgwc=1&irclickid=0K2TU%3ARt7xyPTI2Wle38aXixUkFS9mWXPWk9ws0?campaign=10078&source=OppLoans_Impact)" 6. Navy Federal. “[Personal Loans](https://www.navyfederal.org/loans-cards/personal-loans.html).” 7. Consumer Financial Protection Bureau. "[What Is a Buy Now, Pay Later (BNPL) Loan?](https://www.opploans.com/oppu/bad-credit-loans/guide-to-bad-credit-loans)" Related Articles [![A couple review financial loan documents together.]() :max_bytes(150000):strip_icc()/GettyImages-491377950-9cebc109a8e54a788211c4ed231cf75e.jpg) Best Personal Loans With a Co-Signer or Co-Borrower for 2024](https://www.investopedia.com/best-personal-loans-with-a-cosigner-4797191) [![Mature man wearing eyeglasses working on personal finances at home]() :max_bytes(150000):strip_icc()/Primary-Image-best-personal-loans-for-fair-credit-4798008-c4773a31862046c2b13c7d30c4e75c5c.jpg) Best Personal Loans for Fair Credit for 2024](https://www.investopedia.com/best-personal-loans-for-fair-credit-4798008) [![Woman counting money for origination fee]() :max_bytes(150000):strip_icc()/Primary-Image-best-personal-loans-with-no-origination-fees-of-2023-7107278-5f066a389cf146a6b4a482fd77d73ec0.jpg) Best Personal Loans With No Origination Fees for 2024](https://www.investopedia.com/best-personal-loans-with-no-origination-fees-7107278) [![Best Small Personal Loans]() :max_bytes(150000):strip_icc()/GettyImages-1405397621-a1a2a14728c5485bbfccc6276a22647f.jpg) Best Small Personal Loans for 2024](https://www.investopedia.com/best-small-personal-loans-4797188) [![young woman in glasses looking for a personal loan lender]() :max_bytes(150000):strip_icc()/Primary-Image-best-fast-personal-loans-of-2023-7110852-5553ca4d71df48f6942e3626da8380b2.jpg) Best Fast Personal Loans for 2024](https://www.investopedia.com/best-fast-personal-loans-7110852) [![Custom Investopedia illustration that says Best Personal Loans and shows a woman looking through a telescope, with a hammer, stethoscope, coins, and a key floating in the air]() :max_bytes(150000):strip_icc()/NewPLroundupimage-b6fdbb3f7f0e443fa080d5c3e47b7c22.png) 10 Best Personal Loans for May 2024](https://www.investopedia.com/best-personal-loans-4773300) Related Terms [Personal Loan: Definition, Types, and How to Get One](https://www.investopedia.com/personal-loan-5076027) A personal loan allows you to borrow money and repay it over time. Here’s what a personal loan is, how it works, and how to use one. [more](https://www.investopedia.com/personal-loan-5076027) [Private Party Auto Loan: What It Is, How It Works, How to Get One](https://www.investopedia.com/what-is-a-private-party-auto-loan-financing-your-car-purchase-from-individuals-8599916) A private party auto loan is a type of loan that you can use to finance the purchase of a car from an individual. Many financial institutions offer these loans, including banks, credit unions, and online lenders. [more](https://www.investopedia.com/what-is-a-private-party-auto-loan-financing-your-car-purchase-from-individuals-8599916) [What Is a Business Auto Loan? How to Finance Company Vehicles](https://www.investopedia.com/what-is-a-business-auto-loan-how-to-finance-company-vehicles-8600491) A business auto loan is a type of secured loan that companies or individual owners can use to purchase vehicles for business purposes. It can be less expensive than an unsecured loan, and its interest costs may be tax-deductible. [more](https://www.investopedia.com/what-is-a-business-auto-loan-how-to-finance-company-vehicles-8600491) [Private Student Loans: What They Are, How They Work](https://www.investopedia.com/private-student-loans-8638542) Private student loans are offered through third-party lenders, and they don't come with the protections afforded to federal student loan borrowers. [more](https://www.investopedia.com/private-student-loans-8638542) [Emergency Loan: Types, Eligibility, Pros and Cons](https://www.investopedia.com/emergency-loan-types-eligibility-pros-and-cons-8637206) Emergency loans are a type of personal loan that provides fast access to cash. Learn how emergency loans work and about their pros and cons. 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OppLoans tops our list of best personal loan lenders with no credit checks because it doesn't charge origination fees and offers same-day funding. We collected and analyzed data from over 70 companies and selected the best lenders offering no credit check loans by comparing interest rates, fees, loan amounts, and repayment terms. Best Personal Loans With No Credit Check for 2024 Show Full List View Hide Full List View Best Overall: OppLoans Best for Small Loans: Fig Loans Best With No Origination Fee: Money Key If youre not seeing anything in the results that are a good fit for your needs, consider warranties from these companies: Best Home Warranties Best Emergency Loans for Bad Credit Best Personal Loans for Bad Credit Company APR Credit Score est. Loan Amount More Details Best Overall APR Range 160.00% - 179.00% Recommended Minimum Credit Score Not Disclosed This lender does not disclose its minimum credit score requirements. Loan Amount $500 - $4,000 See Details Check Rates Best for Small Loans APR Range 35.99% - 211.00% Recommended Minimum Credit Score Not Disclosed This lender does not disclose its minimum credit score requirements. Loan Amount $50 - $500 See Details Check Rates Best With No Origination Fee APR Range 291.00% - 295.00% Recommended Minimum Credit Score Not Disclosed This lender does not disclose its minimum credit score requirements. Loan Amount $200 - $2,500 See Details Check Rates Why Trust Us 70 Lenders reviewed 31 Loan features considered 1,680 Data points analyzed 173 Primary data sources used Investopedia collected key data points from several lenders to identify the most important factors to borrowers. We used this data to review each lender for fees, accessibility, repayment terms, and other features to provide unbiased, comprehensive reviews to ensure our readers make the right borrowing decision for their needs. Read our Full Methodology Best Personal Loans With No Credit Check for 2024 Expand Best Personal Loans With No Credit Check for 2024 Our Top Picks OppLoans Fig Loans Money Key Compare Providers The Bottom Line Guide to Choosing the Best Personal Loans With No Credit Check How to Get a Personal Loan With No Credit Check Comparing Personal Loans With No Credit Check Alternatives to No Credit Check Personal Loans Why You Should Trust Us Frequently Asked Questions (FAQs) How We Pick the Best No Credit Check Personal Loans Guide to No Credit Check Personal Loans Best Overall : OppLoans Investopedia's Rating 2.9 APR Range: 160.00% - 179.00% Loan Amount: $500 - $4,000 Loan Terms: 9 months - 18 months Check Rates Why We Chose It OppLoans performs a soft credit check for approval—not a hard credit inquiry—so there's no impact on your credit history or credit score. Your information comes from Clarity Services and Experian, your bank account transactions, and your cash flow. Expect triple-digit annual percentage rates (APRs). But, shorter loan terms can minimize your interest charges. Consider the total cost if you borrow $3,000 with an APR of 160% and repay over 9 or 12 months: 9 Months 12 Months Total Cost $2,326.83 $3,175.17 You may be able to refinance your loan after you’ve paid at least 15% or $400 of your balance as long as it's in good standing. Pros & Cons Pros Same-day funding available No origination fees Credit bureau reporting Cons High interest rates No co-signer option Not available in all states Qualifications To qualify for an OppLoans personal loan, you must meet the following requirements: Be 18 years or olderHave a valid checking or savings accountHave regular income received through direct depositOnly available in 40 states: Alabama, Alaska, Arizona, Arkansas, California, Delaware, Florida, Hawaii, Idaho, Illinois, Indiana, Kansas, Kentucky, Louisiana, Maine, Michigan, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Hampshire, New Jersey, New Mexico, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Virginia, Washington, Wisconsin, and Wyoming Read the Full OppLoans Personal Loans Review for 2024 Best for Small Loans : Fig Loans Investopedia's Rating 2.6 APR Range: 35.99% - 211.00% Loan Amount: $50 - $500 Loan Terms: 1 Month - 10 Months Check Rates Why We Chose It Fig Loans offers smaller loans of up to $800, making it a good option if you: Don’t have large borrowing needs, which prevents you from overborrowingDon't want a credit check Fig Loans uses your recent bank deposit information to determine your eligibility. You may qualify if you have a steady source of income and a positive bank balance. Interest rates can be in the triple digits, which can be pretty costly. Even so, rates are less expensive and more flexible compared to a payday loan. Pros & Cons Pros Early payoff discount Credit bureau reporting Next-day funding Cons High APR Only available in six states Not available for active duty military Qualifications To qualify for a loan from Fig Loans, you must meet the following qualifications: Have a valid checking or savings account (with a positive balance)Have at least $1,400 monthly income for the past three monthsMust not be an activity duty member of the military or family member of an active duty military memberOnly available in Florida, Illinois, Missouri, Ohio, Texas, and Utah Best With No Origination Fee : Money Key Investopedia's Rating 2.9 APR Range: 291.00% - 295.00% Loan Amount: $200 - $2,500 Loan Terms: 6 Months - 12 Months Check Rates Why We Chose It Money Key's loans are available if you need money fast and don't qualify for bank loans. There’s no credit check and you may be approved if you have: IncomeA bank accountValid contact information You can get your money the same day if you're approved and there are no origination fees. Repayment is based on your pay dates, so if you’re paid weekly, biweekly, or semi-monthly, you’ll have two payments due each month.  Money Key's rates are the highest on our list, so you'll pay more in the end. Paying your loan off early can help you save on finance charges. If you choose to repay it early, there are prepayment penalty. Pros & Cons Pros Same-day funding Low minimum loan amount No prepayment penalty Cons Available only in seven states High APR No refinancing option Qualifications To qualify for a Money Key loan, you must: Be of legal age to contract in your stateBe a U.S. citizen or permanent residentHave an active bank accountHave a regular source of incomeHave a valid contact number and an active email addressMoney Key loans are only available in Delaware, Idaho, Mississippi, Missouri, Texas, Utah, and Wisconsin Compare the Best Personal Loans With No Credit Check for 2024 Best For APR Range Average Origination Fee Late Fee Time to Receive Loan Loan Amount Latest Repayment Reset All OppLoans Best Overall 160.00% - 179.00% 0.00% $0 0 days $500 - $4,000 18 months Check Rates Hide, not for me Fig Loans Best for Small Loans 35.99% - 211.00% Not Disclosed $0 0 days $50 - $500 10 Months Check Rates Hide, not for me Money Key Best With No Origination Fee 291.00% - 295.00% 0.00% $0.00 N/A $200 - $2,500 12 Months Check Rates Hide, not for me *APR ranges for some companies include a discount for automatic payments or existing bank customers. The Bottom Line Personal loans with no credit check are an option for quick and easy borrowing if you have poor or no credit. OppLoans tops our list because of its wide availability, range of loan amounts, and lower APRs. But, Fig Loans and Money Key suit most smaller borrowing needs and have short repayment periods, but they are only available in a handful of states. The Consumer Financial Protection Bureau suggests that you check your credit report once a year. You can get free reports from the three major credit reporting agencies. You can also check your credit score using a credit score service or your credit card statement. The U.S. Department of Housing and Urban Development (HUD) can also help you access credit counselors who can pull and review your credit report with you. Doing so can help you identify problems and correct mistakes so you won't be affected in the future. Guide to Choosing the Best Personal Loans With No Credit Check What Is a No Credit Check Personal Loan, and How Does It Work? A no credit check personal loan is a type of loan that relies on non-traditional information rather than credit information for loan approval. For instance, lenders may consider a borrower’s bank deposit history instead of their credit score. These loans are convenient if you have bad credit or you haven’t established a credit history yet. However, they can be risky and tend to have much higher interest rates compared to personal loans that do check credit. Pros and Cons of Personal Loans With No Credit Check Pros Better chances of approval Quick funding Helps establish or improve your credit score Cons High APRs Not as common Shorter repayment terms Pros Explained  Higher odds of approval: You may be able to borrow a no credit check personal loan with only a bank account and a steady source of income. Fast funding: Lenders often make funds available no later than the next business day after approval. Some offer same-day funding. Credit bureau reporting: Many lenders report your loan history to the credit bureaus, which can help establish or improve your credit score. Cons Explained Higher APRs: Interest rates on no credit check personal loans are significantly higher than traditional personal loans. Rates may be higher which significantly increases the cost of borrowing.  Less availability: Personal loans that don’t require a credit check are less common, so there are fewer lenders to choose from. In addition, loans are often available only in specific states. Shorter repayment terms: Because of the high-risk nature of no credit check loans, loans typically have to be repaid in 18 months or less. Personal loans from traditional lenders may have repayment terms of up to seven years. How to Get a Personal Loan With No Credit Check Understand what you need and can afford to repay. This can help prevent you from borrowing more than you're capable of repaying. After you've shopped around and chosen a lender, you'll need to submit an application and provide your personal, employment, and income information. In addition to your application details, lenders may also ask for your driver's license and bank details or copies of your bank statements to review your deposits and determine eligibility. Here are some other common details that lenders may require on an application: Your age: Lenders cannot discriminate based on age. However, some states require that borrowers meet minimum age requirements before they can enter a legal financial contract with a lender. Legal residency: Just like age, lenders can't turn you down because of your national origin. They may ask you about your residency status to determine whether you can pay back the loan. Keep in mind that non-residents and non-citizens may still qualify, but it may be tougher to be approved. Income: Almost all lenders ask you for your income and employment information. This is to ensure that your source of income is enough to repay the loan. Some companies may have an income threshold before you can borrow. Debt-to-income (DTI) ratio: This ratio represents how much of your income goes to pay off your debts every month. As such, it helps lenders see how much of a risk you are if they approve you for a loan. If you meet the qualifications, your loan application will be approved. You'll have a chance to review the loan amount and terms, including cost and repayment details. Accept the loan if you agree to the terms, and you'll often receive funds by the next business day. Where to Get a No Credit Check Loan There are several places to find no credit check loans. The loan amount, interest rate, and repayment terms will vary depending on the lender. Online lenders Payday lenders Auto title lenders Pawn shops Banks or credit unions (secured loans) Family or friends The Cost of No Credit Check Loans Several financial functions decide how much your no credit check personal loan costs to close as well as carry. Let's take a look at what these costs are and why these costs are higher compared to other types of personal loans. First, let's talk about interest rates. No credit check loans typically carry higher interest rates to compensate for the increased risk assumed by the lender. Even if there's collateral involved, a lender may not risk lending money to someone they have not comprehensively reviewed for cheap. Even our top no credit check personal loan option OppLoan carries with it an APR range of 160% to 179%. Next, lenders may impose various fees when they underwrite or close the loan. One of the most common charges is the origination fee. OppLoan's fee is $0, though other lenders may incur a charge as part of the process of getting financing. Last, the loan term and loan amount can dictate your cost. The good news here is short-term loans with quick repayment periods may have lower overall costs but higher monthly payments. In the case of OppLoan, your loan wouldn't be able to be longer than 18%. This is favorable to the lender as long, drawn-out loan terms mean you're carrying interest for longer. Comparing Personal Loans With No Credit Check  If you’re comparing no credit check lenders, there are several features to consider to narrow down your options: APRs: This is the total annual cost of borrowing money. The higher the APR, the more expensive the loan. Fees: Look for upfront disclosure of all fees before you accept the loan. Co-signer availability: Some lenders may not allow you to add a co-signer to your no credit check loan application. State availability: Many lenders only provide loans in a few states. Verify that loans are available in your state before applying. Loan use restrictions: If you have a specific need in mind, determine whether you're allowed to use the loan for that purpose. Funds timing: For urgent borrowing, look for lenders that offer same-day funding. Check to see whether there's an application cutoff time for same-day funding. Types of No Credit Check Loans This article is primarily about personal loans. However, there are several other types of no credit check loans you can use to secure financing for a variety of reasons. These types of no credit check loans may include but aren't necessarily limited to: No credit check personal loans: Some lenders offer personal loans without conducting a traditional credit check. These loans are unsecured, meaning there is no tangible asset backing them up as collateral. Instead, approval may be based on income or your employment verification.  Title loans: Title loans are loans that use your car title as collateral to secure the loan. The loan amount is based on the appraised value of the vehicle. If you fail to repay the loan according to the agreed-upon terms, you risk losing your vehicle. In this case, the lender may not make a credit check since credit history plays less of a factor (since the loan may be fully covered by collateral).  Cash advances: Cash advances allow borrowers to withdraw cash against their credit card's credit limit. The borrower would have already gone through the credit check stage when they received the credit card; the loan against this credit limit may not require an additional credit check.  Pawn shop loans: Pawn shop loans involve using valuable items as collateral for a short-term loan. You can receive a no credit check pawn shop loan based on the appraised value of your item. If you aren’t able to repay the loan, your pawned item is forfeited. Because the pawn shop holds collateral, they often do not require a credit check.  Guarantor loans: Guarantor loans involve a co-signer or guarantor with good credit agreeing to repay the loan if the borrower defaults. This arrangement helps someone with a low credit score or small credit history obtain credit. Depending on the strength of the co-signer or guarantor’s financial health, the lender may not require a credit check from the other borrower. Emergency loans: Emergency loans are other types of loans intended to address urgent financial needs. They’re meant to have a quick application and approval process so you can get your loan money quickly. Be mindful that though no credit check is usually needed, energy loans may have much less favorable loan terms.  Alternatives to No Credit Check Personal Loans No credit check personal loans may not suit all borrowing needs or cost preferences. Consider these alternatives: Secured loans: Secured loans, such as those that use your car or savings as collateral, are a useful choice if you don't have excellent credit. Because the loan is backed by collateral, you’re more likely to qualify for a loan and get a lower rate than with an unsecured loan. Bad credit loans: Bad credit loans are loans for people with credit in the poor to fair range, meaning a score between 300 and 669. They have higher-than-average APRs, but their rates will likely be lower than you’d get with no credit check loans or payday loans. Credit union loans: Some credit unions have personal loans specifically designed for people with poor credit or no credit who are facing emergency expenses. They usually have lower APRs than you’d find with other lenders and less stringent eligibility requirements. You can find a local credit union by using the National Credit Union Administration’s locator tool. Co-signed loans: Some lenders allow you to apply with a co-signer (someone with good credit and a source of income). Co-signed loans may improve your chances of qualifying for a traditional personal loan or qualifying with better rates. Buy now, pay later (BNPL) loans: BNPL loans allow you to spread payments for purchases over a few weeks or months. Depending on the service and the merchant you choose, the APRs and fees can be relatively low. Some don't charge any fees or interest. Payday advance apps: If you’re currently employed and need a relatively small amount of money to pay for an emergency expense, cash advance apps like Earnin or Dave allow you to get an advance of your next paycheck. You can get as much as $500 in most states with no credit checks or interest charges. Should You Apply for a Personal Loan With No Credit Check? You might apply for a no credit check personal loan for quick funding or your credit history makes it difficult to get approved for a traditional loan. Since there's no credit check, applying won't trigger a new credit inquiry or affect your credit score. Lenders look for consistent income history to determine loan eligibility, so you'll need to have a reliable source of income to get approved. If you're ultimately approved, the funds can be used for a variety of short-term needs including car or home repairs or emergency medical expenses. Because of the risk and cost associated with personal loans with no credit check, it wouldn't be financially wise to use these loans for optional spending like shopping, gifts, or leisure travel. Make sure you can afford the payments. Some lenders report loan activity to credit bureaus, even when there's no credit check for the initial loan. Late and missed payments can impact your credit score. Why You Should Trust Us Investopedia collected and analyzed hundreds of key data points from over 70 companies across three months to identify the most important factors for readers choosing a lending company that doesn't perform credit checks. We used this data to review each company for fees, repayment terms, income requirements, and other features to provide unbiased, comprehensive reviews to ensure our readers make the right decision for their needs. Investopedia launched in 1999 and has helped millions of readers around the world become educated on personal finance. Frequently Asked Questions What's the Maximum Amount You Can Get With a No Credit Check Personal Loan? No credit check personal loan amounts vary by lender. While many only allow you to borrow a small amount, OppLoans offers a maximum loan amount of $4,000. How High Are Interest Rates for No Credit Check Loans? Interest rates for no credit check loans tend to be significantly higher than traditional personal loans. Among the lenders we reviewed, the highest rate was up to 295%. What's the Difference Between a Soft and Hard Credit Inquiry? Credit checks allow companies to view your credit history. Lenders use them to evaluate your creditworthiness and determine if you're eligible for credit. A soft credit inquiry doesn't hurt your credit score. Soft inquiries are commonly used for pre-approval purposes and background checks. A hard inquiry, on the other hand, appears on your credit report and impacts your credit score. It provides your lender with your full credit history when you apply for credit. What Are Some of the Drawbacks of No Credit Check Loans? No credit check loans are a great option for anyone with bad credit, no credit, or just doesn't want an inquiry to impact their score. Some of the disadvantages of these types of loans include high interest rates and extra fees, which can increase the overall cost of your loan.Keep in mind that you aren't guaranteed approval with no credit check. That's because you can be denied because of insufficient income, lack of banking activity, unemployment, identify verification problems, and other reasons. How Do I Establish a Credit History if I Have None? There are several ways you can begin to lay down a foundation for your credit history if you have no credit. Apply for a secured credit card through your bank or financial institution. The bank generally holds a deposit that is the equivalent of your credit line as security until it feels you have developed a good track record. You may also consider becoming an authorized user on someone else's card or applying for a store credit card. Once you've established your credit history, make sure that you make payments on time and use your credit judiciously to keep your credit score in tact. What Should I Look Out for When Shopping for a No Credit Check Loan? No credit check loans do not rely on your credit history to be approved, which can be great if you have no or bad credit. But there are some factors to consider before you agree to anything. This means you should do your due diligence and research the pros and cons of borrowing using a no credit check loan thoroughly. Compare APRs, loan terms, and conditions. Approach some lenders with caution as their terms and conditions may lead you further into debt. And be sure to read the fine print of any contract before you sign. What Are Some Alternatives to No Credit Check Loans? You may easily qualify for a loan with no credit check. Keep in mind that these loans often come with higher fees and unfavorable loan terms. That's why you may want to consider some alternatives, including:Personal loans with co-signers or co-borrowersSecured personal loansLoans from family or friendsThese options may help save you money in the long run. Companies We Reviewed We researched and reviewed more than 70 banks to find the best lenders you see above on this list. While we write individual reviews for most companies we research, we do not always write reviews for companies we would not recommend. These are the banks we researched, along with links to individual company reviews, to help you learn more before making a decision: Achieve, Affinity Federal Credit Union, Alliant Credit Union, American Express, Avant, Axos Bank, Bankers Healthcare Group, Best Egg, Bethpage Federal Credit Union, Blue Federal Credit Union, Boatloan.com, Boeing Employees' Credit Union, CapexMD, Citibank, Connexus Credit Union, Discover, Dividend Finance, ENT Credit Union, Fig Loans, First Tech Federal Credit Union, Future Family, GoodLeap, Greenstate Credit Union, Happy Money, Hiway Credit Union,Lake Michigan Credit Union, Laurel Road, LendingClub, LendingPoint, LendingUSA, Liberty Federal Credit Union, LightStream, Lyon Financial, Mariner, Money Key, Mountain America Credit Union, NASA Federal Credit Union, Navy Federal Credit Union, Netcredit, Old National Bank, OneMain Financial, OppLoans, Patelco Credit Union, PenFed, Personify Financial, PNC Bank, Prosper, Reach Financial, Regions, Reprise, Rocket Loans, Santander, Service Federal Credit Union, SoFi, Southeast Financial, Summit Credit Union, SunPower, TD Bank, Teachers Federal Credit Union, Trident Funding, Truist, U.S. Bank, Universal Credit, Upgrade, Upstart, USAA, Vantage Recreational Finance, Wells Fargo. How We Pick the Best No Credit Check Personal Loans To evaluate and rank personal loan providers we collected hundreds of data points across more than 70 lenders, including traditional banks, credit unions, fintechs, and special interest finance companies. We researched and evaluated APRs, loan amounts and terms, fees, customer experience, and much more. To rank the lenders in our database and to generate star ratings, we weighted the data we collected, based in part on what consumers told us were the most important features of a personal loan and lender in a survey we conducted. We grouped those factors into four broad areas: Loan costs (advertised APR, fees, and six other factors): 29.25%Loan terms (loan amount, repayment term, and three other factors): 22.25%Borrowing requirements (credit score, membership requirement, and six other factors): 28.5%Additional features (online application, pre-qualification, and eight other factors): 20% Learn more about how we evaluated personal loans in our complete methodology. Guide to No Credit Check Personal Loans Learn more about personal loans: What is a personal loan?: A personal loan is an installment loan that can help you cover different personal expenses. Loans can be secured or unsecured, and are taken through banks, credit unions, and other financial institutions. How do personal loans work?: When you take out a personal loan, your lender deposits the proceeds as a lump sum in your account. Most lenders require that you pay your loan back in regular installments, usually monthly, plus interest. When are personal loans a good idea?: You can use a personal loan for any purpose, including debt consolidation, to buy a new car, or to take a vacation. But before you apply, make sure you can repay the loan to ensure you don't damage your credit. How to get a personal loan: There are several steps to getting a personal loan. Do your research on lenders and rates and see if you pre-qualify. Make a formal application (if necessary) and sign your loan documents when you're approved. After you receive your funds, begin repaying your loan. How to apply for a personal loan: Applying for a personal loan is fairly easy. Before you apply, though, review your finances and decide how much you need and can afford to borrow. Review the lenders that are available to you, see if you pre-qualify, and submit your application online or in person. How to use a personal loan: You can use a personal loan for any reason. Personal loans are helpful when you want to consolidate debt, make home improvements, cover emergencies, or make large purchases. Where to get a personal loan: You can apply for and get a personal loan from a bank or credit union. You may also want to consider other financial institutions and online lenders. Requirements and interest rates vary based on the lender you choose. Personal loans vs. credit cards: Personal loans are installment loans that usually come with fixed rates and can only be used once. Credit cards have revolving credit lines, which means you can use them more than once, and require at least a minimum payment. Alternatives to personal loans: Some of the common alternatives to personal loans include credit cards, lines of credit, payday loans, and retirement loans among others. Personal loan calculator: A personal loan calculator can help you figure out your loan payments and overall costs before you apply. Personal loans methodology: Review our methodology to see how we came up with our lists of best personal loans. krisanapong detraphiphat / 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. OppLoans. "Rates, Terms and Licenses Consumer Financial Protection Bureau. "Credit reports and scores." Consumer Financial Protection Bureau. "Where can I get my credit scores?" OppLoans. "The Ultimate Guide to No Credit Check.” OppLoans. "Online Personal Loans." Navy Federal. “Personal Loans.” Consumer Financial Protection Bureau. "What Is a Buy Now, Pay Later (BNPL) Loan?" Related Articles Best Personal Loans With a Co-Signer or Co-Borrower for 2024 Best Personal Loans for Fair Credit for 2024 Best Personal Loans With No Origination Fees for 2024 Best Small Personal Loans for 2024 Best Fast Personal Loans for 2024 10 Best Personal Loans for May 2024 Related Terms Personal Loan: Definition, Types, and How to Get One A personal loan allows you to borrow money and repay it over time. Here’s what a personal loan is, how it works, and how to use one. more Private Party Auto Loan: What It Is, How It Works, How to Get One A private party auto loan is a type of loan that you can use to finance the purchase of a car from an individual. Many financial institutions offer these loans, including banks, credit unions, and online lenders. more What Is a Business Auto Loan? How to Finance Company Vehicles A business auto loan is a type of secured loan that companies or individual owners can use to purchase vehicles for business purposes. It can be less expensive than an unsecured loan, and its interest costs may be tax-deductible. more Private Student Loans: What They Are, How They Work Private student loans are offered through third-party lenders, and they don't come with the protections afforded to federal student loan borrowers. more Emergency Loan: Types, Eligibility, Pros and Cons Emergency loans are a type of personal loan that provides fast access to cash. Learn how emergency loans work and about their pros and cons. more Pre-Approval: Definition, Meaning, How It Works, and Types A pre-approval is a preliminary evaluation of a potential borrower by a lender to determine whether they can be given a pre-qualification offer. more

https://www.investopedia.com/ask/answers/100515/what-do-hedge-fund-analysts-do.asp

What Analysts Do at a Hedge 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"> Hedge funds are a class of investment vehicles that use <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pooledfunds.asp">pooled funds</a> and employ a number of strategies to earn an active return, commonly known as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/alpha.asp">alpha</a>, for their investors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Unlike an active portfolio manager of a mutual fund, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/hedgefund.asp">hedge funds</a> often cater to higher net-worth individuals and organizations and may invest in several different asset classes including alternative investments, and engage in strategies other than holding long positions. Hedge funds may also partake in <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/derivative.asp">derivatives</a> markets. </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 hedge fund analyst is somebody that does <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financialcareers/08/quants-quantitative-analyst.asp">quantitative research</a> in order to identify the assets to trade with the fund's money that adheres to its trading strategy and mandate. Analysts <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/021115/job-description-and-salary-mergers-and-acquisitions-analyst.asp">may research individual securities</a>, market sectors, macroeconomic trends, or all of the above. </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 analyst will then pass this research over to the trading team or portfolio manager who will execute the trades as they see fit. Below, we go over some typical job roles and duties as well as what a hedge fund analyst could expect to earn on the job. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_9-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_10-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>A hedge fund analyst is tasked with providing guidance to a portfolio manager on how to best structure the hedge fund's investment portfolio.</li><li>A hedge fund analyst works for a hedge fund, as opposed to another type of buy-side institution. With hedge funds, alternative asset classes, derivatives, and short or delta-neutral strategies may be used.</li><li>Hedge fund analysts are tasked with finding investment opportunities based on research and due diligence, recommending them to portfolio managers, and then monitoring risk and performance.</li></ul></div></div></div> <span class="heading-toc" id="toc-identify-potentially-attractive-investments"></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"> Identify Potentially Attractive Investments </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> A hedge fund analyst continually stays up to date on a wide variety of financial news, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/macroeconomics.asp" rel="noopener noreferrer">macroeconomic trends</a>, and market forecasts. To accomplish this, a hedge fund analyst is required to spend time reading about these items and hold meetings or calls with experts, both internal and external, who provide insight into these types of market forces. </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 analyst utilizes this information to form an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investment-thesis.asp" rel="noopener noreferrer">investment thesis</a> that can be used to identify a specific company's stock/bonds that might serve as a potentially attractive investment opportunity. </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-provide-detailed-research-on-an-attractive-company"></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"> Provide Detailed Research on an Attractive Company </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Once a specific stock/bond is identified, the hedge fund analyst begins their research, which will help lead to an investment recommendation for the portfolio manager. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> This research entails examining the current and future financial well-being of the company that issued the stock/bond, gaining an understanding of the company's current and future standing within the industry in which it competes; exploring the potential market and economic factors that could affect the company in the future; conducting a wide variety of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financial-analysis.asp">financial analysis</a> of the company to uncover the company's actual <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valuation.asp">valuation</a>; finding reasons why the actual valuation differs from the market's perceived valuation; assessing risks to the actual valuation; and identifying potential company-specific risks of which the market is currently unaware. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> The hedge fund analyst uses the information provided by this detailed research to craft an investment recommendation on the company's stock/bond. </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-deliver-a-recommendation-to-the-portfolio-manager"></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"> Deliver a Recommendation to the Portfolio Manager </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> Once the hedge fund analyst completes their detailed research analysis, an opinion is formed on the best course of action regarding the company's stock/bond. A brief yet thorough recommendation is crafted and then presented to the portfolio manager that outlines the best course of action and any major findings from the research used to come to this conclusion. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_26-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_27-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>All hedge funds have different investment strategies and focus on different financial products; some may be fixed-income oriented while others may focus on equities and futures. When applying to a hedge fund, make sure it is in the area you are interested in.</p></div></div></div> <span class="heading-toc" id="toc-monitor-companies-that-the-fund-invests-in"></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"> Monitor Companies That the Fund Invests in </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Once an investment in a specific company's stock/bonds is made by the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfoliomanager.asp" rel="noopener noreferrer">portfolio manager</a>, the hedge fund analyst continually monitors the respective company for any indications that the information used to craft the initial investment recommendation might no longer be relevant. When such an indication occurs, the hedge fund analyst once again conducts research to provide an updated course of action to the portfolio manager. </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-hours-and-salary"></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"> Hours and Salary </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> A hedge fund analyst can expect to work hard and be rewarded for doing so. People with this job title will tend to work 12+ hour days—or 60-70 hours a week—and weekends may be necessary in certain instances. Compensation will also be high, surpassing $90,000 total on average in the U.S. Depending on the location and specific role, the salary could be as high as $231,000. Hedge funds are also known to provide generous perks and employee benefits to their teams.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_34-0"><span class="heading-toc" id="toc-how-much-do-hedge-fund-analysts-get-paid"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Do Hedge Fund Analysts Get Paid?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The salary range for a hedge fund analyst in the U.S. is approximately between $40,000 and $231,000, with the average being $93,000. The exact salary will depend on the specific firm, job location, and responsibilities of the job.</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-how-do-i-become-a-hedge-fund-analyst"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do I Become a Hedge Fund Analyst?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Becoming a hedge fund analyst starts with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/042715/top-bachelor-degree-hedgefund-career.asp">specific educational requirements</a> and knowledge. It is important to have a strong understanding of finance, financial products, the economy, and various financial markets. Majors in finance, math, physics, and engineering are all suitable majors, though not required. From college, networking with individuals in the hedge fund industry, finding a mentor, and having an internship are all important steps in getting a job at a hedge fund once you graduate.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_38-0"><span class="heading-toc" id="toc-how-many-hours-do-hedge-fund-analysts-work"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Many Hours Do Hedge Fund Analysts Work?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Hedge fund analysts typically work between 60 and 70 hours a week. Working on the weekend is not common but it certainly does happen from time to time. Though working at a hedge fund is not a typical 9 to 5 job, it is less strenuous than investment banking analyst or private equity jobs.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> The type of detail necessary for a hedge fund's success requires a hedge fund analyst to perform a number of jobs on a regular basis, such as initial identification of a potentially attractive investment in a company's stock or bond, detailed research on the company's securities and a thorough recommendation of action the portfolio manager should take in regard to the company's stock and bonds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> Additionally, once an investment in a company's stock/bond is made by the portfolio manager, it is the job of the hedge fund analyst to continually monitor the company's stock/bond to see if any changes in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investmentstrategy.asp" rel="noopener noreferrer">investment strategy</a> are needed. </p></div>

Hedge funds are a class of investment vehicles that use [pooled funds](https://www.investopedia.com/terms/p/pooledfunds.asp) and employ a number of strategies to earn an active return, commonly known as [alpha](https://www.investopedia.com/terms/a/alpha.asp), for their investors. Unlike an active portfolio manager of a mutual fund, [hedge funds](https://www.investopedia.com/terms/h/hedgefund.asp) often cater to higher net-worth individuals and organizations and may invest in several different asset classes including alternative investments, and engage in strategies other than holding long positions. Hedge funds may also partake in [derivatives](https://www.investopedia.com/terms/d/derivative.asp) markets. A hedge fund analyst is somebody that does [quantitative research](https://www.investopedia.com/articles/financialcareers/08/quants-quantitative-analyst.asp) in order to identify the assets to trade with the fund's money that adheres to its trading strategy and mandate. Analysts [may research individual securities](https://www.investopedia.com/articles/personal-finance/021115/job-description-and-salary-mergers-and-acquisitions-analyst.asp), market sectors, macroeconomic trends, or all of the above. The analyst will then pass this research over to the trading team or portfolio manager who will execute the trades as they see fit. Below, we go over some typical job roles and duties as well as what a hedge fund analyst could expect to earn on the job. ### Key Takeaways * A hedge fund analyst is tasked with providing guidance to a portfolio manager on how to best structure the hedge fund's investment portfolio. * A hedge fund analyst works for a hedge fund, as opposed to another type of buy-side institution. With hedge funds, alternative asset classes, derivatives, and short or delta-neutral strategies may be used. * Hedge fund analysts are tasked with finding investment opportunities based on research and due diligence, recommending them to portfolio managers, and then monitoring risk and performance. ## Identify Potentially Attractive Investments A hedge fund analyst continually stays up to date on a wide variety of financial news, [macroeconomic trends](https://www.investopedia.com/terms/m/macroeconomics.asp), and market forecasts. To accomplish this, a hedge fund analyst is required to spend time reading about these items and hold meetings or calls with experts, both internal and external, who provide insight into these types of market forces. The analyst utilizes this information to form an [investment thesis](https://www.investopedia.com/terms/i/investment-thesis.asp) that can be used to identify a specific company's stock/bonds that might serve as a potentially attractive investment opportunity. ## Provide Detailed Research on an Attractive Company Once a specific stock/bond is identified, the hedge fund analyst begins their research, which will help lead to an investment recommendation for the portfolio manager. This research entails examining the current and future financial well-being of the company that issued the stock/bond, gaining an understanding of the company's current and future standing within the industry in which it competes; exploring the potential market and economic factors that could affect the company in the future; conducting a wide variety of [financial analysis](https://www.investopedia.com/terms/f/financial-analysis.asp) of the company to uncover the company's actual [valuation](https://www.investopedia.com/terms/v/valuation.asp); finding reasons why the actual valuation differs from the market's perceived valuation; assessing risks to the actual valuation; and identifying potential company-specific risks of which the market is currently unaware. The hedge fund analyst uses the information provided by this detailed research to craft an investment recommendation on the company's stock/bond. ## Deliver a Recommendation to the Portfolio Manager Once the hedge fund analyst completes their detailed research analysis, an opinion is formed on the best course of action regarding the company's stock/bond. A brief yet thorough recommendation is crafted and then presented to the portfolio manager that outlines the best course of action and any major findings from the research used to come to this conclusion. ### All hedge funds have different investment strategies and focus on different financial products; some may be fixed-income oriented while others may focus on equities and futures. When applying to a hedge fund, make sure it is in the area you are interested in. ## Monitor Companies That the Fund Invests in Once an investment in a specific company's stock/bonds is made by the [portfolio manager](https://www.investopedia.com/terms/p/portfoliomanager.asp), the hedge fund analyst continually monitors the respective company for any indications that the information used to craft the initial investment recommendation might no longer be relevant. When such an indication occurs, the hedge fund analyst once again conducts research to provide an updated course of action to the portfolio manager. ## Hours and Salary A hedge fund analyst can expect to work hard and be rewarded for doing so. People with this job title will tend to work 12+ hour days—or 60-70 hours a week—and weekends may be necessary in certain instances. Compensation will also be high, surpassing $90,000 total on average in the U.S. Depending on the location and specific role, the salary could be as high as $231,000. Hedge funds are also known to provide generous perks and employee benefits to their teams. ## How Much Do Hedge Fund Analysts Get Paid? The salary range for a hedge fund analyst in the U.S. is approximately between $40,000 and $231,000, with the average being $93,000. The exact salary will depend on the specific firm, job location, and responsibilities of the job. ## How Do I Become a Hedge Fund Analyst? Becoming a hedge fund analyst starts with [specific educational requirements](https://www.investopedia.com/articles/investing/042715/top-bachelor-degree-hedgefund-career.asp) and knowledge. It is important to have a strong understanding of finance, financial products, the economy, and various financial markets. Majors in finance, math, physics, and engineering are all suitable majors, though not required. From college, networking with individuals in the hedge fund industry, finding a mentor, and having an internship are all important steps in getting a job at a hedge fund once you graduate. ## How Many Hours Do Hedge Fund Analysts Work? Hedge fund analysts typically work between 60 and 70 hours a week. Working on the weekend is not common but it certainly does happen from time to time. Though working at a hedge fund is not a typical 9 to 5 job, it is less strenuous than investment banking analyst or private equity jobs. ## The Bottom Line The type of detail necessary for a hedge fund's success requires a hedge fund analyst to perform a number of jobs on a regular basis, such as initial identification of a potentially attractive investment in a company's stock or bond, detailed research on the company's securities and a thorough recommendation of action the portfolio manager should take in regard to the company's stock and bonds. Additionally, once an investment in a company's stock/bond is made by the portfolio manager, it is the job of the hedge fund analyst to continually monitor the company's stock/bond to see if any changes in [investment strategy](https://www.investopedia.com/terms/i/investmentstrategy.asp) are needed.

Hedge funds are a class of investment vehicles that use pooled funds and employ a number of strategies to earn an active return, commonly known as alpha, for their investors. Unlike an active portfolio manager of a mutual fund, hedge funds often cater to higher net-worth individuals and organizations and may invest in several different asset classes including alternative investments, and engage in strategies other than holding long positions. Hedge funds may also partake in derivatives markets. A hedge fund analyst is somebody that does quantitative research in order to identify the assets to trade with the fund's money that adheres to its trading strategy and mandate. Analysts may research individual securities, market sectors, macroeconomic trends, or all of the above. The analyst will then pass this research over to the trading team or portfolio manager who will execute the trades as they see fit. Below, we go over some typical job roles and duties as well as what a hedge fund analyst could expect to earn on the job. Key Takeaways A hedge fund analyst is tasked with providing guidance to a portfolio manager on how to best structure the hedge fund's investment portfolio.A hedge fund analyst works for a hedge fund, as opposed to another type of buy-side institution. With hedge funds, alternative asset classes, derivatives, and short or delta-neutral strategies may be used.Hedge fund analysts are tasked with finding investment opportunities based on research and due diligence, recommending them to portfolio managers, and then monitoring risk and performance. Identify Potentially Attractive Investments A hedge fund analyst continually stays up to date on a wide variety of financial news, macroeconomic trends, and market forecasts. To accomplish this, a hedge fund analyst is required to spend time reading about these items and hold meetings or calls with experts, both internal and external, who provide insight into these types of market forces. The analyst utilizes this information to form an investment thesis that can be used to identify a specific company's stock/bonds that might serve as a potentially attractive investment opportunity. Provide Detailed Research on an Attractive Company Once a specific stock/bond is identified, the hedge fund analyst begins their research, which will help lead to an investment recommendation for the portfolio manager. This research entails examining the current and future financial well-being of the company that issued the stock/bond, gaining an understanding of the company's current and future standing within the industry in which it competes; exploring the potential market and economic factors that could affect the company in the future; conducting a wide variety of financial analysis of the company to uncover the company's actual valuation; finding reasons why the actual valuation differs from the market's perceived valuation; assessing risks to the actual valuation; and identifying potential company-specific risks of which the market is currently unaware. The hedge fund analyst uses the information provided by this detailed research to craft an investment recommendation on the company's stock/bond. Deliver a Recommendation to the Portfolio Manager Once the hedge fund analyst completes their detailed research analysis, an opinion is formed on the best course of action regarding the company's stock/bond. A brief yet thorough recommendation is crafted and then presented to the portfolio manager that outlines the best course of action and any major findings from the research used to come to this conclusion. All hedge funds have different investment strategies and focus on different financial products; some may be fixed-income oriented while others may focus on equities and futures. When applying to a hedge fund, make sure it is in the area you are interested in. Monitor Companies That the Fund Invests in Once an investment in a specific company's stock/bonds is made by the portfolio manager, the hedge fund analyst continually monitors the respective company for any indications that the information used to craft the initial investment recommendation might no longer be relevant. When such an indication occurs, the hedge fund analyst once again conducts research to provide an updated course of action to the portfolio manager. Hours and Salary A hedge fund analyst can expect to work hard and be rewarded for doing so. People with this job title will tend to work 12+ hour days—or 60-70 hours a week—and weekends may be necessary in certain instances. Compensation will also be high, surpassing $90,000 total on average in the U.S. Depending on the location and specific role, the salary could be as high as $231,000. Hedge funds are also known to provide generous perks and employee benefits to their teams. How Much Do Hedge Fund Analysts Get Paid? The salary range for a hedge fund analyst in the U.S. is approximately between $40,000 and $231,000, with the average being $93,000. The exact salary will depend on the specific firm, job location, and responsibilities of the job. How Do I Become a Hedge Fund Analyst? Becoming a hedge fund analyst starts with specific educational requirements and knowledge. It is important to have a strong understanding of finance, financial products, the economy, and various financial markets. Majors in finance, math, physics, and engineering are all suitable majors, though not required. From college, networking with individuals in the hedge fund industry, finding a mentor, and having an internship are all important steps in getting a job at a hedge fund once you graduate. How Many Hours Do Hedge Fund Analysts Work? Hedge fund analysts typically work between 60 and 70 hours a week. Working on the weekend is not common but it certainly does happen from time to time. Though working at a hedge fund is not a typical 9 to 5 job, it is less strenuous than investment banking analyst or private equity jobs. The Bottom Line The type of detail necessary for a hedge fund's success requires a hedge fund analyst to perform a number of jobs on a regular basis, such as initial identification of a potentially attractive investment in a company's stock or bond, detailed research on the company's securities and a thorough recommendation of action the portfolio manager should take in regard to the company's stock and bonds. Additionally, once an investment in a company's stock/bond is made by the portfolio manager, it is the job of the hedge fund analyst to continually monitor the company's stock/bond to see if any changes in investment strategy are needed.

https://www.investopedia.com/venmo-apple-wallet-digital-money-guide-parents-5220982

Venmo, Apple Wallet, and Digital Money Guide for Parents

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Digital platforms make it easier than ever to get money to quickly, whether you're a parent who forgot the fees for your child's field trip or you're a teenager who receives an allowance virtually. But not all payment apps are equal. Find out why Apple Pay, Cash App, and the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-debit-cards-for-teens-5079369">best children's debit cards</a> stand out among other players such as PayPal and Google Pay. </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>Apple Pay, aka Apple Cash, offers the most monitoring options for parents watching their teenagers' spending, but may not be accepted everywhere.</li><li>Cash App is one of the few payment platforms that allows teenagers to pay and receive money from friends or others.</li><li>In May 2023, Venmo, the Paypal-owned payments platform, unveiled its Venmo Teen Account, which will allow parents to open a Venmo account and debit card for kids 13 to 17. </li><li>Some of the most popular apps for adults to send money to each other—Zelle and PayPal—don't allow minors to use them.</li><li>A children’s debit card option, such as Greenlight or GoHenry, may be the best way to monitor your child’s mobile finances while giving them the most flexibility in where they can spend.<br/></li></ul></div></div></div> <span class="heading-toc" id="toc-apple-wallet"></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"> Apple Wallet </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Apple Wallet has an option called Apple Cash Family. As a parent or guardian, you can add family members younger than 18 under your own <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/apple-announces-buy-now-pay-later-5324814">Apple Wallet</a>, which then gives you the control to add money to their account, lock their access to the account, choose to whom they can send money, and set up notifications whenever they make a transaction. </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"> Apple Cash Family gives parents some of the most robust monitoring features of the options described in this article, and is the most flexible to truly be used like cash, as most retailers popular with kids (such as movie theaters, grocery and clothing stores, and popular fast-food places like Taco Bell) accept <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apple-pay.asp">Apple Pay</a>.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> As with most mobile cash apps, if you're not yet 18, you can't use Apple Pay to reimburse your friend for movie tickets she bought, for example, but you should be able to buy your own ticket for the show when you get to the theater.<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_11-0"></div> <span class="heading-toc" id="toc-cash-app"></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"> Cash App </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> Cash App is available for kids as young as 13, and it's one of the few <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/company-insights/090816/how-splitwise-works-and-makes-money.asp">mobile payment options</a> that allows a young person to pay someone else or receive funds—up to $1,000 every 30 days, in peer-to-peer transactions.<span class="ql-inline-citation" data-cite="14"></span> So if you're a teenager out with friends from your high school at a big concert, you can pay your classmate back that night for the tickets or food he bought, for example. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> To set up a Cash App account for a 13- to 18-year-old child, a parent or guardian will have to approve the account and serve as the account’s legal owner. Cash App allows parents to get access to their teen’s account activity through monthly statements but doesn't give instant monitoring options.<span class="ql-inline-citation" data-cite="3"></span> It also blocks certain types of transactions such as those with bars, liquor stores, dating services, government-run lotteries, and rental cars.<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_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_2-0">Note</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Cash App also has options for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cryptocurrency.asp">cryptocurrency</a> or stock trading if you're a <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/younginvestors/09/common-mistakes-young-investors.asp">young investor</a> wanting to learn more about these markets, although users under 18 will require additional approval to access these features through a Cash App family account.<span class="ql-inline-citation" data-cite="14"></span> </p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> While parents or guardians can pause or cancel their child’s account at any time, Cash App has many fewer monitoring and oversight features for parents than other options like Apple Cash. The biggest upside to Cash App of the options listed is that you can sign up for a Cash Card for your kid, which essentially allows them to use the card everywhere that they could want to spend money, from the mall to a sports arena.<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_20-0"></div> <span class="heading-toc" id="toc-google-pay"></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"> Google Pay </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Google Pay is available for teens as young as 13.<span class="ql-inline-citation" data-cite="4"></span> Parents <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/news/google-launches-google-pay-rival-apple/">add a payment method</a> to their Google account and can then limit spending to certain apps or types of purchases as well as require parental preauthorization for every purchase that the child makes. </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 biggest downside of Google Pay for kids is that it only works on Google Play. This means that kids can use the family account for in-app purchases or buying new books, movies, games, and so on through Google Play, but they can't use it to make purchases in brick-and-mortar stores or to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/092315/it-safe-send-money-through-facebook.asp">send money</a> to their friends or family.<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_25-0"></div> <span class="heading-toc" id="toc-venmo"></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"> Venmo </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/articles/personal-finance/032415/how-safe-venmo-and-why-it-free.asp">Venmo</a> in May 2023 announced its Venmo Teen Account, which will allow parents to open a Venmo account and debit card for their teenage kids between 13 and 17 years old. It was to begin offering the service to select customers in June before making it available more widely.<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_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> The Venmo Teen Account has no monthly fees or cash withdrawal fees at certain ATMs when using it, although a $400 daily withdrawal limit applies.<span class="ql-inline-citation" data-cite="20"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> The account will require parents to sign up on behalf of their teenagers. Once approved, you can get a teen <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> and parents will be able to send money to their children through the Venmo app. Venmo's regular user agreement specifically requires users to be at least age 18. Parents choosing the Venmo Teen Account can protect their children’s privacy by setting all transactions to “private” so that their children’s recurring purchases, locations, and payments aren’t accessible to the public.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_32-0"></div> <span class="heading-toc" id="toc-paypal"></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"> PayPal </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Minors aren't allowed to open PayPal accounts, so if you're under 18, you'll have to ask to share an adult's account.<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_35-0"></div> <span class="heading-toc" id="toc-zelle"></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"> Zelle </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> Similar to PayPal, minors aren't technically allowed to open Zelle accounts.<span class="ql-inline-citation" data-cite="5"></span> So if you're under age 18, a different digital money option probably will work better. </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-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_40-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0">Unauthorized Accounts</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>While Zelle and PayPal don't technically allow minors to open or use accounts, many parents just log in to their own accounts on their children’s devices. This violates the terms of service for these apps and may lead to your account getting shut down permanently.<span class="ql-inline-citation" data-cite="6"></span><span class="ql-inline-citation" data-cite="21"></span> Consider using an app designed for kids to use instead.</p></div></div></div> <span class="heading-toc" id="toc-kids-debit-card-options"></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"> Kids' Debit Card Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Because of widespread minimum-age requirements on most digital money platforms, if you're a teenager, or the parent of one, you might want to look into some of the apps with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-debit-cards-for-teens-5079369">debit cards that cater to younger spenders</a> and savers. Here are two examples: </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"> Greenlight App and Debit Card </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Greenlight offers an app and debit card with the same name for children and teens. It has no minimum age, and plans for up to five kids start at $4.99 a month. An upgrade to the Greenlight Custom Card is possible for a one-time fee of $9.99. Parents load money onto the card from their own Greenlight app for kids to spend.<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_46-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/greenlight-debit-card-for-kids-review-7967533">Greenlight card</a> can be used almost anywhere its issuer, Mastercard, is accepted, either online or when shopping in a store.<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"> If your teenager has a job, direct deposits into a Greenlight account must be from the child's employer and in the child's name. The card doesn't accept direct deposit from state or federal government sources like Social Security payments, tax refunds, or child support. Greenlight accounts also can't take payments from <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/paypal.asp">Paypal</a>, Venmo, or Apple Cash. Kids under 13 will need a parent to access their account number.<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_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> As a plus for security, Greenlight has instituted several "guardrails" for kids' use of the card, including blocks on transactions such as:<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_52-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> <li>Wire transfers or money orders</li><li>Security brokers or deals</li><li>Dating/escort services</li><li>Lotteries</li><li>Online casinos or online gambling</li><li>Non-sport internet gaming</li> </ul> <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"> GoHenry App and Debit Card </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> The GoHenry app and debit card come with many features for teens and parents, including chore and allowance tracking, real-time alerts, and spending controls for parents to use. GoHenry also offers customer support via phone, email, or submit a form, seven days a week.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> This debit card and mobile app aimed at kids aged 6 to 18 was created by a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/what-is-gohenry-app-and-how-does-it-make-money-4584677">U.K.-based company</a>. The app offers young users built-in financial education tools, including “Money Missions,” which are interactive financial lessons based on the K-12 Personal Finance Education National Standards.<span class="ql-inline-citation" data-cite="11"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> GoHenry also features <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/030217/best-strategy-shortterm-savings-goals.asp">savings goals</a>, real-time notifications, and peer-to-peer payments with friends and family. Direct deposit is available for anyone 14 and older. Accounts are FDIC-insured, and the debit Mastercard has chip-and-PIN technology for extra security. The GoHenry debit cards are set apart by the option to choose from more than 45 customizable card designs, including some designed by an artist.<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_61-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_62-0"> GoHenry's monthly fee of $4.99 per card (after a free 30-day trial) is comparable with other debit card accounts aimed at kids.<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_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-safe-are-these-digital-money-apps"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Safe Are These Digital Money Apps?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>As with everything else online, these apps are only as safe as their user allows them to be. Make sure that your teen sets up robust, unique passwords, changes them regularly, and neither shares them with anyone else nor writes them down where someone else could find them.</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-how-can-i-monitor-my-childs-spending"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Can I Monitor My Child’s Spending?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Most apps have built-in parental monitoring features. For example, Apple Cash only allows kids to spend up to their balance, so if you are trying to limit your child’s spending, you can put just the amount that you’re willing to let them spend into their account.<span class="ql-inline-citation" data-cite="2"></span> If you’re unsure whether the app that you’re using allows parental monitoring, you also can require to know your child’s login information before letting them use the app.</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-are-good-alternatives-to-these-digital-money-apps"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Good Alternatives to These Digital Money Apps?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you’re looking to teach your child basic money management, then a debit card specifically designed for teens with built-in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-education-resources-kids-5216826">financial education</a> may be your best option. The Greenlight debit card for kids is Investopedia’s <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-debit-cards-for-teens-5079369">top pick among these cards for 2024</a>. It comes with the ability to track spending and savings over time, as well as educational programming and other features that kids and parents alike are sure to appreciate. </p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_70-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_71-0"> Are you a teenager who wants a taste of financial responsibility? If you're their parent, do you want a bit of a break from trying to monitor their spending? An app is a great way to do that. The option from Apple gives the greatest monitoring options, and Cash App gives the greatest flexibility on where and how your kid can spend money. For the most spending options combined with the highest level of monitoring, a debit card specifically for teens will be your best option. </p></div>

Digital platforms make it easier than ever to get money to quickly, whether you're a parent who forgot the fees for your child's field trip or you're a teenager who receives an allowance virtually. But not all payment apps are equal. Find out why Apple Pay, Cash App, and the [best children's debit cards](https://www.investopedia.com/best-debit-cards-for-teens-5079369) stand out among other players such as PayPal and Google Pay. ### Key Takeaways * Apple Pay, aka Apple Cash, offers the most monitoring options for parents watching their teenagers' spending, but may not be accepted everywhere. * Cash App is one of the few payment platforms that allows teenagers to pay and receive money from friends or others. * In May 2023, Venmo, the Paypal-owned payments platform, unveiled its Venmo Teen Account, which will allow parents to open a Venmo account and debit card for kids 13 to 17. * Some of the most popular apps for adults to send money to each other—Zelle and PayPal—don't allow minors to use them. * A children’s debit card option, such as Greenlight or GoHenry, may be the best way to monitor your child’s mobile finances while giving them the most flexibility in where they can spend. ## Apple Wallet Apple Wallet has an option called Apple Cash Family. As a parent or guardian, you can add family members younger than 18 under your own [Apple Wallet](https://www.investopedia.com/apple-announces-buy-now-pay-later-5324814), which then gives you the control to add money to their account, lock their access to the account, choose to whom they can send money, and set up notifications whenever they make a transaction. Apple Cash Family gives parents some of the most robust monitoring features of the options described in this article, and is the most flexible to truly be used like cash, as most retailers popular with kids (such as movie theaters, grocery and clothing stores, and popular fast-food places like Taco Bell) accept [Apple Pay](https://www.investopedia.com/terms/a/apple-pay.asp). As with most mobile cash apps, if you're not yet 18, you can't use Apple Pay to reimburse your friend for movie tickets she bought, for example, but you should be able to buy your own ticket for the show when you get to the theater. ## Cash App Cash App is available for kids as young as 13, and it's one of the few [mobile payment options](https://www.investopedia.com/articles/company-insights/090816/how-splitwise-works-and-makes-money.asp) that allows a young person to pay someone else or receive funds—up to $1,000 every 30 days, in peer-to-peer transactions. So if you're a teenager out with friends from your high school at a big concert, you can pay your classmate back that night for the tickets or food he bought, for example. To set up a Cash App account for a 13- to 18-year-old child, a parent or guardian will have to approve the account and serve as the account’s legal owner. Cash App allows parents to get access to their teen’s account activity through monthly statements but doesn't give instant monitoring options. It also blocks certain types of transactions such as those with bars, liquor stores, dating services, government-run lotteries, and rental cars. ### Note Cash App also has options for [cryptocurrency](https://www.investopedia.com/terms/c/cryptocurrency.asp) or stock trading if you're a [young investor](https://www.investopedia.com/articles/younginvestors/09/common-mistakes-young-investors.asp) wanting to learn more about these markets, although users under 18 will require additional approval to access these features through a Cash App family account.  While parents or guardians can pause or cancel their child’s account at any time, Cash App has many fewer monitoring and oversight features for parents than other options like Apple Cash. The biggest upside to Cash App of the options listed is that you can sign up for a Cash Card for your kid, which essentially allows them to use the card everywhere that they could want to spend money, from the mall to a sports arena. ## Google Pay Google Pay is available for teens as young as 13. Parents [add a payment method](https://www.investopedia.com/news/google-launches-google-pay-rival-apple/) to their Google account and can then limit spending to certain apps or types of purchases as well as require parental preauthorization for every purchase that the child makes. The biggest downside of Google Pay for kids is that it only works on Google Play. This means that kids can use the family account for in-app purchases or buying new books, movies, games, and so on through Google Play, but they can't use it to make purchases in brick-and-mortar stores or to [send money](https://www.investopedia.com/articles/personal-finance/092315/it-safe-send-money-through-facebook.asp) to their friends or family. ## Venmo [Venmo](https://www.investopedia.com/articles/personal-finance/032415/how-safe-venmo-and-why-it-free.asp) in May 2023 announced its Venmo Teen Account, which will allow parents to open a Venmo account and debit card for their teenage kids between 13 and 17 years old. It was to begin offering the service to select customers in June before making it available more widely. The Venmo Teen Account has no monthly fees or cash withdrawal fees at certain ATMs when using it, although a $400 daily withdrawal limit applies. The account will require parents to sign up on behalf of their teenagers. Once approved, you can get a teen [debit card](https://www.investopedia.com/terms/d/debitcard.asp) and parents will be able to send money to their children through the Venmo app. Venmo's regular user agreement specifically requires users to be at least age 18. Parents choosing the Venmo Teen Account can protect their children’s privacy by setting all transactions to “private” so that their children’s recurring purchases, locations, and payments aren’t accessible to the public. ## PayPal Minors aren't allowed to open PayPal accounts, so if you're under 18, you'll have to ask to share an adult's account. ## Zelle Similar to PayPal, minors aren't technically allowed to open Zelle accounts. So if you're under age 18, a different digital money option probably will work better. ### Unauthorized Accounts While Zelle and PayPal don't technically allow minors to open or use accounts, many parents just log in to their own accounts on their children’s devices. This violates the terms of service for these apps and may lead to your account getting shut down permanently. Consider using an app designed for kids to use instead. ## Kids' Debit Card Options Because of widespread minimum-age requirements on most digital money platforms, if you're a teenager, or the parent of one, you might want to look into some of the apps with [debit cards that cater to younger spenders](https://www.investopedia.com/best-debit-cards-for-teens-5079369) and savers. Here are two examples: ### Greenlight App and Debit Card Greenlight offers an app and debit card with the same name for children and teens. It has no minimum age, and plans for up to five kids start at $4.99 a month. An upgrade to the Greenlight Custom Card is possible for a one-time fee of $9.99. Parents load money onto the card from their own Greenlight app for kids to spend. The [Greenlight card](https://www.investopedia.com/greenlight-debit-card-for-kids-review-7967533) can be used almost anywhere its issuer, Mastercard, is accepted, either online or when shopping in a store. If your teenager has a job, direct deposits into a Greenlight account must be from the child's employer and in the child's name. The card doesn't accept direct deposit from state or federal government sources like Social Security payments, tax refunds, or child support. Greenlight accounts also can't take payments from [Paypal](https://www.investopedia.com/terms/p/paypal.asp), Venmo, or Apple Cash. Kids under 13 will need a parent to access their account number.  As a plus for security, Greenlight has instituted several "guardrails" for kids' use of the card, including blocks on transactions such as: * Wire transfers or money orders * Security brokers or deals * Dating/escort services * Lotteries * Online casinos or online gambling * Non-sport internet gaming ### GoHenry App and Debit Card The GoHenry app and debit card come with many features for teens and parents, including chore and allowance tracking, real-time alerts, and spending controls for parents to use. GoHenry also offers customer support via phone, email, or submit a form, seven days a week. This debit card and mobile app aimed at kids aged 6 to 18 was created by a [U.K.-based company](https://www.investopedia.com/what-is-gohenry-app-and-how-does-it-make-money-4584677). The app offers young users built-in financial education tools, including “Money Missions,” which are interactive financial lessons based on the K-12 Personal Finance Education National Standards. GoHenry also features [savings goals](https://www.investopedia.com/articles/investing/030217/best-strategy-shortterm-savings-goals.asp), real-time notifications, and peer-to-peer payments with friends and family. Direct deposit is available for anyone 14 and older. Accounts are FDIC-insured, and the debit Mastercard has chip-and-PIN technology for extra security. The GoHenry debit cards are set apart by the option to choose from more than 45 customizable card designs, including some designed by an artist. GoHenry's monthly fee of $4.99 per card (after a free 30-day trial) is comparable with other debit card accounts aimed at kids. ## How Safe Are These Digital Money Apps? As with everything else online, these apps are only as safe as their user allows them to be. Make sure that your teen sets up robust, unique passwords, changes them regularly, and neither shares them with anyone else nor writes them down where someone else could find them. ## How Can I Monitor My Child’s Spending? Most apps have built-in parental monitoring features. For example, Apple Cash only allows kids to spend up to their balance, so if you are trying to limit your child’s spending, you can put just the amount that you’re willing to let them spend into their account. If you’re unsure whether the app that you’re using allows parental monitoring, you also can require to know your child’s login information before letting them use the app. ## What Are Good Alternatives to These Digital Money Apps? If you’re looking to teach your child basic money management, then a debit card specifically designed for teens with built-in [financial education](https://www.investopedia.com/financial-education-resources-kids-5216826) may be your best option. The Greenlight debit card for kids is Investopedia’s [top pick among these cards for 2024](https://www.investopedia.com/best-debit-cards-for-teens-5079369). It comes with the ability to track spending and savings over time, as well as educational programming and other features that kids and parents alike are sure to appreciate.  ## The Bottom Line Are you a teenager who wants a taste of financial responsibility? If you're their parent, do you want a bit of a break from trying to monitor their spending? An app is a great way to do that. The option from Apple gives the greatest monitoring options, and Cash App gives the greatest flexibility on where and how your kid can spend money. For the most spending options combined with the highest level of monitoring, a debit card specifically for teens will be your best option.

Digital platforms make it easier than ever to get money to quickly, whether you're a parent who forgot the fees for your child's field trip or you're a teenager who receives an allowance virtually. But not all payment apps are equal. Find out why Apple Pay, Cash App, and the best children's debit cards stand out among other players such as PayPal and Google Pay. Key Takeaways Apple Pay, aka Apple Cash, offers the most monitoring options for parents watching their teenagers' spending, but may not be accepted everywhere.Cash App is one of the few payment platforms that allows teenagers to pay and receive money from friends or others.In May 2023, Venmo, the Paypal-owned payments platform, unveiled its Venmo Teen Account, which will allow parents to open a Venmo account and debit card for kids 13 to 17. Some of the most popular apps for adults to send money to each other—Zelle and PayPal—don't allow minors to use them.A children’s debit card option, such as Greenlight or GoHenry, may be the best way to monitor your child’s mobile finances while giving them the most flexibility in where they can spend. Apple Wallet Apple Wallet has an option called Apple Cash Family. As a parent or guardian, you can add family members younger than 18 under your own Apple Wallet, which then gives you the control to add money to their account, lock their access to the account, choose to whom they can send money, and set up notifications whenever they make a transaction. Apple Cash Family gives parents some of the most robust monitoring features of the options described in this article, and is the most flexible to truly be used like cash, as most retailers popular with kids (such as movie theaters, grocery and clothing stores, and popular fast-food places like Taco Bell) accept Apple Pay. As with most mobile cash apps, if you're not yet 18, you can't use Apple Pay to reimburse your friend for movie tickets she bought, for example, but you should be able to buy your own ticket for the show when you get to the theater. Cash App Cash App is available for kids as young as 13, and it's one of the few mobile payment options that allows a young person to pay someone else or receive funds—up to $1,000 every 30 days, in peer-to-peer transactions. So if you're a teenager out with friends from your high school at a big concert, you can pay your classmate back that night for the tickets or food he bought, for example. To set up a Cash App account for a 13- to 18-year-old child, a parent or guardian will have to approve the account and serve as the account’s legal owner. Cash App allows parents to get access to their teen’s account activity through monthly statements but doesn't give instant monitoring options. It also blocks certain types of transactions such as those with bars, liquor stores, dating services, government-run lotteries, and rental cars. Note Cash App also has options for cryptocurrency or stock trading if you're a young investor wanting to learn more about these markets, although users under 18 will require additional approval to access these features through a Cash App family account.  While parents or guardians can pause or cancel their child’s account at any time, Cash App has many fewer monitoring and oversight features for parents than other options like Apple Cash. The biggest upside to Cash App of the options listed is that you can sign up for a Cash Card for your kid, which essentially allows them to use the card everywhere that they could want to spend money, from the mall to a sports arena. Google Pay Google Pay is available for teens as young as 13. Parents add a payment method to their Google account and can then limit spending to certain apps or types of purchases as well as require parental preauthorization for every purchase that the child makes. The biggest downside of Google Pay for kids is that it only works on Google Play. This means that kids can use the family account for in-app purchases or buying new books, movies, games, and so on through Google Play, but they can't use it to make purchases in brick-and-mortar stores or to send money to their friends or family. Venmo Venmo in May 2023 announced its Venmo Teen Account, which will allow parents to open a Venmo account and debit card for their teenage kids between 13 and 17 years old. It was to begin offering the service to select customers in June before making it available more widely. The Venmo Teen Account has no monthly fees or cash withdrawal fees at certain ATMs when using it, although a $400 daily withdrawal limit applies. The account will require parents to sign up on behalf of their teenagers. Once approved, you can get a teen debit card and parents will be able to send money to their children through the Venmo app. Venmo's regular user agreement specifically requires users to be at least age 18. Parents choosing the Venmo Teen Account can protect their children’s privacy by setting all transactions to “private” so that their children’s recurring purchases, locations, and payments aren’t accessible to the public. PayPal Minors aren't allowed to open PayPal accounts, so if you're under 18, you'll have to ask to share an adult's account. Zelle Similar to PayPal, minors aren't technically allowed to open Zelle accounts. So if you're under age 18, a different digital money option probably will work better. Unauthorized Accounts While Zelle and PayPal don't technically allow minors to open or use accounts, many parents just log in to their own accounts on their children’s devices. This violates the terms of service for these apps and may lead to your account getting shut down permanently. Consider using an app designed for kids to use instead. Kids' Debit Card Options Because of widespread minimum-age requirements on most digital money platforms, if you're a teenager, or the parent of one, you might want to look into some of the apps with debit cards that cater to younger spenders and savers. Here are two examples: Greenlight App and Debit Card Greenlight offers an app and debit card with the same name for children and teens. It has no minimum age, and plans for up to five kids start at $4.99 a month. An upgrade to the Greenlight Custom Card is possible for a one-time fee of $9.99. Parents load money onto the card from their own Greenlight app for kids to spend. The Greenlight card can be used almost anywhere its issuer, Mastercard, is accepted, either online or when shopping in a store. If your teenager has a job, direct deposits into a Greenlight account must be from the child's employer and in the child's name. The card doesn't accept direct deposit from state or federal government sources like Social Security payments, tax refunds, or child support. Greenlight accounts also can't take payments from Paypal, Venmo, or Apple Cash. Kids under 13 will need a parent to access their account number.  As a plus for security, Greenlight has instituted several "guardrails" for kids' use of the card, including blocks on transactions such as: Wire transfers or money ordersSecurity brokers or dealsDating/escort servicesLotteriesOnline casinos or online gamblingNon-sport internet gaming GoHenry App and Debit Card The GoHenry app and debit card come with many features for teens and parents, including chore and allowance tracking, real-time alerts, and spending controls for parents to use. GoHenry also offers customer support via phone, email, or submit a form, seven days a week. This debit card and mobile app aimed at kids aged 6 to 18 was created by a U.K.-based company. The app offers young users built-in financial education tools, including “Money Missions,” which are interactive financial lessons based on the K-12 Personal Finance Education National Standards. GoHenry also features savings goals, real-time notifications, and peer-to-peer payments with friends and family. Direct deposit is available for anyone 14 and older. Accounts are FDIC-insured, and the debit Mastercard has chip-and-PIN technology for extra security. The GoHenry debit cards are set apart by the option to choose from more than 45 customizable card designs, including some designed by an artist. GoHenry's monthly fee of $4.99 per card (after a free 30-day trial) is comparable with other debit card accounts aimed at kids. How Safe Are These Digital Money Apps? As with everything else online, these apps are only as safe as their user allows them to be. Make sure that your teen sets up robust, unique passwords, changes them regularly, and neither shares them with anyone else nor writes them down where someone else could find them. How Can I Monitor My Child’s Spending? Most apps have built-in parental monitoring features. For example, Apple Cash only allows kids to spend up to their balance, so if you are trying to limit your child’s spending, you can put just the amount that you’re willing to let them spend into their account. If you’re unsure whether the app that you’re using allows parental monitoring, you also can require to know your child’s login information before letting them use the app. What Are Good Alternatives to These Digital Money Apps? If you’re looking to teach your child basic money management, then a debit card specifically designed for teens with built-in financial education may be your best option. The Greenlight debit card for kids is Investopedia’s top pick among these cards for 2024. It comes with the ability to track spending and savings over time, as well as educational programming and other features that kids and parents alike are sure to appreciate.  The Bottom Line Are you a teenager who wants a taste of financial responsibility? If you're their parent, do you want a bit of a break from trying to monitor their spending? An app is a great way to do that. The option from Apple gives the greatest monitoring options, and Cash App gives the greatest flexibility on where and how your kid can spend money. For the most spending options combined with the highest level of monitoring, a debit card specifically for teens will be your best option.

https://www.investopedia.com/terms/b/broad-index-synthetic-trust-offering.asp

Broad Index Secured Trust Offering (BISTRO): Overview

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-was-a-broad-index-secured-trust-offering-bistro"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Was a Broad Index Secured Trust Offering (BISTRO)? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> A broad index secured trust offering (BISTRO) was a proprietary name used by J.P. Morgan for creating <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cdo.asp">collateralized debt obligations</a> (CDOs) from credit derivatives. About a week before Christmas 1997, J.P. Morgan launched the Broad Index Secured Trust Offering (BISTRO), a $700 million bond issue referencing a portfolio of more than 300 corporate and public finance credits across Europe and North America. </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 structure of BISTROs allowed financial institutions to hedge economic risk while simultaneously releasing regulatory capital. These offerings were the predecessor of the synthetic collateralized debt products that later grew in popularity. These debt products were credited with contributing to the 2007-2008 financial crisis. </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 broad index secured trust offering (BISTRO) was a way to securitize collateralized debt obligations (CDOs) from credit derivatives.</li><li>BISTRO offerings were introduced by the investment bank J.P. Morgan in 1997 and were the predecessor of the synthetic collateralized debt products that later grew in popularity.</li><li>A broad index secured trust offering (BISTRO) was considered a landmark financial instrument at the time of its launch; it was believed to be one of the first synthetic collateralized debt obligation (CDO) instruments ever created.</li><li>These debt products were credited with contributing to the 2007-2008 financial crisis.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-a-broad-index-secured-trust-offering-bistro"></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 Broad Index Secured Trust Offering (BISTRO) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> The Broad Index Secured Trust Offering (BISTRO) was considered a landmark financial instrument at the time of its launch; it was believed to be one of the first <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/syntheticcdo.asp">synthetic collateralized debt obligation</a> (CDO) instruments ever created. </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"> About a week before Christmas 1997, J.P. Morgan launched the Broad Index Secured Trust Offering (BISTRO), a $700 million bond issue referencing a portfolio of more than 300 corporate and public finance credits across Europe and North America. As such, such instruments helped transform the modern banking industry. The finance industry had used synthetic currency swaps—agreements to exchange debt obligations and future cash flow in different currencies and swaps of bonds and interest rates—since the early 1980s. A BISTRO represented an evolution of this idea.  </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"> Rather than swapping currency or bond income, J.P. Morgan proposed exchanging the risk of default. The swaps would be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/synthetic.asp">synthetic</a>, or artificially simulated. The bank would pool several different debt obligations of loans and bonds, then allow investors to invest in bundles of credit-default swaps. The structure allowed the bank to shift risk to the investors while also generating income from selling that risk. </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 overarching motivation for BISTRO wasn’t to open up a new market or sell some funky product, but for JP Morgan to hedge its credit risk,” said Bill Winters, a former co-chief executive of J.P. Morgan’s investment bank, told the International Financing Review in an interview. “It was extremely effective in accomplishing that. It also had the effect of spawning a new industry.”<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> <span class="heading-toc" id="toc-a-history-of-the-bistro"></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"> A History of the BISTRO </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The initial broad index secured trust offerings came to market in December 1997 and referenced an underlying portfolio of 307 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commercial-loan.asp">commercial loans,</a> as well as corporate and municipal bonds. The U.S. Federal Reserve permitted J.P. Morgan to secure regulatory capital for its BISTRO deals. These offerings were extremely popular with investors, and four more broad index synthetic trust offerings followed over the course of the next 12 months. </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 structure of BISTROs remains one of the most controversial capital market inventions ever created.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Initially created as a way for J.P. Morgan to hedge its credit risk, these offerings ultimately opened up a large new market in the financial industry. Following the introduction of BISTRO, other financial institutions offered similar products and developed copycat structures. </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-consequences-of-bistros"></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"> Consequences of BISTROs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> The introduction of BISTROs has been credited with ushering in the era of synthetic collateralized debt obligations (CDOs), which used credit derivatives to transfer credit risk in a portfolio. The market for synthetic CDOs grew substantially in the beginning, rising from $10 billion in 2000 to $105 billion in 2007. </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"> Some financial institutions began to create synthetic CDOs that included somewhat dubious real estate assets—such as subprime mortgages—in their underlying reference pools. In the wake of the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp">2007-2008 financial crisis</a>, experts argued that by allowing banks to shift risk, synthetic CDOs contributed to the financial crash. </p></div>

## What Was a Broad Index Secured Trust Offering (BISTRO)? A broad index secured trust offering (BISTRO) was a proprietary name used by J.P. Morgan for creating [collateralized debt obligations](https://www.investopedia.com/terms/c/cdo.asp) (CDOs) from credit derivatives. About a week before Christmas 1997, J.P. Morgan launched the Broad Index Secured Trust Offering (BISTRO), a $700 million bond issue referencing a portfolio of more than 300 corporate and public finance credits across Europe and North America. The structure of BISTROs allowed financial institutions to hedge economic risk while simultaneously releasing regulatory capital. These offerings were the predecessor of the synthetic collateralized debt products that later grew in popularity. These debt products were credited with contributing to the 2007-2008 financial crisis. ### Key Takeaways * A broad index secured trust offering (BISTRO) was a way to securitize collateralized debt obligations (CDOs) from credit derivatives. * BISTRO offerings were introduced by the investment bank J.P. Morgan in 1997 and were the predecessor of the synthetic collateralized debt products that later grew in popularity. * A broad index secured trust offering (BISTRO) was considered a landmark financial instrument at the time of its launch; it was believed to be one of the first synthetic collateralized debt obligation (CDO) instruments ever created. * These debt products were credited with contributing to the 2007-2008 financial crisis. ## Understanding a Broad Index Secured Trust Offering (BISTRO) The Broad Index Secured Trust Offering (BISTRO) was considered a landmark financial instrument at the time of its launch; it was believed to be one of the first [synthetic collateralized debt obligation](https://www.investopedia.com/terms/s/syntheticcdo.asp) (CDO) instruments ever created. About a week before Christmas 1997, J.P. Morgan launched the Broad Index Secured Trust Offering (BISTRO), a $700 million bond issue referencing a portfolio of more than 300 corporate and public finance credits across Europe and North America. As such, such instruments helped transform the modern banking industry. The finance industry had used synthetic currency swaps—agreements to exchange debt obligations and future cash flow in different currencies and swaps of bonds and interest rates—since the early 1980s. A BISTRO represented an evolution of this idea.  Rather than swapping currency or bond income, J.P. Morgan proposed exchanging the risk of default. The swaps would be [synthetic](https://www.investopedia.com/terms/s/synthetic.asp), or artificially simulated. The bank would pool several different debt obligations of loans and bonds, then allow investors to invest in bundles of credit-default swaps. The structure allowed the bank to shift risk to the investors while also generating income from selling that risk. “The overarching motivation for BISTRO wasn’t to open up a new market or sell some funky product, but for JP Morgan to hedge its credit risk,” said Bill Winters, a former co-chief executive of J.P. Morgan’s investment bank, told the International Financing Review in an interview. “It was extremely effective in accomplishing that. It also had the effect of spawning a new industry.” ## A History of the BISTRO The initial broad index secured trust offerings came to market in December 1997 and referenced an underlying portfolio of 307 [commercial loans,](https://www.investopedia.com/terms/c/commercial-loan.asp) as well as corporate and municipal bonds. The U.S. Federal Reserve permitted J.P. Morgan to secure regulatory capital for its BISTRO deals. These offerings were extremely popular with investors, and four more broad index synthetic trust offerings followed over the course of the next 12 months. ### The structure of BISTROs remains one of the most controversial capital market inventions ever created. Initially created as a way for J.P. Morgan to hedge its credit risk, these offerings ultimately opened up a large new market in the financial industry. Following the introduction of BISTRO, other financial institutions offered similar products and developed copycat structures. ## Consequences of BISTROs The introduction of BISTROs has been credited with ushering in the era of synthetic collateralized debt obligations (CDOs), which used credit derivatives to transfer credit risk in a portfolio. The market for synthetic CDOs grew substantially in the beginning, rising from $10 billion in 2000 to $105 billion in 2007. Some financial institutions began to create synthetic CDOs that included somewhat dubious real estate assets—such as subprime mortgages—in their underlying reference pools. In the wake of the [2007-2008 financial crisis](https://www.investopedia.com/articles/economics/09/financial-crisis-review.asp), experts argued that by allowing banks to shift risk, synthetic CDOs contributed to the financial crash.

What Was a Broad Index Secured Trust Offering (BISTRO)? A broad index secured trust offering (BISTRO) was a proprietary name used by J.P. Morgan for creating collateralized debt obligations (CDOs) from credit derivatives. About a week before Christmas 1997, J.P. Morgan launched the Broad Index Secured Trust Offering (BISTRO), a $700 million bond issue referencing a portfolio of more than 300 corporate and public finance credits across Europe and North America. The structure of BISTROs allowed financial institutions to hedge economic risk while simultaneously releasing regulatory capital. These offerings were the predecessor of the synthetic collateralized debt products that later grew in popularity. These debt products were credited with contributing to the 2007-2008 financial crisis. Key Takeaways A broad index secured trust offering (BISTRO) was a way to securitize collateralized debt obligations (CDOs) from credit derivatives.BISTRO offerings were introduced by the investment bank J.P. Morgan in 1997 and were the predecessor of the synthetic collateralized debt products that later grew in popularity.A broad index secured trust offering (BISTRO) was considered a landmark financial instrument at the time of its launch; it was believed to be one of the first synthetic collateralized debt obligation (CDO) instruments ever created.These debt products were credited with contributing to the 2007-2008 financial crisis. Understanding a Broad Index Secured Trust Offering (BISTRO) The Broad Index Secured Trust Offering (BISTRO) was considered a landmark financial instrument at the time of its launch; it was believed to be one of the first synthetic collateralized debt obligation (CDO) instruments ever created. About a week before Christmas 1997, J.P. Morgan launched the Broad Index Secured Trust Offering (BISTRO), a $700 million bond issue referencing a portfolio of more than 300 corporate and public finance credits across Europe and North America. As such, such instruments helped transform the modern banking industry. The finance industry had used synthetic currency swaps—agreements to exchange debt obligations and future cash flow in different currencies and swaps of bonds and interest rates—since the early 1980s. A BISTRO represented an evolution of this idea.  Rather than swapping currency or bond income, J.P. Morgan proposed exchanging the risk of default. The swaps would be synthetic, or artificially simulated. The bank would pool several different debt obligations of loans and bonds, then allow investors to invest in bundles of credit-default swaps. The structure allowed the bank to shift risk to the investors while also generating income from selling that risk. “The overarching motivation for BISTRO wasn’t to open up a new market or sell some funky product, but for JP Morgan to hedge its credit risk,” said Bill Winters, a former co-chief executive of J.P. Morgan’s investment bank, told the International Financing Review in an interview. “It was extremely effective in accomplishing that. It also had the effect of spawning a new industry.” A History of the BISTRO The initial broad index secured trust offerings came to market in December 1997 and referenced an underlying portfolio of 307 commercial loans, as well as corporate and municipal bonds. The U.S. Federal Reserve permitted J.P. Morgan to secure regulatory capital for its BISTRO deals. These offerings were extremely popular with investors, and four more broad index synthetic trust offerings followed over the course of the next 12 months. The structure of BISTROs remains one of the most controversial capital market inventions ever created. Initially created as a way for J.P. Morgan to hedge its credit risk, these offerings ultimately opened up a large new market in the financial industry. Following the introduction of BISTRO, other financial institutions offered similar products and developed copycat structures. Consequences of BISTROs The introduction of BISTROs has been credited with ushering in the era of synthetic collateralized debt obligations (CDOs), which used credit derivatives to transfer credit risk in a portfolio. The market for synthetic CDOs grew substantially in the beginning, rising from $10 billion in 2000 to $105 billion in 2007. Some financial institutions began to create synthetic CDOs that included somewhat dubious real estate assets—such as subprime mortgages—in their underlying reference pools. In the wake of the 2007-2008 financial crisis, experts argued that by allowing banks to shift risk, synthetic CDOs contributed to the financial crash.

https://www.investopedia.com/terms/z/zeta_model.asp

Zeta Model: Meaning, Formula, Significance

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-zeta-model"></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 Zeta Model? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The Zeta Model is a mathematical model that estimates the chances of a public company going <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bankruptcy.asp">bankrupt</a> within a two-year time period. The number produced by the model is referred to as the company's Z-score (or zeta score) and is considered to be a reasonably accurate predictor of future bankruptcy. </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 model was published in 1968 by New York University professor of finance Edward I. Altman. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/altman.asp">resulting Z-score</a> uses multiple corporate income and balance sheet values to measure the financial health of a company. </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 Zeta Model is a mathematical model that estimates the chances of a public company going bankrupt within a certain time period.</li><li>The Zeta Model was developed by New York University professor Edward Altman in 1968. </li><li>The resulting Z-score uses multiple corporate income and balance sheet values to measure the financial health of a company.</li></ul></div></div></div> <span class="heading-toc" id="toc-the-formula-for-the-zeta-model-is"></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"> The Formula for the Zeta Model Is </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> <span data-value="\begin{aligned} &amp;\zeta = 1.2A + 1.4B + 3.3C + 0.6D + E\\ &amp;\textbf{where:}\\ &amp;\zeta=\text{score}\\ &amp;A = \text{working capital divided by total assets} \\ &amp;B = \text{retained earnings divided by total assets}\\ &amp;C = \text{earnings before interest and tax divided by total assets}\\ &amp;D = \text{market value of equity divided by total liabilities}\\ &amp;E = \text{sales divided by total assets}\\ \end{aligned}"><span class="katex"><span class="katex-mathml"> <math> <semantics> <mrow> <mtable> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> ζ </mi> <mo> = </mo> <mn> 1 </mn> <mi> . </mi> <mn> 2 </mn> <mi> A </mi> <mo> + </mo> <mn> 1 </mn> <mi> . </mi> <mn> 4 </mn> <mi> B </mi> <mo> + </mo> <mn> 3 </mn> <mi> . </mi> <mn> 3 </mn> <mi> C </mi> <mo> + </mo> <mn> 0 </mn> <mi> . </mi> <mn> 6 </mn> <mi> D </mi> <mo> + </mo> <mi> E </mi> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mtext> where: </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> ζ </mi> <mo> = </mo> <mtext> score </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> A </mi> <mo> = </mo> <mtext> working capital divided by total assets </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> B </mi> <mo> = </mo> <mtext> retained earnings divided by total assets </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> C </mi> <mo> = </mo> <mtext> earnings before interest and tax divided by total assets </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> D </mi> <mo> = </mo> <mtext> market value of equity divided by total liabilities </mtext> </mrow> </mstyle> </mtd> </mtr> <mtr> <mtd> <mstyle> <mrow></mrow> </mstyle> </mtd> <mtd> <mstyle> <mrow> <mrow></mrow> <mi> E </mi> <mo> = </mo> <mtext> sales divided by total assets </mtext> </mrow> </mstyle> </mtd> </mtr> </mtable> </mrow> <annotation encoding="application/x-tex"> \begin{aligned} &amp;\zeta = 1.2A + 1.4B + 3.3C + 0.6D + E\\ &amp;\textbf{where:}\\ &amp;\zeta=\text{score}\\ &amp;A = \text{working capital divided by total assets} \\ &amp;B = \text{retained earnings divided by total assets}\\ &amp;C = \text{earnings before interest and tax divided by total assets}\\ &amp;D = \text{market value of equity divided by total liabilities}\\ &amp;E = \text{sales divided by total assets}\\ \end{aligned} </annotation> </semantics> </math></span><span class="katex-html"><span class="strut"></span><span class="strut bottom"></span><span class="base"><span class="mord"><span class="mtable"><span class="col-align-r"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span><span class=""><span class="pstrut"></span><span class="mord"></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span><span class="col-align-l"><span class="vlist-t vlist-t2"><span class="vlist-r"><span class="vlist"><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathit">ζ</span><span class="mrel">=</span><span class="mord mathrm">1</span><span class="mord mathrm">.</span><span class="mord mathrm">2</span><span class="mord mathit">A</span><span class="mbin">+</span><span class="mord mathrm">1</span><span class="mord mathrm">.</span><span class="mord mathrm">4</span><span class="mord mathit">B</span><span class="mbin">+</span><span class="mord mathrm">3</span><span class="mord mathrm">.</span><span class="mord mathrm">3</span><span class="mord mathit">C</span><span class="mbin">+</span><span class="mord mathrm">0</span><span class="mord mathrm">.</span><span class="mord mathrm">6</span><span class="mord mathit">D</span><span class="mbin">+</span><span class="mord mathit">E</span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord text"><span class="mord mathbf">where:</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathit">ζ</span><span class="mrel">=</span><span class="mord text"><span class="mord mathrm">score</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathit">A</span><span class="mrel">=</span><span class="mord text"><span class="mord mathrm">working capital divided by total assets</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathit">B</span><span class="mrel">=</span><span class="mord text"><span class="mord mathrm">retained earnings divided by total assets</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathit">C</span><span class="mrel">=</span><span class="mord text"><span class="mord mathrm">earnings before interest and tax divided by total assets</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathit">D</span><span class="mrel">=</span><span class="mord text"><span class="mord mathrm">market value of equity divided by total liabilities</span></span></span></span><span class=""><span class="pstrut"></span><span class="mord"><span class="mord"></span><span class="mord mathit">E</span><span class="mrel">=</span><span class="mord text"><span class="mord mathrm">sales divided by total assets</span></span></span></span></span><span class="vlist-s">​</span></span><span class="vlist-r"><span class="vlist"></span></span></span></span></span></span></span></span></span></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <span class="heading-toc" id="toc-what-does-the-zeta-model-tell-you"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_11-0"> <span class="mntl-sc-block-heading__text"> What Does the Zeta Model Tell You? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> The Zeta Model returns a single number, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/z/zscore.asp">z-score</a> (or zeta score), to represent the likelihood of a company going bankrupt in the next two years. The lower the z-score, the more likely a company is to go bankrupt. The Zeta model’s bankruptcy prediction accuracy has been found to range from more than 95% percent one period prior to a bankruptcy to 70% for a series of five prior <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/annualreport.asp">annual reporting</a> periods.<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"> Z-scores exist in so-called zones of discrimination, which indicates the likelihood of a firm going bankrupt. A z-score lower than 1.8 indicates that bankruptcy is likely, while scores greater than 3.0 indicate bankruptcy is unlikely to occur in the next two years. Companies that have a z-score between 1.8 and 3.0 are in the gray area, and bankruptcy is as likely as not. </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>Z &gt; 2.99 -“Safe” Zones</li><li>1.81 &lt; Z &lt; 2.99 -“Grey” Zones</li><li>Z &lt; 1.81 -“Distress” Zones</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"> Different z-score formulations and zeta models exist for special cases such as private firms, emerging market risks, and non-manufacturer industrials. </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 Zeta Model was developed by New York University professor Edward Altman in 1968. The model was originally designed for publicly traded manufacturing companies. Later versions of the model were developed for privately held companies, small businesses and non-manufacturing companies and emerging markets. </p></div>

## What Is the Zeta Model? The Zeta Model is a mathematical model that estimates the chances of a public company going [bankrupt](https://www.investopedia.com/terms/b/bankruptcy.asp) within a two-year time period. The number produced by the model is referred to as the company's Z-score (or zeta score) and is considered to be a reasonably accurate predictor of future bankruptcy. The model was published in 1968 by New York University professor of finance Edward I. Altman. The [resulting Z-score](https://www.investopedia.com/terms/a/altman.asp) uses multiple corporate income and balance sheet values to measure the financial health of a company. ### Key Takeaways * The Zeta Model is a mathematical model that estimates the chances of a public company going bankrupt within a certain time period. * The Zeta Model was developed by New York University professor Edward Altman in 1968. * The resulting Z-score uses multiple corporate income and balance sheet values to measure the financial health of a company. ## The Formula for the Zeta Model Is  ζ = 1 . 2 A + 1 . 4 B + 3 . 3 C + 0 . 6 D + E where: ζ = score A = working capital divided by total assets B = retained earnings divided by total assets C = earnings before interest and tax divided by total assets D = market value of equity divided by total liabilities E = sales divided by total assets \begin{aligned} &\zeta = 1.2A + 1.4B + 3.3C + 0.6D + E\\ &\textbf{where:}\\ &\zeta=\text{score}\\ &A = \text{working capital divided by total assets} \\ &B = \text{retained earnings divided by total assets}\\ &C = \text{earnings before interest and tax divided by total assets}\\ &D = \text{market value of equity divided by total liabilities}\\ &E = \text{sales divided by total assets}\\ \end{aligned} ​ζ=1.2A+1.4B+3.3C+0.6D+Ewhere:ζ=scoreA=working capital divided by total assetsB=retained earnings divided by total assetsC=earnings before interest and tax divided by total assetsD=market value of equity divided by total liabilitiesE=sales divided by total assets​ ## What Does the Zeta Model Tell You? The Zeta Model returns a single number, the [z-score](https://www.investopedia.com/terms/z/zscore.asp) (or zeta score), to represent the likelihood of a company going bankrupt in the next two years. The lower the z-score, the more likely a company is to go bankrupt. The Zeta model’s bankruptcy prediction accuracy has been found to range from more than 95% percent one period prior to a bankruptcy to 70% for a series of five prior [annual reporting](https://www.investopedia.com/terms/a/annualreport.asp) periods. Z-scores exist in so-called zones of discrimination, which indicates the likelihood of a firm going bankrupt. A z-score lower than 1.8 indicates that bankruptcy is likely, while scores greater than 3.0 indicate bankruptcy is unlikely to occur in the next two years. Companies that have a z-score between 1.8 and 3.0 are in the gray area, and bankruptcy is as likely as not. * Z > 2.99 -“Safe” Zones * 1.81 < Z < 2.99 -“Grey” Zones * Z < 1.81 -“Distress” Zones Different z-score formulations and zeta models exist for special cases such as private firms, emerging market risks, and non-manufacturer industrials. The Zeta Model was developed by New York University professor Edward Altman in 1968. The model was originally designed for publicly traded manufacturing companies. Later versions of the model were developed for privately held companies, small businesses and non-manufacturing companies and emerging markets.

What Is the Zeta Model? The Zeta Model is a mathematical model that estimates the chances of a public company going bankrupt within a two-year time period. The number produced by the model is referred to as the company's Z-score (or zeta score) and is considered to be a reasonably accurate predictor of future bankruptcy. The model was published in 1968 by New York University professor of finance Edward I. Altman. The resulting Z-score uses multiple corporate income and balance sheet values to measure the financial health of a company. Key Takeaways The Zeta Model is a mathematical model that estimates the chances of a public company going bankrupt within a certain time period.The Zeta Model was developed by New York University professor Edward Altman in 1968. The resulting Z-score uses multiple corporate income and balance sheet values to measure the financial health of a company. The Formula for the Zeta Model Is  ζ = 1 . 2 A + 1 . 4 B + 3 . 3 C + 0 . 6 D + E where: ζ = score A = working capital divided by total assets B = retained earnings divided by total assets C = earnings before interest and tax divided by total assets D = market value of equity divided by total liabilities E = sales divided by total assets \begin{aligned} &\zeta = 1.2A + 1.4B + 3.3C + 0.6D + E\\ &\textbf{where:}\\ &\zeta=\text{score}\\ &A = \text{working capital divided by total assets} \\ &B = \text{retained earnings divided by total assets}\\ &C = \text{earnings before interest and tax divided by total assets}\\ &D = \text{market value of equity divided by total liabilities}\\ &E = \text{sales divided by total assets}\\ \end{aligned} ​ζ=1.2A+1.4B+3.3C+0.6D+Ewhere:ζ=scoreA=working capital divided by total assetsB=retained earnings divided by total assetsC=earnings before interest and tax divided by total assetsD=market value of equity divided by total liabilitiesE=sales divided by total assets​ What Does the Zeta Model Tell You? The Zeta Model returns a single number, the z-score (or zeta score), to represent the likelihood of a company going bankrupt in the next two years. The lower the z-score, the more likely a company is to go bankrupt. The Zeta model’s bankruptcy prediction accuracy has been found to range from more than 95% percent one period prior to a bankruptcy to 70% for a series of five prior annual reporting periods. Z-scores exist in so-called zones of discrimination, which indicates the likelihood of a firm going bankrupt. A z-score lower than 1.8 indicates that bankruptcy is likely, while scores greater than 3.0 indicate bankruptcy is unlikely to occur in the next two years. Companies that have a z-score between 1.8 and 3.0 are in the gray area, and bankruptcy is as likely as not. Z > 2.99 -“Safe” Zones1.81 < Z < 2.99 -“Grey” ZonesZ < 1.81 -“Distress” Zones Different z-score formulations and zeta models exist for special cases such as private firms, emerging market risks, and non-manufacturer industrials. The Zeta Model was developed by New York University professor Edward Altman in 1968. The model was originally designed for publicly traded manufacturing companies. Later versions of the model were developed for privately held companies, small businesses and non-manufacturing companies and emerging markets.

https://www.investopedia.com/articles/investing/092915/trading-mutual-funds-beginners.asp

Trading Mutual Funds for Beginners

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Buying shares in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualfund.asp">mutual funds</a> can be intimidating for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/10-investing-concepts-beginners-need-to-learn-5219500">beginning investors</a>. There is a huge amount of funds available, all with different investment strategies and asset groups. Trading shares in mutual funds are different from trading shares in stocks or <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded funds (ETFs)</a>. The fees charged for mutual funds can be complicated. Understanding these fees is important since they have a large impact on the performance of investments in a fund. </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-what-are-mutual-funds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_3-0"> <span class="mntl-sc-block-heading__text"> What Are Mutual Funds? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> A mutual fund is an investment company that takes money from many investors and pools it together in one large pot. The professional manager for the fund invests the money in different types of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financialasset.asp">assets</a> including stocks, bonds, commodities, and even real estate. An investor buys shares in the mutual fund. These shares represent an ownership interest in a portion of the assets owned by the fund. Mutual funds are designed for longer-term investors and are not meant to be traded frequently due to their fee structures. </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"> Mutual funds are often attractive to investors because they are widely diversified. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">Diversification</a> helps to minimize risk to an investment. Rather than having to research and make an individual decision as to each type of asset to include in a portfolio, mutual funds offer a single comprehensive investment vehicle. Some mutual funds can have thousands of different holdings. Mutual funds are also very <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp">liquid</a>. It is easy to buy and redeem shares in mutual funds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> There is a wide variety of mutual funds to consider. A few of the major fund types are <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bondfund.asp">bond funds</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/common-stock-fund.asp">stock funds</a>, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/balancedfund.asp">balanced funds</a>, and <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/indexfund.asp">index funds</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Bond funds hold fixed-income securities as assets. These bonds <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/102715/do-mutual-funds-pay-dividends-or-interest.asp">pay regular interest</a> to their holders. The mutual fund makes distributions to mutual fund holders of this interest. </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"> Stock funds make investments in the shares of different companies. Stock funds seek to profit mainly by the appreciation of the shares over time, as well as dividend payments. Stock funds often have a strategy of investing in companies based on their <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>, the total dollar value of a company’s outstanding shares. For example, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/large-cap.asp">large-cap</a> stocks are defined as those with market capitalizations over $10 billion. Stock funds may specialize in large-, <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/midcapstock.asp">mid</a>-or <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/small-cap.asp">small-cap</a> stocks. Small-cap funds tend to have higher volatility than large-cap funds. </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"> Balanced funds hold a mix of bonds and stocks. The distribution among stocks and bonds in these funds varies depending on the fund’s strategy. Index funds track the performance of an index such as the S&amp;P 500. These funds are passively managed. They hold similar assets to the index being tracked. Fees for these types of funds are lower due to infrequent turnover in assets and passive management. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-how-mutual-funds-trade"></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 Mutual Funds Trade </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> The mechanics of trading mutual funds are different from those of ETFs and stocks. Mutual funds require minimum investments of anywhere from $1,000 to $5,000, unlike stocks and ETFs, where the minimum investment is one share. Mutual funds <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/110615/when-are-mutual-fund-orders-executed.asp">trade only once a day</a> after the markets close. Stocks and ETFs can be traded at any point during the trading 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"> The price for the shares in a mutual fund is determined by 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> calculated after the market closes. The NAV is calculated by dividing the total value of all the assets in the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfolio.asp">portfolio</a>, less any liabilities, by the number of outstanding shares. This is different from stocks and ETFs, wherein prices fluctuate during the trading day. </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"> An investor is buying or redeeming mutual fund shares directly from the fund itself. This is different from stocks and ETFs, wherein the counterparty to the buying or selling of a share is another participant in the market. Mutual funds charge different fees for buying or redeeming shares. </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-mutual-fund-charges-and-fees"></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"> Mutual Fund Charges and Fees </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> It is critical for investors to understand the type of fees and charges associated with buying and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/investing/when-to-sell-mutual-fund/">redeeming mutual fund shares</a>. These fees vary widely and can have a dramatic impact on the performance of an investment in the fund. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Some mutual funds charge load fees when buying or redeeming shares in the fund. The load is similar to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/commission.asp">commission</a> paid when buying or selling a stock. The load fee compensates the sale intermediary for the time and expertise in selecting the fund for the investor. Load fees can be anywhere from 4% to 8% of the amount invested in the fund. A <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/front-endload.asp">front-end load</a> is charged when an investor first buys shares in 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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/back-end-load.asp">back-end load</a> also called a deferred sales charge, is charged if the fund shares are sold within a certain time frame after first purchasing them. The back-end load is usually higher in the first year after buying the shares but then goes down each year after that. For example, a fund may charge 6% if shares are redeemed in the first year of ownership, and then it may reduce that fee by 1% each year until the sixth year when no fee is charged. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/levelload.asp">level-load</a> fee is an annual charge deducted from the assets in a fund to pay for distribution and marketing costs for the fund. These fees are also known as 12b-1 fees. They are a fixed percentage of the fund’s average net assets. Notably, 12b-1 fees are considered part of the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expenseratio.asp">expense ratio</a> for a fund.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> The expense ratio includes ongoing fees and expenses for the fund. Expense ratios can vary widely but are generally 0.5 to 1.25%. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/passivemanagement.asp">Passively managed</a> funds, such as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/indexfund.asp">index funds,</a> usually have lower expense ratios than <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/activemanagement.asp">actively managed</a> funds. Passive funds have a lower turnover in their holdings. They are not attempting to outperform a <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp">benchmark</a> index, but just try to duplicate it, and thus do not need to compensate the <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fundmanager.asp">fund manager</a> for his expertise in choosing investment assets. </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"> Load fees and expense ratios can be a significant drag on investment performance. Funds that charge loads must outperform their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp">benchmark index </a>or similar funds to justify the fees. Many studies show that load funds often do not perform better than their <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/no-loadfund.asp">no-load</a> counterparts. Thus, it makes little sense for most investors to buy shares in a fund with loads. Similarly, funds with higher expense ratios also tend to perform worse than low expense funds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_35-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Because their higher expenses drag down returns, actively managed mutual funds sometimes get a bad rap as a group overall. But many international markets (especially the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/emergingmarketfund.asp">emerging</a> ones) are just too difficult for direct investment—they're not highly liquid or investor-friendly—and they have no comprehensive index to follow. In this case, it pays to have a professional manager help wade through all of the complexities, and who is worth paying an active fee for. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <span class="heading-toc" id="toc-risk-tolerance-and-investment-goals"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_38-0"> <span class="mntl-sc-block-heading__text"> Risk Tolerance and Investment Goals </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> The first step in determining the suitability of any investment product is to assess <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>. This is the ability and desire to take on risk in return for the possibility of higher returns. Though mutual funds are often considered one of the safer investments on the market, certain types of mutual funds are not suitable for those whose main goal is to avoid losses at all costs. Aggressive stock funds, for example, are not suitable for investors with very low-risk tolerances. Similarly, some high-yield bond funds may also be too risky if they invest in low-rated or junk bonds to generate higher returns. </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"> Your specific investment goals are the next most important consideration when assessing the suitability of mutual funds, making some mutual funds more appropriate than others. </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"> For an investor whose main goal is to preserve capital, meaning she is willing to accept lower gains in return for the security of knowing her initial investment is safe, high-risk funds are not a good fit. This type of investor has a very low-<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-advisors/051915/tips-assessing-clients-risk-tolerance.asp">risk tolerance</a> and should avoid most stock funds and many more aggressive bond funds. Instead, look to bond funds that invest in only highly rated government or corporate bonds or money market funds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> If an investor's chief aim is to generate big returns, they are likely willing to take on more risk. In this case, high-yield stock and bond funds can be excellent choices. Though the potential for loss is greater, these funds have professional managers who are more likely than the average retail investor to generate substantial profits by buying and selling cutting-edge stocks and risky debt securities. Investors looking to aggressively grow their wealth are not well suited to money market funds and other highly stable products because the rate of return is often not much greater than inflation. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <span class="heading-toc" id="toc-income-or-growth"></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"> Income or Growth? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Mutual funds generate two kinds of income: <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalgain.asp">capital gains</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividend.asp">dividends</a>. Though any net profits generated by a fund must be passed on to shareholders at least once a year, the frequency with which different funds make distributions varies widely. </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"> If you are looking to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/021916/etfs-vs-mutual-funds-which-better-young-investors.asp">grow wealth over the long term</a> and are not concerned with generating immediate income, funds that focus on growth stocks and use a buy-and-hold strategy are best because they generally incur lower expenses and have a lower tax impact than other types of funds. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_51-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_52-0"> If, instead, you want to use your investment to create a regular income, dividend-bearing funds are an excellent choice. These funds invest in a variety of dividend-bearing stocks and interest-bearing bonds and pay dividends at least annually but often quarterly or semi-annually. Though stock-heavy funds are riskier, these types of balanced funds come in a range of stock-to-bond ratios. </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-tax-strategy"></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"> Tax Strategy </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> When assessing the suitability of mutual funds, it is important to consider taxes. Depending on an investor's current financial situation, income from mutual funds can have a serious impact on an investor's annual <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxliability.asp">tax liability</a>. The more income you earn in a given year, the higher your ordinary income and capital gains <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/taxbracket.asp">tax brackets</a>. </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"> Dividend-bearing funds are a poor choice for those looking to minimize their tax liability. Though funds that employ a long-term investment strategy may pay qualified dividends, which are taxed at the lower capital gains rate, any dividend payments increase an investor's taxable income for the year. The best choice is to choose funds that focus more on long-term capital gains and avoid dividend stocks or interest-bearing corporate bonds.<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_58-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_59-0"> Funds that invest in tax-free government or municipal bonds generate interest that is not subject to federal income tax. So, these products may be a good choice. However, not all tax-free bonds are completely tax-free, so make sure to verify whether those earnings are subject to state or local taxes.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> Many funds offer products managed with the specific goal of tax-efficiency. These funds employ a buy-and-hold strategy and eschew dividend- or interest-paying securities. They come in a variety of forms, so it's important to consider risk tolerance and investment goals when looking at a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/091615/how-can-i-find-taxexempt-mutual-funds.asp">tax-efficient</a> fund. </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"> There are many <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/metrics.asp">metrics</a> to study before deciding to invest in a mutual fund. Mutual fund rater <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/morningstarinc.asp">Morningstar</a> (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=morn">MORN</a>) offers <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/mutualfund/08/morningstar.asp">a great site to analyze funds</a> and offers details on funds that include details on its <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/assetallocation.asp">asset allocation</a> and mix between stocks, bonds, cash, and any <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/alternative_investment.asp">alternative assets</a> that may be held. It also popularized the <a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investing_style.asp">investment style</a> box that breaks a fund down between the market cap it focuses on (small, mid, and large cap) and investment style (value, growth, or blend, which is a mix of value and growth). Other key categories cover the following: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_65-0"> <li>A fund’s expense ratios</li> <li>An overview of its investment <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/h/holdings.asp">holdings</a></li> <li>Biographical details of the management team</li> <li>How strong its stewardship skills are</li> <li>How long it has been around</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_66-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> For a fund to be a buy, it should have a mix of the following characteristics: a great long-term (not short-term) track record, charge a reasonably low fee compared to the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/peer-group.asp">peer group</a>, invest with a consistent approach based off the style box and possess a management team that has been in place for a long time. Morningstar sums up all of these metrics in a star rating, which is a good place to start to get a feel for how strong a mutual fund has been. However, keep in mind that the rating is backward-focused.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <span class="heading-toc" id="toc-investment-strategies"></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"> Investment Strategies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> Individual investors can look for mutual funds that follow a certain investment strategy that the investor prefers, or apply an investment strategy themselves by purchasing shares in funds that fit the criteria of a chosen strategy. </p> <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-value-investing"></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"> Value Investing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_73-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/valueinvesting.asp">Value investing</a>, popularized by the legendary investor Benjamin Graham in the 1930s, is one of the most well-established, widely used and respected stock market investing strategies. Buying stocks during the Great Depression, Graham was focused on identifying companies with genuine value and whose stock prices were either undervalued or at the very least not overinflated and therefore not easily prone to a dramatic fall. </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 classic value investing metric used to identify undervalued stocks is the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/price-to-bookratio.asp">price-to-book (P/B) ratio</a>. Value investors prefer to see P/B ratios at least below 3, and ideally below 1. However, since the average P/B ratio can vary significantly among sectors and industries, analysts commonly evaluate a company's P/B value in relation to that of similar companies engaged in the same business. </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"> While mutual funds themselves do not technically have P/B ratios, the average weighted P/B ratio for the stocks that a mutual fund holds in its portfolio can be found at various mutual fund information sites, such as Morningstar.com. There are hundreds, if not thousands, of mutual funds that identify themselves as value funds, or that state in their descriptions that value investing principles guide the fund manager's stock selections. </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"> Value investing goes beyond only considering a company's P/B value. A company's value may exist in the form of having strong cash flows and relatively little debt. Another source of value is in the specific products and services that a company offers, and how they are projected to perform in the marketplace. </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"> Brand name recognition, while not precisely measurable in dollars and cents, represents a potential value for a company, and a point of reference for concluding that the market price of a company's stock is currently undervalued as compared to the true value of the company and its operations. Virtually any advantage a company has over its competitors or within the economy as a whole provides a source of value. Value investors are likely to scrutinize the relative values of the individual stocks that make up a mutual fund's portfolio. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_82-0"></div> <span class="heading-toc" id="toc-contrarian-investing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_83-0"> <span class="mntl-sc-block-heading__text"> Contrarian Investing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_84-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/contrarian.asp">Contrarian</a> investors go against the prevailing market sentiment or trend. A classic example of contrarian investing is selling short, or at least avoiding buying, the stocks of an industry when investment analysts across the board are virtually all projecting above-average gains for companies operating in the specified industry. In short, contrarians often buy what the majority of investors are selling and sell what the majority of investors are buying. </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"> Because contrarian investors typically buy stocks that are out of favor or whose prices have declined, contrarian investing can be seen as similar to value investing. However, contrarian trading strategies tend to be driven more by market sentiment factors than they are by value investing strategies and to rely less on specific fundamental analysis metrics such as the P/B ratio. </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"> Contrarian investing is often misunderstood as consisting of simply selling stocks or funds that are going up and buying stocks or funds that are going down, but that is a misleading oversimplification. Contrarians are often more likely to go against prevailing opinions than to go against prevailing price trends. A contrarian move is to buy into a stock or fund whose price is rising despite the continuous and widespread market opinion that the price should be falling. </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"> There are plenty of mutual funds that can be identified as contrarian funds. Investors can seek out contrarian-style funds to invest in, or they can employ a contrarian mutual fund trading strategy by selecting mutual funds to invest in using contrarian investment principles. Contrarian mutual fund investors seek out mutual funds to invest in that hold the stocks of companies in sectors or industries that are currently out of favor with market analysts, or they look for funds invested in sectors or industries that have underperformed compared to the overall market. </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"> A contrarian's attitude toward a sector that has been underperforming for several years may well be that the protracted period of time over which the sector's stocks have been performing poorly (in relation to the overall market average) only makes it more probable that the sector will soon begin to experience a reversal of fortune to the upside. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_93-0"></div> <span class="heading-toc" id="toc-momentum-investing"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_94-0"> <span class="mntl-sc-block-heading__text"> Momentum Investing </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_95-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/momentum_investing.asp">Momentum investing</a> aims to profit from following strong existing trends. Momentum investing is closely related to a growth investing approach. Metrics considered in evaluating the strength of a mutual fund's price momentum include the weighted average price-earnings to growth (PEG) ratio of the fund's portfolio holdings, or the percentage year-over-year increase in the fund's net asset value (NAV). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_96-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_97-0"> Appropriate mutual funds for investors seeking to employ a momentum investing strategy can be identified by fund descriptions where the fund manager clearly states that momentum is a primary factor in his selection of stocks for the fund's portfolio. Investors wishing to follow market momentum through mutual fund investments can analyze the momentum performance of various funds and make fund selections accordingly. A momentum trader may look for funds with accelerating profits over a span of time; for example, funds with NAVs that rose by 3% three years ago, by 5% the following year and by 7% in the most recent year. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_98-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_99-0"> Momentum investors may also seek to identify specific sectors or industries that are demonstrating clear evidence of strong momentum. After identifying the strongest industries, they invest in funds that offer the most advantageous exposure to companies engaged in those industries. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_100-0"></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_101-0"> <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_102-0"> Benjamin Graham once wrote that making money on investing should depend “on the amount of intelligent effort the investor is willing and able to bring to bear on his task” of security analysis. When it comes to buying a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/121715/guide-mutual-funds-trading-rules.asp">mutual fund</a>, investors must do their homework. In some respects, this is easier than focusing on buying individual securities, but it does add some important other areas to research before buying. Overall, there are many reasons why investing in mutual funds makes sense and a little bit of due diligence can make all the difference—and provide a measure of comfort. </p></div>

Buying shares in [mutual funds](https://www.investopedia.com/terms/m/mutualfund.asp) can be intimidating for [beginning investors](https://www.investopedia.com/10-investing-concepts-beginners-need-to-learn-5219500). There is a huge amount of funds available, all with different investment strategies and asset groups. Trading shares in mutual funds are different from trading shares in stocks or [exchange-traded funds (ETFs)](https://www.investopedia.com/terms/e/etf.asp). The fees charged for mutual funds can be complicated. Understanding these fees is important since they have a large impact on the performance of investments in a fund. ## What Are Mutual Funds? A mutual fund is an investment company that takes money from many investors and pools it together in one large pot. The professional manager for the fund invests the money in different types of [assets](https://www.investopedia.com/terms/f/financialasset.asp) including stocks, bonds, commodities, and even real estate. An investor buys shares in the mutual fund. These shares represent an ownership interest in a portion of the assets owned by the fund. Mutual funds are designed for longer-term investors and are not meant to be traded frequently due to their fee structures. Mutual funds are often attractive to investors because they are widely diversified. [Diversification](https://www.investopedia.com/terms/d/diversification.asp) helps to minimize risk to an investment. Rather than having to research and make an individual decision as to each type of asset to include in a portfolio, mutual funds offer a single comprehensive investment vehicle. Some mutual funds can have thousands of different holdings. Mutual funds are also very [liquid](https://www.investopedia.com/terms/l/liquidity.asp). It is easy to buy and redeem shares in mutual funds. There is a wide variety of mutual funds to consider. A few of the major fund types are [bond funds](https://www.investopedia.com/terms/b/bondfund.asp), [stock funds](https://www.investopedia.com/terms/c/common-stock-fund.asp), [balanced funds](https://www.investopedia.com/terms/b/balancedfund.asp), and [index funds](https://www.investopedia.com/terms/i/indexfund.asp). Bond funds hold fixed-income securities as assets. These bonds [pay regular interest](https://www.investopedia.com/ask/answers/102715/do-mutual-funds-pay-dividends-or-interest.asp) to their holders. The mutual fund makes distributions to mutual fund holders of this interest. Stock funds make investments in the shares of different companies. Stock funds seek to profit mainly by the appreciation of the shares over time, as well as dividend payments. Stock funds often have a strategy of investing in companies based on their [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp), the total dollar value of a company’s outstanding shares. For example, [large-cap](https://www.investopedia.com/terms/l/large-cap.asp) stocks are defined as those with market capitalizations over $10 billion. Stock funds may specialize in large-, [mid](https://www.investopedia.com/terms/m/midcapstock.asp)-or [small-cap](https://www.investopedia.com/terms/s/small-cap.asp) stocks. Small-cap funds tend to have higher volatility than large-cap funds. Balanced funds hold a mix of bonds and stocks. The distribution among stocks and bonds in these funds varies depending on the fund’s strategy. Index funds track the performance of an index such as the S&P 500. These funds are passively managed. They hold similar assets to the index being tracked. Fees for these types of funds are lower due to infrequent turnover in assets and passive management. ## How Mutual Funds Trade The mechanics of trading mutual funds are different from those of ETFs and stocks. Mutual funds require minimum investments of anywhere from $1,000 to $5,000, unlike stocks and ETFs, where the minimum investment is one share. Mutual funds [trade only once a day](https://www.investopedia.com/ask/answers/110615/when-are-mutual-fund-orders-executed.asp) after the markets close. Stocks and ETFs can be traded at any point during the trading day. The price for the shares in a mutual fund is determined by the [net asset value (NAV)](https://www.investopedia.com/terms/n/nav.asp) calculated after the market closes. The NAV is calculated by dividing the total value of all the assets in the [portfolio](https://www.investopedia.com/terms/p/portfolio.asp), less any liabilities, by the number of outstanding shares. This is different from stocks and ETFs, wherein prices fluctuate during the trading day. An investor is buying or redeeming mutual fund shares directly from the fund itself. This is different from stocks and ETFs, wherein the counterparty to the buying or selling of a share is another participant in the market. Mutual funds charge different fees for buying or redeeming shares. ## Mutual Fund Charges and Fees It is critical for investors to understand the type of fees and charges associated with buying and [redeeming mutual fund shares](https://www.investopedia.com/investing/when-to-sell-mutual-fund/). These fees vary widely and can have a dramatic impact on the performance of an investment in the fund. Some mutual funds charge load fees when buying or redeeming shares in the fund. The load is similar to the [commission](https://www.investopedia.com/terms/c/commission.asp) paid when buying or selling a stock. The load fee compensates the sale intermediary for the time and expertise in selecting the fund for the investor. Load fees can be anywhere from 4% to 8% of the amount invested in the fund. A [front-end load](https://www.investopedia.com/terms/f/front-endload.asp) is charged when an investor first buys shares in the fund. A [back-end load](https://www.investopedia.com/terms/b/back-end-load.asp) also called a deferred sales charge, is charged if the fund shares are sold within a certain time frame after first purchasing them. The back-end load is usually higher in the first year after buying the shares but then goes down each year after that. For example, a fund may charge 6% if shares are redeemed in the first year of ownership, and then it may reduce that fee by 1% each year until the sixth year when no fee is charged. A [level-load](https://www.investopedia.com/terms/l/levelload.asp) fee is an annual charge deducted from the assets in a fund to pay for distribution and marketing costs for the fund. These fees are also known as 12b-1 fees. They are a fixed percentage of the fund’s average net assets. Notably, 12b-1 fees are considered part of the [expense ratio](https://www.investopedia.com/terms/e/expenseratio.asp) for a fund. The expense ratio includes ongoing fees and expenses for the fund. Expense ratios can vary widely but are generally 0.5 to 1.25%. [Passively managed](https://www.investopedia.com/terms/p/passivemanagement.asp) funds, such as [index funds,](https://www.investopedia.com/terms/i/indexfund.asp) usually have lower expense ratios than [actively managed](https://www.investopedia.com/terms/a/activemanagement.asp) funds. Passive funds have a lower turnover in their holdings. They are not attempting to outperform a [benchmark](https://www.investopedia.com/terms/b/benchmark.asp) index, but just try to duplicate it, and thus do not need to compensate the [fund manager](https://www.investopedia.com/terms/f/fundmanager.asp) for his expertise in choosing investment assets. Load fees and expense ratios can be a significant drag on investment performance. Funds that charge loads must outperform their [benchmark index](https://www.investopedia.com/terms/b/benchmark.asp) or similar funds to justify the fees. Many studies show that load funds often do not perform better than their [no-load](https://www.investopedia.com/terms/n/no-loadfund.asp) counterparts. Thus, it makes little sense for most investors to buy shares in a fund with loads. Similarly, funds with higher expense ratios also tend to perform worse than low expense funds. Because their higher expenses drag down returns, actively managed mutual funds sometimes get a bad rap as a group overall. But many international markets (especially the [emerging](https://www.investopedia.com/terms/e/emergingmarketfund.asp) ones) are just too difficult for direct investment—they're not highly liquid or investor-friendly—and they have no comprehensive index to follow. In this case, it pays to have a professional manager help wade through all of the complexities, and who is worth paying an active fee for. ## Risk Tolerance and Investment Goals The first step in determining the suitability of any investment product is to assess [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp). This is the ability and desire to take on risk in return for the possibility of higher returns. Though mutual funds are often considered one of the safer investments on the market, certain types of mutual funds are not suitable for those whose main goal is to avoid losses at all costs. Aggressive stock funds, for example, are not suitable for investors with very low-risk tolerances. Similarly, some high-yield bond funds may also be too risky if they invest in low-rated or junk bonds to generate higher returns. Your specific investment goals are the next most important consideration when assessing the suitability of mutual funds, making some mutual funds more appropriate than others. For an investor whose main goal is to preserve capital, meaning she is willing to accept lower gains in return for the security of knowing her initial investment is safe, high-risk funds are not a good fit. This type of investor has a very low-[risk tolerance](https://www.investopedia.com/articles/financial-advisors/051915/tips-assessing-clients-risk-tolerance.asp) and should avoid most stock funds and many more aggressive bond funds. Instead, look to bond funds that invest in only highly rated government or corporate bonds or money market funds. If an investor's chief aim is to generate big returns, they are likely willing to take on more risk. In this case, high-yield stock and bond funds can be excellent choices. Though the potential for loss is greater, these funds have professional managers who are more likely than the average retail investor to generate substantial profits by buying and selling cutting-edge stocks and risky debt securities. Investors looking to aggressively grow their wealth are not well suited to money market funds and other highly stable products because the rate of return is often not much greater than inflation. ## Income or Growth? Mutual funds generate two kinds of income: [capital gains](https://www.investopedia.com/terms/c/capitalgain.asp) and [dividends](https://www.investopedia.com/terms/d/dividend.asp). Though any net profits generated by a fund must be passed on to shareholders at least once a year, the frequency with which different funds make distributions varies widely. If you are looking to [grow wealth over the long term](https://www.investopedia.com/articles/investing/021916/etfs-vs-mutual-funds-which-better-young-investors.asp) and are not concerned with generating immediate income, funds that focus on growth stocks and use a buy-and-hold strategy are best because they generally incur lower expenses and have a lower tax impact than other types of funds. If, instead, you want to use your investment to create a regular income, dividend-bearing funds are an excellent choice. These funds invest in a variety of dividend-bearing stocks and interest-bearing bonds and pay dividends at least annually but often quarterly or semi-annually. Though stock-heavy funds are riskier, these types of balanced funds come in a range of stock-to-bond ratios. ## Tax Strategy When assessing the suitability of mutual funds, it is important to consider taxes. Depending on an investor's current financial situation, income from mutual funds can have a serious impact on an investor's annual [tax liability](https://www.investopedia.com/terms/t/taxliability.asp). The more income you earn in a given year, the higher your ordinary income and capital gains [tax brackets](https://www.investopedia.com/terms/t/taxbracket.asp). Dividend-bearing funds are a poor choice for those looking to minimize their tax liability. Though funds that employ a long-term investment strategy may pay qualified dividends, which are taxed at the lower capital gains rate, any dividend payments increase an investor's taxable income for the year. The best choice is to choose funds that focus more on long-term capital gains and avoid dividend stocks or interest-bearing corporate bonds. Funds that invest in tax-free government or municipal bonds generate interest that is not subject to federal income tax. So, these products may be a good choice. However, not all tax-free bonds are completely tax-free, so make sure to verify whether those earnings are subject to state or local taxes. Many funds offer products managed with the specific goal of tax-efficiency. These funds employ a buy-and-hold strategy and eschew dividend- or interest-paying securities. They come in a variety of forms, so it's important to consider risk tolerance and investment goals when looking at a [tax-efficient](https://www.investopedia.com/ask/answers/091615/how-can-i-find-taxexempt-mutual-funds.asp) fund. There are many [metrics](https://www.investopedia.com/terms/m/metrics.asp) to study before deciding to invest in a mutual fund. Mutual fund rater [Morningstar](https://www.investopedia.com/terms/m/morningstarinc.asp) ([MORN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=morn)) offers [a great site to analyze funds](https://www.investopedia.com/articles/mutualfund/08/morningstar.asp) and offers details on funds that include details on its [asset allocation](https://www.investopedia.com/terms/a/assetallocation.asp) and mix between stocks, bonds, cash, and any [alternative assets](https://www.investopedia.com/terms/a/alternative_investment.asp) that may be held. It also popularized the [investment style](https://www.investopedia.com/terms/i/investing_style.asp) box that breaks a fund down between the market cap it focuses on (small, mid, and large cap) and investment style (value, growth, or blend, which is a mix of value and growth). Other key categories cover the following: * A fund’s expense ratios * An overview of its investment [holdings](https://www.investopedia.com/terms/h/holdings.asp) * Biographical details of the management team * How strong its stewardship skills are * How long it has been around For a fund to be a buy, it should have a mix of the following characteristics: a great long-term (not short-term) track record, charge a reasonably low fee compared to the [peer group](https://www.investopedia.com/terms/p/peer-group.asp), invest with a consistent approach based off the style box and possess a management team that has been in place for a long time. Morningstar sums up all of these metrics in a star rating, which is a good place to start to get a feel for how strong a mutual fund has been. However, keep in mind that the rating is backward-focused.  ## Investment Strategies Individual investors can look for mutual funds that follow a certain investment strategy that the investor prefers, or apply an investment strategy themselves by purchasing shares in funds that fit the criteria of a chosen strategy. ## Value Investing [Value investing](https://www.investopedia.com/terms/v/valueinvesting.asp), popularized by the legendary investor Benjamin Graham in the 1930s, is one of the most well-established, widely used and respected stock market investing strategies. Buying stocks during the Great Depression, Graham was focused on identifying companies with genuine value and whose stock prices were either undervalued or at the very least not overinflated and therefore not easily prone to a dramatic fall. The classic value investing metric used to identify undervalued stocks is the [price-to-book (P/B) ratio](https://www.investopedia.com/terms/p/price-to-bookratio.asp). Value investors prefer to see P/B ratios at least below 3, and ideally below 1. However, since the average P/B ratio can vary significantly among sectors and industries, analysts commonly evaluate a company's P/B value in relation to that of similar companies engaged in the same business. While mutual funds themselves do not technically have P/B ratios, the average weighted P/B ratio for the stocks that a mutual fund holds in its portfolio can be found at various mutual fund information sites, such as Morningstar.com. There are hundreds, if not thousands, of mutual funds that identify themselves as value funds, or that state in their descriptions that value investing principles guide the fund manager's stock selections. Value investing goes beyond only considering a company's P/B value. A company's value may exist in the form of having strong cash flows and relatively little debt. Another source of value is in the specific products and services that a company offers, and how they are projected to perform in the marketplace. Brand name recognition, while not precisely measurable in dollars and cents, represents a potential value for a company, and a point of reference for concluding that the market price of a company's stock is currently undervalued as compared to the true value of the company and its operations. Virtually any advantage a company has over its competitors or within the economy as a whole provides a source of value. Value investors are likely to scrutinize the relative values of the individual stocks that make up a mutual fund's portfolio. ## Contrarian Investing [Contrarian](https://www.investopedia.com/terms/c/contrarian.asp) investors go against the prevailing market sentiment or trend. A classic example of contrarian investing is selling short, or at least avoiding buying, the stocks of an industry when investment analysts across the board are virtually all projecting above-average gains for companies operating in the specified industry. In short, contrarians often buy what the majority of investors are selling and sell what the majority of investors are buying. Because contrarian investors typically buy stocks that are out of favor or whose prices have declined, contrarian investing can be seen as similar to value investing. However, contrarian trading strategies tend to be driven more by market sentiment factors than they are by value investing strategies and to rely less on specific fundamental analysis metrics such as the P/B ratio. Contrarian investing is often misunderstood as consisting of simply selling stocks or funds that are going up and buying stocks or funds that are going down, but that is a misleading oversimplification. Contrarians are often more likely to go against prevailing opinions than to go against prevailing price trends. A contrarian move is to buy into a stock or fund whose price is rising despite the continuous and widespread market opinion that the price should be falling. There are plenty of mutual funds that can be identified as contrarian funds. Investors can seek out contrarian-style funds to invest in, or they can employ a contrarian mutual fund trading strategy by selecting mutual funds to invest in using contrarian investment principles. Contrarian mutual fund investors seek out mutual funds to invest in that hold the stocks of companies in sectors or industries that are currently out of favor with market analysts, or they look for funds invested in sectors or industries that have underperformed compared to the overall market. A contrarian's attitude toward a sector that has been underperforming for several years may well be that the protracted period of time over which the sector's stocks have been performing poorly (in relation to the overall market average) only makes it more probable that the sector will soon begin to experience a reversal of fortune to the upside. ## Momentum Investing [Momentum investing](https://www.investopedia.com/terms/m/momentum_investing.asp) aims to profit from following strong existing trends. Momentum investing is closely related to a growth investing approach. Metrics considered in evaluating the strength of a mutual fund's price momentum include the weighted average price-earnings to growth (PEG) ratio of the fund's portfolio holdings, or the percentage year-over-year increase in the fund's net asset value (NAV). Appropriate mutual funds for investors seeking to employ a momentum investing strategy can be identified by fund descriptions where the fund manager clearly states that momentum is a primary factor in his selection of stocks for the fund's portfolio. Investors wishing to follow market momentum through mutual fund investments can analyze the momentum performance of various funds and make fund selections accordingly. A momentum trader may look for funds with accelerating profits over a span of time; for example, funds with NAVs that rose by 3% three years ago, by 5% the following year and by 7% in the most recent year. Momentum investors may also seek to identify specific sectors or industries that are demonstrating clear evidence of strong momentum. After identifying the strongest industries, they invest in funds that offer the most advantageous exposure to companies engaged in those industries. ## The Bottom Line Benjamin Graham once wrote that making money on investing should depend “on the amount of intelligent effort the investor is willing and able to bring to bear on his task” of security analysis. When it comes to buying a [mutual fund](https://www.investopedia.com/articles/investing/121715/guide-mutual-funds-trading-rules.asp), investors must do their homework. In some respects, this is easier than focusing on buying individual securities, but it does add some important other areas to research before buying. Overall, there are many reasons why investing in mutual funds makes sense and a little bit of due diligence can make all the difference—and provide a measure of comfort.

Buying shares in mutual funds can be intimidating for beginning investors. There is a huge amount of funds available, all with different investment strategies and asset groups. Trading shares in mutual funds are different from trading shares in stocks or exchange-traded funds (ETFs). The fees charged for mutual funds can be complicated. Understanding these fees is important since they have a large impact on the performance of investments in a fund. What Are Mutual Funds? A mutual fund is an investment company that takes money from many investors and pools it together in one large pot. The professional manager for the fund invests the money in different types of assets including stocks, bonds, commodities, and even real estate. An investor buys shares in the mutual fund. These shares represent an ownership interest in a portion of the assets owned by the fund. Mutual funds are designed for longer-term investors and are not meant to be traded frequently due to their fee structures. Mutual funds are often attractive to investors because they are widely diversified. Diversification helps to minimize risk to an investment. Rather than having to research and make an individual decision as to each type of asset to include in a portfolio, mutual funds offer a single comprehensive investment vehicle. Some mutual funds can have thousands of different holdings. Mutual funds are also very liquid. It is easy to buy and redeem shares in mutual funds. There is a wide variety of mutual funds to consider. A few of the major fund types are bond funds, stock funds, balanced funds, and index funds. Bond funds hold fixed-income securities as assets. These bonds pay regular interest to their holders. The mutual fund makes distributions to mutual fund holders of this interest. Stock funds make investments in the shares of different companies. Stock funds seek to profit mainly by the appreciation of the shares over time, as well as dividend payments. Stock funds often have a strategy of investing in companies based on their market capitalization, the total dollar value of a company’s outstanding shares. For example, large-cap stocks are defined as those with market capitalizations over $10 billion. Stock funds may specialize in large-, mid-or small-cap stocks. Small-cap funds tend to have higher volatility than large-cap funds. Balanced funds hold a mix of bonds and stocks. The distribution among stocks and bonds in these funds varies depending on the fund’s strategy. Index funds track the performance of an index such as the S&P 500. These funds are passively managed. They hold similar assets to the index being tracked. Fees for these types of funds are lower due to infrequent turnover in assets and passive management. How Mutual Funds Trade The mechanics of trading mutual funds are different from those of ETFs and stocks. Mutual funds require minimum investments of anywhere from $1,000 to $5,000, unlike stocks and ETFs, where the minimum investment is one share. Mutual funds trade only once a day after the markets close. Stocks and ETFs can be traded at any point during the trading day. The price for the shares in a mutual fund is determined by the net asset value (NAV) calculated after the market closes. The NAV is calculated by dividing the total value of all the assets in the portfolio, less any liabilities, by the number of outstanding shares. This is different from stocks and ETFs, wherein prices fluctuate during the trading day. An investor is buying or redeeming mutual fund shares directly from the fund itself. This is different from stocks and ETFs, wherein the counterparty to the buying or selling of a share is another participant in the market. Mutual funds charge different fees for buying or redeeming shares. Mutual Fund Charges and Fees It is critical for investors to understand the type of fees and charges associated with buying and redeeming mutual fund shares. These fees vary widely and can have a dramatic impact on the performance of an investment in the fund. Some mutual funds charge load fees when buying or redeeming shares in the fund. The load is similar to the commission paid when buying or selling a stock. The load fee compensates the sale intermediary for the time and expertise in selecting the fund for the investor. Load fees can be anywhere from 4% to 8% of the amount invested in the fund. A front-end load is charged when an investor first buys shares in the fund. A back-end load also called a deferred sales charge, is charged if the fund shares are sold within a certain time frame after first purchasing them. The back-end load is usually higher in the first year after buying the shares but then goes down each year after that. For example, a fund may charge 6% if shares are redeemed in the first year of ownership, and then it may reduce that fee by 1% each year until the sixth year when no fee is charged. A level-load fee is an annual charge deducted from the assets in a fund to pay for distribution and marketing costs for the fund. These fees are also known as 12b-1 fees. They are a fixed percentage of the fund’s average net assets. Notably, 12b-1 fees are considered part of the expense ratio for a fund. The expense ratio includes ongoing fees and expenses for the fund. Expense ratios can vary widely but are generally 0.5 to 1.25%. Passively managed funds, such as index funds, usually have lower expense ratios than actively managed funds. Passive funds have a lower turnover in their holdings. They are not attempting to outperform a benchmark index, but just try to duplicate it, and thus do not need to compensate the fund manager for his expertise in choosing investment assets. Load fees and expense ratios can be a significant drag on investment performance. Funds that charge loads must outperform their benchmark index or similar funds to justify the fees. Many studies show that load funds often do not perform better than their no-load counterparts. Thus, it makes little sense for most investors to buy shares in a fund with loads. Similarly, funds with higher expense ratios also tend to perform worse than low expense funds. Because their higher expenses drag down returns, actively managed mutual funds sometimes get a bad rap as a group overall. But many international markets (especially the emerging ones) are just too difficult for direct investment—they're not highly liquid or investor-friendly—and they have no comprehensive index to follow. In this case, it pays to have a professional manager help wade through all of the complexities, and who is worth paying an active fee for. Risk Tolerance and Investment Goals The first step in determining the suitability of any investment product is to assess risk tolerance. This is the ability and desire to take on risk in return for the possibility of higher returns. Though mutual funds are often considered one of the safer investments on the market, certain types of mutual funds are not suitable for those whose main goal is to avoid losses at all costs. Aggressive stock funds, for example, are not suitable for investors with very low-risk tolerances. Similarly, some high-yield bond funds may also be too risky if they invest in low-rated or junk bonds to generate higher returns. Your specific investment goals are the next most important consideration when assessing the suitability of mutual funds, making some mutual funds more appropriate than others. For an investor whose main goal is to preserve capital, meaning she is willing to accept lower gains in return for the security of knowing her initial investment is safe, high-risk funds are not a good fit. This type of investor has a very low-risk tolerance and should avoid most stock funds and many more aggressive bond funds. Instead, look to bond funds that invest in only highly rated government or corporate bonds or money market funds. If an investor's chief aim is to generate big returns, they are likely willing to take on more risk. In this case, high-yield stock and bond funds can be excellent choices. Though the potential for loss is greater, these funds have professional managers who are more likely than the average retail investor to generate substantial profits by buying and selling cutting-edge stocks and risky debt securities. Investors looking to aggressively grow their wealth are not well suited to money market funds and other highly stable products because the rate of return is often not much greater than inflation. Income or Growth? Mutual funds generate two kinds of income: capital gains and dividends. Though any net profits generated by a fund must be passed on to shareholders at least once a year, the frequency with which different funds make distributions varies widely. If you are looking to grow wealth over the long term and are not concerned with generating immediate income, funds that focus on growth stocks and use a buy-and-hold strategy are best because they generally incur lower expenses and have a lower tax impact than other types of funds. If, instead, you want to use your investment to create a regular income, dividend-bearing funds are an excellent choice. These funds invest in a variety of dividend-bearing stocks and interest-bearing bonds and pay dividends at least annually but often quarterly or semi-annually. Though stock-heavy funds are riskier, these types of balanced funds come in a range of stock-to-bond ratios. Tax Strategy When assessing the suitability of mutual funds, it is important to consider taxes. Depending on an investor's current financial situation, income from mutual funds can have a serious impact on an investor's annual tax liability. The more income you earn in a given year, the higher your ordinary income and capital gains tax brackets. Dividend-bearing funds are a poor choice for those looking to minimize their tax liability. Though funds that employ a long-term investment strategy may pay qualified dividends, which are taxed at the lower capital gains rate, any dividend payments increase an investor's taxable income for the year. The best choice is to choose funds that focus more on long-term capital gains and avoid dividend stocks or interest-bearing corporate bonds. Funds that invest in tax-free government or municipal bonds generate interest that is not subject to federal income tax. So, these products may be a good choice. However, not all tax-free bonds are completely tax-free, so make sure to verify whether those earnings are subject to state or local taxes. Many funds offer products managed with the specific goal of tax-efficiency. These funds employ a buy-and-hold strategy and eschew dividend- or interest-paying securities. They come in a variety of forms, so it's important to consider risk tolerance and investment goals when looking at a tax-efficient fund. There are many metrics to study before deciding to invest in a mutual fund. Mutual fund rater Morningstar (MORN) offers a great site to analyze funds and offers details on funds that include details on its asset allocation and mix between stocks, bonds, cash, and any alternative assets that may be held. It also popularized the investment style box that breaks a fund down between the market cap it focuses on (small, mid, and large cap) and investment style (value, growth, or blend, which is a mix of value and growth). Other key categories cover the following: A fund’s expense ratios An overview of its investment holdings Biographical details of the management team How strong its stewardship skills are How long it has been around For a fund to be a buy, it should have a mix of the following characteristics: a great long-term (not short-term) track record, charge a reasonably low fee compared to the peer group, invest with a consistent approach based off the style box and possess a management team that has been in place for a long time. Morningstar sums up all of these metrics in a star rating, which is a good place to start to get a feel for how strong a mutual fund has been. However, keep in mind that the rating is backward-focused.  Investment Strategies Individual investors can look for mutual funds that follow a certain investment strategy that the investor prefers, or apply an investment strategy themselves by purchasing shares in funds that fit the criteria of a chosen strategy. Value Investing Value investing, popularized by the legendary investor Benjamin Graham in the 1930s, is one of the most well-established, widely used and respected stock market investing strategies. Buying stocks during the Great Depression, Graham was focused on identifying companies with genuine value and whose stock prices were either undervalued or at the very least not overinflated and therefore not easily prone to a dramatic fall. The classic value investing metric used to identify undervalued stocks is the price-to-book (P/B) ratio. Value investors prefer to see P/B ratios at least below 3, and ideally below 1. However, since the average P/B ratio can vary significantly among sectors and industries, analysts commonly evaluate a company's P/B value in relation to that of similar companies engaged in the same business. While mutual funds themselves do not technically have P/B ratios, the average weighted P/B ratio for the stocks that a mutual fund holds in its portfolio can be found at various mutual fund information sites, such as Morningstar.com. There are hundreds, if not thousands, of mutual funds that identify themselves as value funds, or that state in their descriptions that value investing principles guide the fund manager's stock selections. Value investing goes beyond only considering a company's P/B value. A company's value may exist in the form of having strong cash flows and relatively little debt. Another source of value is in the specific products and services that a company offers, and how they are projected to perform in the marketplace. Brand name recognition, while not precisely measurable in dollars and cents, represents a potential value for a company, and a point of reference for concluding that the market price of a company's stock is currently undervalued as compared to the true value of the company and its operations. Virtually any advantage a company has over its competitors or within the economy as a whole provides a source of value. Value investors are likely to scrutinize the relative values of the individual stocks that make up a mutual fund's portfolio. Contrarian Investing Contrarian investors go against the prevailing market sentiment or trend. A classic example of contrarian investing is selling short, or at least avoiding buying, the stocks of an industry when investment analysts across the board are virtually all projecting above-average gains for companies operating in the specified industry. In short, contrarians often buy what the majority of investors are selling and sell what the majority of investors are buying. Because contrarian investors typically buy stocks that are out of favor or whose prices have declined, contrarian investing can be seen as similar to value investing. However, contrarian trading strategies tend to be driven more by market sentiment factors than they are by value investing strategies and to rely less on specific fundamental analysis metrics such as the P/B ratio. Contrarian investing is often misunderstood as consisting of simply selling stocks or funds that are going up and buying stocks or funds that are going down, but that is a misleading oversimplification. Contrarians are often more likely to go against prevailing opinions than to go against prevailing price trends. A contrarian move is to buy into a stock or fund whose price is rising despite the continuous and widespread market opinion that the price should be falling. There are plenty of mutual funds that can be identified as contrarian funds. Investors can seek out contrarian-style funds to invest in, or they can employ a contrarian mutual fund trading strategy by selecting mutual funds to invest in using contrarian investment principles. Contrarian mutual fund investors seek out mutual funds to invest in that hold the stocks of companies in sectors or industries that are currently out of favor with market analysts, or they look for funds invested in sectors or industries that have underperformed compared to the overall market. A contrarian's attitude toward a sector that has been underperforming for several years may well be that the protracted period of time over which the sector's stocks have been performing poorly (in relation to the overall market average) only makes it more probable that the sector will soon begin to experience a reversal of fortune to the upside. Momentum Investing Momentum investing aims to profit from following strong existing trends. Momentum investing is closely related to a growth investing approach. Metrics considered in evaluating the strength of a mutual fund's price momentum include the weighted average price-earnings to growth (PEG) ratio of the fund's portfolio holdings, or the percentage year-over-year increase in the fund's net asset value (NAV). Appropriate mutual funds for investors seeking to employ a momentum investing strategy can be identified by fund descriptions where the fund manager clearly states that momentum is a primary factor in his selection of stocks for the fund's portfolio. Investors wishing to follow market momentum through mutual fund investments can analyze the momentum performance of various funds and make fund selections accordingly. A momentum trader may look for funds with accelerating profits over a span of time; for example, funds with NAVs that rose by 3% three years ago, by 5% the following year and by 7% in the most recent year. Momentum investors may also seek to identify specific sectors or industries that are demonstrating clear evidence of strong momentum. After identifying the strongest industries, they invest in funds that offer the most advantageous exposure to companies engaged in those industries. The Bottom Line Benjamin Graham once wrote that making money on investing should depend “on the amount of intelligent effort the investor is willing and able to bring to bear on his task” of security analysis. When it comes to buying a mutual fund, investors must do their homework. In some respects, this is easier than focusing on buying individual securities, but it does add some important other areas to research before buying. Overall, there are many reasons why investing in mutual funds makes sense and a little bit of due diligence can make all the difference—and provide a measure of comfort.

https://www.investopedia.com/terms/d/distributed-applications-apps.asp

Distributed Applications (DApp): Meaning, Example, Blockchain

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-distributed-applications-apps"></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 Distributed Applications (ĐApps) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Distributed Applications (ĐApps) are software applications that are stored and executed mostly on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cloud-computing.asp" rel="noopener noreferrer">cloud computing</a> platforms and that run on multiple systems simultaneously. These distributed systems operate on the same network and communicate with each other in an effort to complete a specific task or command—unlike a traditional app, which utilizes one dedicated system to achieve an assigned task. </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 distributed app, abbreviated as "ĐApp", is a piece of software that is run on a distributed or cloud network, rather than on a single dedicated server.</li><li>By distributing the processing power and storage space across many devices, ĐApps are decentralized, making them more resistant to attack as there is no single point of failure that can be undermined.</li><li>Blockchain-based systems have been the platforms upon which many ĐApps have been built and deployed; however, ĐApps can also run on cloud platforms or other network architectures.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-distributed-applications-apps"></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 Distributed Applications (ĐApps) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> A ĐApp is designed to allow users of a network to collaborate and share ideas, co-ordinate on tasks, access information, and exchange apps through a server. They are mostly used on client-server networks where the user’s computer accesses information from the server or cloud computing server. </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 different computer systems that have been distributed across the network are normally tasked with similar or different objectives. For example, in an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ecommerce.asp" rel="noopener noreferrer">e-commerce</a> platform, each of the computers may be responsible for specific tasks, such as: </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>Sending and receiving emails about special offers to current customers.</li> <li>Compiling a list of customers and their purchase history to better target products to them.</li> <li>Updating the customer list with new customers who have registered with the online market.</li> <li>Accepting product reviews from each patron for future product decision-making.</li> <li>Accepting various payment methods at checkout.</li> <li>Answering customers’ questions online, whether as a person behind the computer or a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/chatbot.asp" rel="noopener noreferrer">chatbot</a>.</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"> Each of these tasks will be carried out by one or more systems on the network, but all systems communicate with each other to ensure that the customer buys and receives the product that is beneficial to them. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_15-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_16-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block no-title" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>The popular music-streaming platform Spotify is a decentralized app that utilizes user's storage and computational power to operate efficiently and with low-latency.</p></div></div></div> <span class="heading-toc" id="toc-example-of-distributed-applications-apps"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_17-0"> <span class="mntl-sc-block-heading__text"> Example of Distributed Applications (ĐApps) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Companies in the financial sector are constantly seeking new ways to incorporate ĐApps into their work processes through the blockchain. One reason for adopting a blockchain system is to improve the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/transparency.asp" rel="noopener noreferrer">transparency</a> of the firm’s operations in order to meet the stringent requirements of financial regulators. </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"> Other reasons why a firm in the financial sector may want to integrate ĐApps include reducing the number of intermediaries involved in a financial transaction, providing clients with access to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cryptocurrency.asp" rel="noopener noreferrer">cryptocurrencies</a>, and creating access to groups such as <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/peer-to-peer-lending.asp" rel="noopener noreferrer">peer-to-peer (P2P) lending</a> groups. ĐApps might also be utilized to improve verification on historical transactions, simplify AML and KYC processes, improve trade finance and supply-chain finance, and enable open banking. </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-blockchains-and-distributed-applications-apps"></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"> Blockchains and Distributed Applications (ĐApps) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> In the cryptoeconomy, the blockchain used by most cryptocurrencies utilizes ĐApps to maintain an efficient digital marketplace. Rather than the conventional client-server network adopted by most centralized organizations, blockchains run on a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/peertopeer-p2p-economy.asp" rel="noopener noreferrer">peer-to-peer network</a> where transactional information carried out between two parties is recorded and shared across multiple computers on the network. These computers, referred to as nodes, each act as an administrator in the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin.asp" rel="noopener noreferrer">bitcoin</a> markets and join the network voluntarily for the opportunity to receive bitcoins as a reward. </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"> Each node has a duplicate copy of an original transaction, which gets continually reconciled by the network. So whatever entry that node A has on its record for a bitcoin transaction between Jane and John cannot differ from what nodes B, C, D, E, and F have. This means of verifying each transaction by multiple nodes is called <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/distributed-ledgers.asp" rel="noopener noreferrer">distributed ledgers</a>.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> Since a version of events can be verifiable with different computers, a hacker would need to get into all the systems spread across various geographical locations in order to tweak the transaction and corrupt the recorded data. This feat is impossible, making the bitcoin blockchain transparent and incorruptible. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Also, by storing blocks of information across various nodes on a blockchain network, the blockchain cannot be brought to ruins by the failure of one system. When a computer or system fails, the other systems act as backups and keep running regardless of the down system. Once all active nodes have received and verified a transaction as valid, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/block-bitcoin-block.asp" rel="noopener noreferrer">block</a> (i.e. the transaction) is added to the chain—the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/generalledger.asp" rel="noopener noreferrer">general ledger</a>—for public access. The ability of all nodes to keep functioning, even when one or two nodes drop out of the network, ensures that users are constantly getting their transactions recorded and confirmed in an uninterrupted and timely manner. </p></div>

## What Are Distributed Applications (ĐApps) Distributed Applications (ĐApps) are software applications that are stored and executed mostly on [cloud computing](https://www.investopedia.com/terms/c/cloud-computing.asp) platforms and that run on multiple systems simultaneously. These distributed systems operate on the same network and communicate with each other in an effort to complete a specific task or command—unlike a traditional app, which utilizes one dedicated system to achieve an assigned task. ### Key Takeaways * A distributed app, abbreviated as "ĐApp", is a piece of software that is run on a distributed or cloud network, rather than on a single dedicated server. * By distributing the processing power and storage space across many devices, ĐApps are decentralized, making them more resistant to attack as there is no single point of failure that can be undermined. * Blockchain-based systems have been the platforms upon which many ĐApps have been built and deployed; however, ĐApps can also run on cloud platforms or other network architectures. ## Understanding Distributed Applications (ĐApps) A ĐApp is designed to allow users of a network to collaborate and share ideas, co-ordinate on tasks, access information, and exchange apps through a server. They are mostly used on client-server networks where the user’s computer accesses information from the server or cloud computing server. The different computer systems that have been distributed across the network are normally tasked with similar or different objectives. For example, in an [e-commerce](https://www.investopedia.com/terms/e/ecommerce.asp) platform, each of the computers may be responsible for specific tasks, such as: * Sending and receiving emails about special offers to current customers. * Compiling a list of customers and their purchase history to better target products to them. * Updating the customer list with new customers who have registered with the online market. * Accepting product reviews from each patron for future product decision-making. * Accepting various payment methods at checkout. * Answering customers’ questions online, whether as a person behind the computer or a [chatbot](https://www.investopedia.com/terms/c/chatbot.asp). Each of these tasks will be carried out by one or more systems on the network, but all systems communicate with each other to ensure that the customer buys and receives the product that is beneficial to them. ### The popular music-streaming platform Spotify is a decentralized app that utilizes user's storage and computational power to operate efficiently and with low-latency. ## Example of Distributed Applications (ĐApps) Companies in the financial sector are constantly seeking new ways to incorporate ĐApps into their work processes through the blockchain. One reason for adopting a blockchain system is to improve the [transparency](https://www.investopedia.com/terms/t/transparency.asp) of the firm’s operations in order to meet the stringent requirements of financial regulators. Other reasons why a firm in the financial sector may want to integrate ĐApps include reducing the number of intermediaries involved in a financial transaction, providing clients with access to [cryptocurrencies](https://www.investopedia.com/terms/c/cryptocurrency.asp), and creating access to groups such as [peer-to-peer (P2P) lending](https://www.investopedia.com/terms/p/peer-to-peer-lending.asp) groups. ĐApps might also be utilized to improve verification on historical transactions, simplify AML and KYC processes, improve trade finance and supply-chain finance, and enable open banking. ## Blockchains and Distributed Applications (ĐApps) In the cryptoeconomy, the blockchain used by most cryptocurrencies utilizes ĐApps to maintain an efficient digital marketplace. Rather than the conventional client-server network adopted by most centralized organizations, blockchains run on a [peer-to-peer network](https://www.investopedia.com/terms/p/peertopeer-p2p-economy.asp) where transactional information carried out between two parties is recorded and shared across multiple computers on the network. These computers, referred to as nodes, each act as an administrator in the [bitcoin](https://www.investopedia.com/terms/b/bitcoin.asp) markets and join the network voluntarily for the opportunity to receive bitcoins as a reward. Each node has a duplicate copy of an original transaction, which gets continually reconciled by the network. So whatever entry that node A has on its record for a bitcoin transaction between Jane and John cannot differ from what nodes B, C, D, E, and F have. This means of verifying each transaction by multiple nodes is called [distributed ledgers](https://www.investopedia.com/terms/d/distributed-ledgers.asp).  Since a version of events can be verifiable with different computers, a hacker would need to get into all the systems spread across various geographical locations in order to tweak the transaction and corrupt the recorded data. This feat is impossible, making the bitcoin blockchain transparent and incorruptible. Also, by storing blocks of information across various nodes on a blockchain network, the blockchain cannot be brought to ruins by the failure of one system. When a computer or system fails, the other systems act as backups and keep running regardless of the down system. Once all active nodes have received and verified a transaction as valid, the [block](https://www.investopedia.com/terms/b/block-bitcoin-block.asp) (i.e. the transaction) is added to the chain—the [general ledger](https://www.investopedia.com/terms/g/generalledger.asp)—for public access. The ability of all nodes to keep functioning, even when one or two nodes drop out of the network, ensures that users are constantly getting their transactions recorded and confirmed in an uninterrupted and timely manner.

What Are Distributed Applications (ĐApps) Distributed Applications (ĐApps) are software applications that are stored and executed mostly on cloud computing platforms and that run on multiple systems simultaneously. These distributed systems operate on the same network and communicate with each other in an effort to complete a specific task or command—unlike a traditional app, which utilizes one dedicated system to achieve an assigned task. Key Takeaways A distributed app, abbreviated as "ĐApp", is a piece of software that is run on a distributed or cloud network, rather than on a single dedicated server.By distributing the processing power and storage space across many devices, ĐApps are decentralized, making them more resistant to attack as there is no single point of failure that can be undermined.Blockchain-based systems have been the platforms upon which many ĐApps have been built and deployed; however, ĐApps can also run on cloud platforms or other network architectures. Understanding Distributed Applications (ĐApps) A ĐApp is designed to allow users of a network to collaborate and share ideas, co-ordinate on tasks, access information, and exchange apps through a server. They are mostly used on client-server networks where the user’s computer accesses information from the server or cloud computing server. The different computer systems that have been distributed across the network are normally tasked with similar or different objectives. For example, in an e-commerce platform, each of the computers may be responsible for specific tasks, such as: Sending and receiving emails about special offers to current customers. Compiling a list of customers and their purchase history to better target products to them. Updating the customer list with new customers who have registered with the online market. Accepting product reviews from each patron for future product decision-making. Accepting various payment methods at checkout. Answering customers’ questions online, whether as a person behind the computer or a chatbot. Each of these tasks will be carried out by one or more systems on the network, but all systems communicate with each other to ensure that the customer buys and receives the product that is beneficial to them. The popular music-streaming platform Spotify is a decentralized app that utilizes user's storage and computational power to operate efficiently and with low-latency. Example of Distributed Applications (ĐApps) Companies in the financial sector are constantly seeking new ways to incorporate ĐApps into their work processes through the blockchain. One reason for adopting a blockchain system is to improve the transparency of the firm’s operations in order to meet the stringent requirements of financial regulators. Other reasons why a firm in the financial sector may want to integrate ĐApps include reducing the number of intermediaries involved in a financial transaction, providing clients with access to cryptocurrencies, and creating access to groups such as peer-to-peer (P2P) lending groups. ĐApps might also be utilized to improve verification on historical transactions, simplify AML and KYC processes, improve trade finance and supply-chain finance, and enable open banking. Blockchains and Distributed Applications (ĐApps) In the cryptoeconomy, the blockchain used by most cryptocurrencies utilizes ĐApps to maintain an efficient digital marketplace. Rather than the conventional client-server network adopted by most centralized organizations, blockchains run on a peer-to-peer network where transactional information carried out between two parties is recorded and shared across multiple computers on the network. These computers, referred to as nodes, each act as an administrator in the bitcoin markets and join the network voluntarily for the opportunity to receive bitcoins as a reward. Each node has a duplicate copy of an original transaction, which gets continually reconciled by the network. So whatever entry that node A has on its record for a bitcoin transaction between Jane and John cannot differ from what nodes B, C, D, E, and F have. This means of verifying each transaction by multiple nodes is called distributed ledgers.  Since a version of events can be verifiable with different computers, a hacker would need to get into all the systems spread across various geographical locations in order to tweak the transaction and corrupt the recorded data. This feat is impossible, making the bitcoin blockchain transparent and incorruptible. Also, by storing blocks of information across various nodes on a blockchain network, the blockchain cannot be brought to ruins by the failure of one system. When a computer or system fails, the other systems act as backups and keep running regardless of the down system. Once all active nodes have received and verified a transaction as valid, the block (i.e. the transaction) is added to the chain—the general ledger—for public access. The ability of all nodes to keep functioning, even when one or two nodes drop out of the network, ensures that users are constantly getting their transactions recorded and confirmed in an uninterrupted and timely manner.

https://www.investopedia.com/talk-to-your-kids-about-your-retirement-years-6836344

How to Talk to Your Kids About Your Retirement Years

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> One of the most important, but easily neglected, steps in preparing for retirement is communicating your plans to other people who will be affected by them. In particular, if you have children, you may want to share certain financial and other information—for both their benefit and yours.  </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"> How much detail you choose to provide can depend on how close you and your kids are. If you have one or more children who are up to the task, you may also want to give them the legal authority to make financial and medical decisions on your behalf, should you ever become unable to. A good time to do that is before you retire, as part of the planning process. However, if you’re already retired and haven’t yet done this, then the sooner, the better. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> It makes sense to take charge of your future and make your plans and feelings known while you’re very much in control of your life, before health or other issues make that more difficult. This article provides a checklist of topics to help facilitate that conversation. </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>Your retirement plans don’t affect just you; they also have an impact on your children.</li><li>As you get ready to retire, you may want to share certain financial and other information with your kids. </li><li>You may also want to give one or more of them the authority to make financial and medical decisions on your behalf should you become impaired someday.</li><li>Among the financial matters that can be important to discuss: your home, your debts, your investment assets, your insurance, and any business that you own.</li></ul></div></div></div> <span class="heading-toc" id="toc-your-home"></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"> Your Home </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> For many people, retirement is a time for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/061914/downsides-downsizing-retirement.asp">downsizing to a smaller home</a>. Your current abode may be larger than you need, too costly to maintain, subject to crushing property taxes, or otherwise impractical for your new life. You may also yearn to move to another part of the country or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/100214/retirement-us-vs-abroad.asp">to<br/>another country</a> altogether. Or you might be considering a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/112514/how-retirement-communities-work.asp">continuing care retirement community</a>—if not right away, then in a few years. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> This is both an emotional and a practical matter. On the emotional side, you and your kids may be attached to the old place and reluctant to part with it. On the practical side, one of them might have dreams of owning it themselves someday. Perhaps you even have an adult child who’s currently living with you. If nothing else, the kids may still be storing possessions in your home that they’ll need to move elsewhere. </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"> Ultimately, of course, it’s your home and your decision. Your home may be the most valuable asset you possess, and you may need the equity you’ve built up in it over the years to fund a comfortable retirement for yourself. If you’re in the enviable—and unusual—position of not needing that equity, then <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/retirement/4-risks-giving-your-house-your-child/">giving the home to a child</a> can be an option. Bear in mind, however, that if they receive the home as a gift while you’re living, then they won’t benefit from the same <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stepupinbasis.asp">step-up in cost basis</a> that they would if they inherited it after your death.<span class="ql-inline-citation" data-cite="9"></span> As a consequence, they could face a big tax bill if they later sell the home.  </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"> If you wish to, you can also sell your home to a child—although, if they pay less than the home’s market value, the difference is considered a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/gift_of_equity.asp">gift of equity</a>.<span class="ql-inline-citation" data-cite="11"></span><span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> Either giving the home away outright or selling it at a substantial discount can trigger gift taxes—which you, not the child, would have to pay.<span class="ql-inline-citation" data-cite="12"></span> However, in 2023, you’re allowed a lifetime limit of $12.92 million on gifts and inheritances combined (twice that for married couples), so you may be able to avoid gift taxes unless you plan to make other substantial gifts and leave a very large inheritance.<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-your-debts"></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"> Your Debts </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> More and more Americans head into retirement these days with mortgage, credit card, or even student loan debt.<span class="ql-inline-citation" data-cite="3"></span> That is your problem, not your kids’, but it’s worth making them aware of it because unless you pay it off before you die, your estate will have to, reducing any inheritance that they may be anticipating.   </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 they inherit your home and you still have a mortgage on it, that mortgage may not be <a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/assumablemortgage.asp">assumable</a>, so your heirs will have to pay it off, possibly by taking out a new loan on their own.<span class="ql-inline-citation" data-cite="14"></span><span class="ql-inline-citation" data-cite="13"></span> Same for any <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/heloc/">home equity loan or home equity line of credit (HELOC)</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"> If you have a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mortgage/reverse-mortgage/">reverse mortgage</a>, your children will need to repay its balance if they wish to keep the home in the family. In fact, if you have to move out of the house for more than 12 months, such as to receive rehabilitative care after an injury, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/heirs-and-reverse-mortgages-5222965">the loan will come due</a>.<span class="ql-inline-citation" data-cite="15"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <span class="heading-toc" id="toc-your-retirement-accounts-and-other-financial-assets"></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 Retirement Accounts and Other Financial Assets </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Chances are that you’re counting on the money you saved and invested during your working years to supplement your Social Security and pension income (if you’re lucky enough to have a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/definedbenefitpensionplan.asp">defined-benefit</a> pension). In fact, the Internal Revenue Service (IRS) rules on <a class="pseudoStyle" data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/requiredminimumdistribution.asp">required minimum distributions (RMDs)</a> mean that you’ll have to withdraw a certain amount of money from your traditional (non-Roth) retirement accounts each year starting at age 73 whether you need to or not (the age was just raised from 72 with passage of the SECURE Act 2.0, part of the Consolidated Appropriations Act of 2023).<span class="ql-inline-citation" data-cite="25"></span> You’ll also have to pay income tax on those withdrawals, further reducing your kids’ potential inheritances.<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> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Just in case you’re incapacitated at some point or die suddenly, you may want to give your children a list of the financial institutions where your money is held. That can save them a lot of detective work and reduce the possibility of any accounts getting lost.   </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"> You can leave whatever money remains in your individual retirement accounts (IRAs) to your kids by <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/designated-beneficiary.asp">designating them as your beneficiaries</a> with the financial institution that serves as the accounts’ custodian. Those designations take precedence over your will and can allow your heirs to receive the money before your will is <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/probate.asp">probated</a>.<span class="ql-inline-citation" data-cite="16"></span> In addition, you might call your beneficiaries’ attention to the rules on <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/inherited_ira.asp">inherited IRAs</a>, which also involve required minimum distributions, so they aren’t surprised when the time comes and don’t run afoul of the IRS.<strong> </strong> </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"> On a more delicate topic, you might also want to discuss how much of that money you hope to leave them someday. Just insert one big caveat: If you live long enough, you could end up spending all or most of it. </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-your-life-insurance"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_36-0"> <span class="mntl-sc-block-heading__text"> Your Life Insurance </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> As with your investments, it’s wise to tell your children about any insurance policies you have and where they are located. Life insurance, like retirement accounts, becomes payable upon your death to the beneficiary or beneficiaries you’ve chosen.<span class="ql-inline-citation" data-cite="16"></span> It can, among other things, provide cash to cover funeral expenses or pay off outstanding medical bills.  </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-your-healthcare-plans"></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"> Your Healthcare Plans </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> You may enter retirement in tip-top shape, but somewhere down the line begin to face one or more serious health issues. Having a child who can drive you to appointments, if necessary, or help you deal with all the paperwork can make life a lot easier. </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"> At that point, if not sooner, you should brief them on the health coverage you have available to pay the bills. If you’re age 65 or older, that is probably Medicare. </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"> As you likely know, but your kids may not, Medicare is the federal health insurance program for most Americans age 65 or older. You can choose an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/medicare.asp">original Medicare plan</a> (Parts A and B) or a private <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/medicare-advantage.asp">Medicare Advantage plan</a> (Part C). In addition, you have the option to buy <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/medicarepartd.asp">Medicare drug coverage</a> (Part D) or a <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/medicare-supplementary-medical-insurance.asp">Medicare supplement plan</a> (Medigap) to cover some of the costs that original Medicare does not.<span class="ql-inline-citation" data-cite="17"></span><span class="ql-inline-citation" data-cite="18"></span><span class="ql-inline-citation" data-cite="19"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> It’s worth noting—and informing your kids—that while Medicare covers many things, it will pay for nursing home care or nonmedical home care only in extremely rare instances.<span class="ql-inline-citation" data-cite="20"></span> A private <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/ltcinsurance.asp">long-term care (LTC) policy</a>, if you have one, may defray some or most of those costs. If you do have an LTC policy, also tell your kids where you keep it or make a copy for them. If you become disabled, they may have to file the papers that trigger LTC payments from the insurance company. </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 end up largely depleting your assets during your retirement years, you may become eligible for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/medicaid.asp">Medicaid</a>, the federal and state health insurance program for low-income Americans.<span class="ql-inline-citation" data-cite="21"></span> It provides more coverage for long-term care than Medicare does.<span class="ql-inline-citation" data-cite="22"></span> Even without becoming impoverished, retirees can sometimes <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/102014/top-5-elder-care-strategies.asp">make themselves Medicaid eligible</a> by establishing trusts, strategically spending down their assets, making gifts, and other means. If you have any such plans in mind, let your kids know. </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-if-you-become-incapacitated"></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"> If You Become Incapacitated </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> At some point, you or your spouse might become physically or cognitively incapacitated. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> As a precautionary measure, you could give one or more of your children the authority to make medical or financial decisions on your behalf, through a <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">power of attorney</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 similar legal documents. Because events can move quickly in these situations, it’s smart to prepare the papers—and your kids—well in advance. </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"> Part of that is making sure that your kids understand your preferences: Would you be comfortable moving into an assisted living facility or a nursing home (and do you have a particular one picked out)? Or would you rather stay in your own home with the help of an aide, if that’s possible? Depending on the severity of your condition, they may not be able to honor your wishes, but you will at least have made them known. </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-your-will"></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"> Your Will </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> If you don’t have a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/last-will-and-testament.asp">last will and testament</a> (and a surprising percentage of Americans do not), you should make one.<span class="ql-inline-citation" data-cite="23"></span> If you have a will that was drafted years ago, it could be time to revisit and revise it. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> You don’t have to share the contents of your will with your kids, but there are some good reasons why you might want to. One is if you’re splitting your estate unevenly. There’s nothing wrong with leaving your underpaid schoolteacher son a greater share than your set-for-life investment-banker daughter, but you’ll avoid hurt feelings if you explain yourself while you still can. Similarly, if you have a child who is unable to care for themself, you’ll want to make appropriate provisions for them and let their siblings know about it. If you’re making substantial charitable bequests that would otherwise go to your kids, that’s also worth discussing. </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"> Finally, not to be unduly grim about it, you’ll also do your kids a favor if you write out instructions on how you want your funeral, burial, or other final arrangements to be handled. Be sure to include information on whatever financial resources you may be providing to cover the costs. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_63-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_64-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_65-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_2-0">$7,848</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Median cost of a funeral with viewing and burial in 2021, according to the National Funeral Directors Association. That figure doesn’t include cemetery costs.<span class="ql-inline-citation" data-cite="6"></span></p></div></div></div> <span class="heading-toc" id="toc-any-business-that-you-own"></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"> Any Business That You Own  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_67-0"> If you have a business, you may intend to sell it, either to fund your retirement or because none of your kids is interested in taking it over from you. Whatever you expect to do, you’ll want to discuss it with your children well beforehand and put a plan in place as soon as possible. Both selling a business and succession planning are complex topics and beyond the scope of this article, but Investopedia has practical information and advice on them, including: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_68-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/08/sell-small-business.asp">7 Steps to Selling Your Small Business</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/succession-planning.asp">Succession Planning Basics: How It Works, Why It’s Important</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/07/succession_planning.asp">How to Create a Business Succession Plan</a></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_70-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_71-0"><span class="heading-toc" id="toc-how-long-is-the-average-retirement"></span> <h2 class="mntl-sc-block-questionandanswer__question">How long is the average retirement?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>That depends, of course, on when people retire. Suppose you plan to retire at age 65. The average life expectancy of an American man at age 65 is another 18.09 years, while for women, it’s 20.70 years, according to the Social Security Administration.<span class="ql-inline-citation" data-cite="4"></span> However, with increasing numbers of people living past age 100 these days, retirement can often last for 30 or more years. For financial planning purposes, it’s usually best to err on the optimistic side and assume that you’ll be retired—and that your money will need to support you—for at least two decades and possibly longer.</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-can-you-give-your-house-to-your-child-but-still-continue-to-live-in-it"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can you give your house to your child but still continue to live in it?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes. One way to do that is to put the home in a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/qualified-personal-residence-trust.asp">qualified personal residence trust (QPRT)</a> and name your child as the trust’s beneficiary.<span class="ql-inline-citation" data-cite="24"></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-can-you-have-multiple-beneficiaries-on-a-life-insurance-policy"></span> <h2 class="mntl-sc-block-questionandanswer__question">Can you have multiple beneficiaries on a life insurance policy?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Yes, you can usually have as many as you’d like. For example, you might split the policy’s proceeds among your children, allocating a specific percentage to each of them.<br/></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-happens-to-a-traditional-pension-after-you-die"></span> <h2 class="mntl-sc-block-questionandanswer__question">What happens to a traditional pension after you die?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you’ve elected joint-and-survivor (also known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/j/joint-life-payout.asp">joint-life</a>) payouts, your survivor will continue to receive money after you die. That person will typically be your spouse if you have one, but it can also be a child, other relative, or nonrelative.<br/></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"> If you plan to retire soon (or already have), consider briefing your children on your finances, including how you expect to pay for costly healthcare should you need it. How much you divulge is up to you, but you can head off some unpleasant surprises, ill feelings, and sibling squabbles if they at least have the big picture. You may also be helping them prepare for their own retirements someday. </p></div>

One of the most important, but easily neglected, steps in preparing for retirement is communicating your plans to other people who will be affected by them. In particular, if you have children, you may want to share certain financial and other information—for both their benefit and yours.  How much detail you choose to provide can depend on how close you and your kids are. If you have one or more children who are up to the task, you may also want to give them the legal authority to make financial and medical decisions on your behalf, should you ever become unable to. A good time to do that is before you retire, as part of the planning process. However, if you’re already retired and haven’t yet done this, then the sooner, the better. It makes sense to take charge of your future and make your plans and feelings known while you’re very much in control of your life, before health or other issues make that more difficult. This article provides a checklist of topics to help facilitate that conversation. ### Key Takeaways * Your retirement plans don’t affect just you; they also have an impact on your children. * As you get ready to retire, you may want to share certain financial and other information with your kids. * You may also want to give one or more of them the authority to make financial and medical decisions on your behalf should you become impaired someday. * Among the financial matters that can be important to discuss: your home, your debts, your investment assets, your insurance, and any business that you own. ## Your Home For many people, retirement is a time for [downsizing to a smaller home](https://www.investopedia.com/articles/personal-finance/061914/downsides-downsizing-retirement.asp). Your current abode may be larger than you need, too costly to maintain, subject to crushing property taxes, or otherwise impractical for your new life. You may also yearn to move to another part of the country or [to another country](https://www.investopedia.com/articles/personal-finance/100214/retirement-us-vs-abroad.asp) altogether. Or you might be considering a [continuing care retirement community](https://www.investopedia.com/articles/personal-finance/112514/how-retirement-communities-work.asp)—if not right away, then in a few years. This is both an emotional and a practical matter. On the emotional side, you and your kids may be attached to the old place and reluctant to part with it. On the practical side, one of them might have dreams of owning it themselves someday. Perhaps you even have an adult child who’s currently living with you. If nothing else, the kids may still be storing possessions in your home that they’ll need to move elsewhere. Ultimately, of course, it’s your home and your decision. Your home may be the most valuable asset you possess, and you may need the equity you’ve built up in it over the years to fund a comfortable retirement for yourself. If you’re in the enviable—and unusual—position of not needing that equity, then [giving the home to a child](https://www.investopedia.com/retirement/4-risks-giving-your-house-your-child/) can be an option. Bear in mind, however, that if they receive the home as a gift while you’re living, then they won’t benefit from the same [step-up in cost basis](https://www.investopedia.com/terms/s/stepupinbasis.asp) that they would if they inherited it after your death. As a consequence, they could face a big tax bill if they later sell the home.  If you wish to, you can also sell your home to a child—although, if they pay less than the home’s market value, the difference is considered a [gift of equity](https://www.investopedia.com/terms/g/gift_of_equity.asp). Either giving the home away outright or selling it at a substantial discount can trigger gift taxes—which you, not the child, would have to pay. However, in 2023, you’re allowed a lifetime limit of $12.92 million on gifts and inheritances combined (twice that for married couples), so you may be able to avoid gift taxes unless you plan to make other substantial gifts and leave a very large inheritance. ## Your Debts More and more Americans head into retirement these days with mortgage, credit card, or even student loan debt. That is your problem, not your kids’, but it’s worth making them aware of it because unless you pay it off before you die, your estate will have to, reducing any inheritance that they may be anticipating.   If they inherit your home and you still have a mortgage on it, that mortgage may not be [assumable](https://www.investopedia.com/terms/a/assumablemortgage.asp), so your heirs will have to pay it off, possibly by taking out a new loan on their own. Same for any [home equity loan or home equity line of credit (HELOC)](https://www.investopedia.com/mortgage/heloc/). If you have a [reverse mortgage](https://www.investopedia.com/mortgage/reverse-mortgage/), your children will need to repay its balance if they wish to keep the home in the family. In fact, if you have to move out of the house for more than 12 months, such as to receive rehabilitative care after an injury, [the loan will come due](https://www.investopedia.com/heirs-and-reverse-mortgages-5222965). ## Your Retirement Accounts and Other Financial Assets Chances are that you’re counting on the money you saved and invested during your working years to supplement your Social Security and pension income (if you’re lucky enough to have a [defined-benefit](https://www.investopedia.com/terms/d/definedbenefitpensionplan.asp) pension). In fact, the Internal Revenue Service (IRS) rules on [required minimum distributions (RMDs)](https://www.investopedia.com/terms/r/requiredminimumdistribution.asp) mean that you’ll have to withdraw a certain amount of money from your traditional (non-Roth) retirement accounts each year starting at age 73 whether you need to or not (the age was just raised from 72 with passage of the SECURE Act 2.0, part of the Consolidated Appropriations Act of 2023). You’ll also have to pay income tax on those withdrawals, further reducing your kids’ potential inheritances. Just in case you’re incapacitated at some point or die suddenly, you may want to give your children a list of the financial institutions where your money is held. That can save them a lot of detective work and reduce the possibility of any accounts getting lost.   You can leave whatever money remains in your individual retirement accounts (IRAs) to your kids by [designating them as your beneficiaries](https://www.investopedia.com/terms/d/designated-beneficiary.asp) with the financial institution that serves as the accounts’ custodian. Those designations take precedence over your will and can allow your heirs to receive the money before your will is [probated](https://www.investopedia.com/terms/p/probate.asp). In addition, you might call your beneficiaries’ attention to the rules on [inherited IRAs](https://www.investopedia.com/terms/i/inherited_ira.asp), which also involve required minimum distributions, so they aren’t surprised when the time comes and don’t run afoul of the IRS. On a more delicate topic, you might also want to discuss how much of that money you hope to leave them someday. Just insert one big caveat: If you live long enough, you could end up spending all or most of it. ## Your Life Insurance As with your investments, it’s wise to tell your children about any insurance policies you have and where they are located. Life insurance, like retirement accounts, becomes payable upon your death to the beneficiary or beneficiaries you’ve chosen. It can, among other things, provide cash to cover funeral expenses or pay off outstanding medical bills.  ## Your Healthcare Plans You may enter retirement in tip-top shape, but somewhere down the line begin to face one or more serious health issues. Having a child who can drive you to appointments, if necessary, or help you deal with all the paperwork can make life a lot easier. At that point, if not sooner, you should brief them on the health coverage you have available to pay the bills. If you’re age 65 or older, that is probably Medicare. As you likely know, but your kids may not, Medicare is the federal health insurance program for most Americans age 65 or older. You can choose an [original Medicare plan](https://www.investopedia.com/terms/m/medicare.asp) (Parts A and B) or a private [Medicare Advantage plan](https://www.investopedia.com/terms/m/medicare-advantage.asp) (Part C). In addition, you have the option to buy [Medicare drug coverage](https://www.investopedia.com/terms/m/medicarepartd.asp) (Part D) or a [Medicare supplement plan](https://www.investopedia.com/terms/m/medicare-supplementary-medical-insurance.asp) (Medigap) to cover some of the costs that original Medicare does not. It’s worth noting—and informing your kids—that while Medicare covers many things, it will pay for nursing home care or nonmedical home care only in extremely rare instances. A private [long-term care (LTC) policy](https://www.investopedia.com/terms/l/ltcinsurance.asp), if you have one, may defray some or most of those costs. If you do have an LTC policy, also tell your kids where you keep it or make a copy for them. If you become disabled, they may have to file the papers that trigger LTC payments from the insurance company. If you end up largely depleting your assets during your retirement years, you may become eligible for [Medicaid](https://www.investopedia.com/terms/m/medicaid.asp), the federal and state health insurance program for low-income Americans. It provides more coverage for long-term care than Medicare does. Even without becoming impoverished, retirees can sometimes [make themselves Medicaid eligible](https://www.investopedia.com/articles/personal-finance/102014/top-5-elder-care-strategies.asp) by establishing trusts, strategically spending down their assets, making gifts, and other means. If you have any such plans in mind, let your kids know. ## If You Become Incapacitated At some point, you or your spouse might become physically or cognitively incapacitated. As a precautionary measure, you could give one or more of your children the authority to make medical or financial decisions on your behalf, through a [power of attorney](https://www.investopedia.com/articles/personal-finance/101514/power-attorney-do-you-need-one.asp), [healthcare power of attorney](https://www.investopedia.com/terms/h/hcpa.asp), or similar legal documents. Because events can move quickly in these situations, it’s smart to prepare the papers—and your kids—well in advance. Part of that is making sure that your kids understand your preferences: Would you be comfortable moving into an assisted living facility or a nursing home (and do you have a particular one picked out)? Or would you rather stay in your own home with the help of an aide, if that’s possible? Depending on the severity of your condition, they may not be able to honor your wishes, but you will at least have made them known. ## Your Will If you don’t have a [last will and testament](https://www.investopedia.com/terms/l/last-will-and-testament.asp) (and a surprising percentage of Americans do not), you should make one. If you have a will that was drafted years ago, it could be time to revisit and revise it. You don’t have to share the contents of your will with your kids, but there are some good reasons why you might want to. One is if you’re splitting your estate unevenly. There’s nothing wrong with leaving your underpaid schoolteacher son a greater share than your set-for-life investment-banker daughter, but you’ll avoid hurt feelings if you explain yourself while you still can. Similarly, if you have a child who is unable to care for themself, you’ll want to make appropriate provisions for them and let their siblings know about it. If you’re making substantial charitable bequests that would otherwise go to your kids, that’s also worth discussing. Finally, not to be unduly grim about it, you’ll also do your kids a favor if you write out instructions on how you want your funeral, burial, or other final arrangements to be handled. Be sure to include information on whatever financial resources you may be providing to cover the costs. ### $7,848 Median cost of a funeral with viewing and burial in 2021, according to the National Funeral Directors Association. That figure doesn’t include cemetery costs. ## Any Business That You Own If you have a business, you may intend to sell it, either to fund your retirement or because none of your kids is interested in taking it over from you. Whatever you expect to do, you’ll want to discuss it with your children well beforehand and put a plan in place as soon as possible. Both selling a business and succession planning are complex topics and beyond the scope of this article, but Investopedia has practical information and advice on them, including: * [7 Steps to Selling Your Small Business](https://www.investopedia.com/articles/pf/08/sell-small-business.asp) * [Succession Planning Basics: How It Works, Why It’s Important](https://www.investopedia.com/terms/s/succession-planning.asp) * [How to Create a Business Succession Plan](https://www.investopedia.com/articles/pf/07/succession_planning.asp) ## How long is the average retirement? That depends, of course, on when people retire. Suppose you plan to retire at age 65. The average life expectancy of an American man at age 65 is another 18.09 years, while for women, it’s 20.70 years, according to the Social Security Administration. However, with increasing numbers of people living past age 100 these days, retirement can often last for 30 or more years. For financial planning purposes, it’s usually best to err on the optimistic side and assume that you’ll be retired—and that your money will need to support you—for at least two decades and possibly longer. ## Can you give your house to your child but still continue to live in it? Yes. One way to do that is to put the home in a [qualified personal residence trust (QPRT)](https://www.investopedia.com/terms/q/qualified-personal-residence-trust.asp) and name your child as the trust’s beneficiary. ## Can you have multiple beneficiaries on a life insurance policy? Yes, you can usually have as many as you’d like. For example, you might split the policy’s proceeds among your children, allocating a specific percentage to each of them. ## What happens to a traditional pension after you die? If you’ve elected joint-and-survivor (also known as [joint-life](https://www.investopedia.com/terms/j/joint-life-payout.asp)) payouts, your survivor will continue to receive money after you die. That person will typically be your spouse if you have one, but it can also be a child, other relative, or nonrelative. ## The Bottom Line If you plan to retire soon (or already have), consider briefing your children on your finances, including how you expect to pay for costly healthcare should you need it. How much you divulge is up to you, but you can head off some unpleasant surprises, ill feelings, and sibling squabbles if they at least have the big picture. You may also be helping them prepare for their own retirements someday.

One of the most important, but easily neglected, steps in preparing for retirement is communicating your plans to other people who will be affected by them. In particular, if you have children, you may want to share certain financial and other information—for both their benefit and yours.  How much detail you choose to provide can depend on how close you and your kids are. If you have one or more children who are up to the task, you may also want to give them the legal authority to make financial and medical decisions on your behalf, should you ever become unable to. A good time to do that is before you retire, as part of the planning process. However, if you’re already retired and haven’t yet done this, then the sooner, the better. It makes sense to take charge of your future and make your plans and feelings known while you’re very much in control of your life, before health or other issues make that more difficult. This article provides a checklist of topics to help facilitate that conversation. Key Takeaways Your retirement plans don’t affect just you; they also have an impact on your children.As you get ready to retire, you may want to share certain financial and other information with your kids. You may also want to give one or more of them the authority to make financial and medical decisions on your behalf should you become impaired someday.Among the financial matters that can be important to discuss: your home, your debts, your investment assets, your insurance, and any business that you own. Your Home For many people, retirement is a time for downsizing to a smaller home. Your current abode may be larger than you need, too costly to maintain, subject to crushing property taxes, or otherwise impractical for your new life. You may also yearn to move to another part of the country or toanother country altogether. Or you might be considering a continuing care retirement community—if not right away, then in a few years. This is both an emotional and a practical matter. On the emotional side, you and your kids may be attached to the old place and reluctant to part with it. On the practical side, one of them might have dreams of owning it themselves someday. Perhaps you even have an adult child who’s currently living with you. If nothing else, the kids may still be storing possessions in your home that they’ll need to move elsewhere. Ultimately, of course, it’s your home and your decision. Your home may be the most valuable asset you possess, and you may need the equity you’ve built up in it over the years to fund a comfortable retirement for yourself. If you’re in the enviable—and unusual—position of not needing that equity, then giving the home to a child can be an option. Bear in mind, however, that if they receive the home as a gift while you’re living, then they won’t benefit from the same step-up in cost basis that they would if they inherited it after your death. As a consequence, they could face a big tax bill if they later sell the home.  If you wish to, you can also sell your home to a child—although, if they pay less than the home’s market value, the difference is considered a gift of equity. Either giving the home away outright or selling it at a substantial discount can trigger gift taxes—which you, not the child, would have to pay. However, in 2023, you’re allowed a lifetime limit of $12.92 million on gifts and inheritances combined (twice that for married couples), so you may be able to avoid gift taxes unless you plan to make other substantial gifts and leave a very large inheritance. Your Debts More and more Americans head into retirement these days with mortgage, credit card, or even student loan debt. That is your problem, not your kids’, but it’s worth making them aware of it because unless you pay it off before you die, your estate will have to, reducing any inheritance that they may be anticipating.   If they inherit your home and you still have a mortgage on it, that mortgage may not be assumable, so your heirs will have to pay it off, possibly by taking out a new loan on their own. Same for any home equity loan or home equity line of credit (HELOC). If you have a reverse mortgage, your children will need to repay its balance if they wish to keep the home in the family. In fact, if you have to move out of the house for more than 12 months, such as to receive rehabilitative care after an injury, the loan will come due. Your Retirement Accounts and Other Financial Assets Chances are that you’re counting on the money you saved and invested during your working years to supplement your Social Security and pension income (if you’re lucky enough to have a defined-benefit pension). In fact, the Internal Revenue Service (IRS) rules on required minimum distributions (RMDs) mean that you’ll have to withdraw a certain amount of money from your traditional (non-Roth) retirement accounts each year starting at age 73 whether you need to or not (the age was just raised from 72 with passage of the SECURE Act 2.0, part of the Consolidated Appropriations Act of 2023). You’ll also have to pay income tax on those withdrawals, further reducing your kids’ potential inheritances. Just in case you’re incapacitated at some point or die suddenly, you may want to give your children a list of the financial institutions where your money is held. That can save them a lot of detective work and reduce the possibility of any accounts getting lost.   You can leave whatever money remains in your individual retirement accounts (IRAs) to your kids by designating them as your beneficiaries with the financial institution that serves as the accounts’ custodian. Those designations take precedence over your will and can allow your heirs to receive the money before your will is probated. In addition, you might call your beneficiaries’ attention to the rules on inherited IRAs, which also involve required minimum distributions, so they aren’t surprised when the time comes and don’t run afoul of the IRS.  On a more delicate topic, you might also want to discuss how much of that money you hope to leave them someday. Just insert one big caveat: If you live long enough, you could end up spending all or most of it. Your Life Insurance As with your investments, it’s wise to tell your children about any insurance policies you have and where they are located. Life insurance, like retirement accounts, becomes payable upon your death to the beneficiary or beneficiaries you’ve chosen. It can, among other things, provide cash to cover funeral expenses or pay off outstanding medical bills.  Your Healthcare Plans You may enter retirement in tip-top shape, but somewhere down the line begin to face one or more serious health issues. Having a child who can drive you to appointments, if necessary, or help you deal with all the paperwork can make life a lot easier. At that point, if not sooner, you should brief them on the health coverage you have available to pay the bills. If you’re age 65 or older, that is probably Medicare. As you likely know, but your kids may not, Medicare is the federal health insurance program for most Americans age 65 or older. You can choose an original Medicare plan (Parts A and B) or a private Medicare Advantage plan (Part C). In addition, you have the option to buy Medicare drug coverage (Part D) or a Medicare supplement plan (Medigap) to cover some of the costs that original Medicare does not. It’s worth noting—and informing your kids—that while Medicare covers many things, it will pay for nursing home care or nonmedical home care only in extremely rare instances. A private long-term care (LTC) policy, if you have one, may defray some or most of those costs. If you do have an LTC policy, also tell your kids where you keep it or make a copy for them. If you become disabled, they may have to file the papers that trigger LTC payments from the insurance company. If you end up largely depleting your assets during your retirement years, you may become eligible for Medicaid, the federal and state health insurance program for low-income Americans. It provides more coverage for long-term care than Medicare does. Even without becoming impoverished, retirees can sometimes make themselves Medicaid eligible by establishing trusts, strategically spending down their assets, making gifts, and other means. If you have any such plans in mind, let your kids know. If You Become Incapacitated At some point, you or your spouse might become physically or cognitively incapacitated. As a precautionary measure, you could give one or more of your children the authority to make medical or financial decisions on your behalf, through a power of attorney, healthcare power of attorney, or similar legal documents. Because events can move quickly in these situations, it’s smart to prepare the papers—and your kids—well in advance. Part of that is making sure that your kids understand your preferences: Would you be comfortable moving into an assisted living facility or a nursing home (and do you have a particular one picked out)? Or would you rather stay in your own home with the help of an aide, if that’s possible? Depending on the severity of your condition, they may not be able to honor your wishes, but you will at least have made them known. Your Will If you don’t have a last will and testament (and a surprising percentage of Americans do not), you should make one. If you have a will that was drafted years ago, it could be time to revisit and revise it. You don’t have to share the contents of your will with your kids, but there are some good reasons why you might want to. One is if you’re splitting your estate unevenly. There’s nothing wrong with leaving your underpaid schoolteacher son a greater share than your set-for-life investment-banker daughter, but you’ll avoid hurt feelings if you explain yourself while you still can. Similarly, if you have a child who is unable to care for themself, you’ll want to make appropriate provisions for them and let their siblings know about it. If you’re making substantial charitable bequests that would otherwise go to your kids, that’s also worth discussing. Finally, not to be unduly grim about it, you’ll also do your kids a favor if you write out instructions on how you want your funeral, burial, or other final arrangements to be handled. Be sure to include information on whatever financial resources you may be providing to cover the costs. $7,848 Median cost of a funeral with viewing and burial in 2021, according to the National Funeral Directors Association. That figure doesn’t include cemetery costs. Any Business That You Own  If you have a business, you may intend to sell it, either to fund your retirement or because none of your kids is interested in taking it over from you. Whatever you expect to do, you’ll want to discuss it with your children well beforehand and put a plan in place as soon as possible. Both selling a business and succession planning are complex topics and beyond the scope of this article, but Investopedia has practical information and advice on them, including: 7 Steps to Selling Your Small Business Succession Planning Basics: How It Works, Why It’s Important How to Create a Business Succession Plan How long is the average retirement? That depends, of course, on when people retire. Suppose you plan to retire at age 65. The average life expectancy of an American man at age 65 is another 18.09 years, while for women, it’s 20.70 years, according to the Social Security Administration. However, with increasing numbers of people living past age 100 these days, retirement can often last for 30 or more years. For financial planning purposes, it’s usually best to err on the optimistic side and assume that you’ll be retired—and that your money will need to support you—for at least two decades and possibly longer. Can you give your house to your child but still continue to live in it? Yes. One way to do that is to put the home in a qualified personal residence trust (QPRT) and name your child as the trust’s beneficiary. Can you have multiple beneficiaries on a life insurance policy? Yes, you can usually have as many as you’d like. For example, you might split the policy’s proceeds among your children, allocating a specific percentage to each of them. What happens to a traditional pension after you die? If you’ve elected joint-and-survivor (also known as joint-life) payouts, your survivor will continue to receive money after you die. That person will typically be your spouse if you have one, but it can also be a child, other relative, or nonrelative. The Bottom Line If you plan to retire soon (or already have), consider briefing your children on your finances, including how you expect to pay for costly healthcare should you need it. How much you divulge is up to you, but you can head off some unpleasant surprises, ill feelings, and sibling squabbles if they at least have the big picture. You may also be helping them prepare for their own retirements someday.

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

Target-Date Funds: Advantages and Disadvantages

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/target-date_fund.asp" rel="noopener noreferrer">Target-date funds</a> are a popular choice among investors for retirement savings, but like any investment they have pros and cons that need to be considered. </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-target-date-funds-an-overview"></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"> Target-Date Funds: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_4-0"> Target retirement funds are designed to be the only investment vehicle that an investor uses to save for retirement. Also referred to as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/life_cycle_funds.asp">life-cycle funds</a> or age-based funds, the concept is simple: Pick a fund, put as much as you can into the fund, then forget about it until you reach retirement age. </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"> Of course, nothing is ever as simple as it seems. While simplicity is one of the pros of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/target-date-funds-vs-lifecycle-funds-5409267">these funds</a>, investors still need to stay on top of fees, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/assetallocation.asp">asset allocation</a>, and the potential risks. </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>Target-date funds provide a simple way to save for retirement. </li><li>They offer exposure to a variety of markets, active and passive management, and a selection of asset allocation.</li><li>Despite their simplicity, investors who use target-date funds need to stay on top of asset allocation, fees, and investment risk. </li></ul></div></div></div> <span class="heading-toc" id="toc-advantages-of-target-date-funds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-heading__text"> Advantages of Target-Date Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> There are two <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-advisors/073015/targetdate-vs-index-funds-one-better.asp">types of target-date funds</a> from which you can choose: target date and target risk. </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"> Simplicity of Choice </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> A target-date fund operates under an asset allocation formula that assumes you will retire in a certain year and adjusts its asset allocation model as it gets closer to that year. The target year is identified in the name of the fund. So, for instance, if you plan to retire in or near 2045, you would pick a fund with 2045 in its name. </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"> With target-risk funds, you generally have three groups from which to choose. Each group is based on your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/risktolerance.asp" rel="noopener noreferrer">risk tolerance</a>, whether you are a conservative, aggressive, or moderate risk-taker. If you decide later that your risk tolerance has or needs to change as you get closer to retirement, you have the option of switching to a different risk level. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-subheading__text"> Something for Everyone </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Target retirement funds offer something for everyone. You can find funds that feature <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/activemanagement.asp" rel="noopener noreferrer">active management</a>, <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/passivemanagement.asp" rel="noopener noreferrer">passive management</a>, exposure to a variety of markets, and a selection of asset allocation options are all available. Investors who are comfortable designating a percentage of their retirement, then forgetting about it for 30 years may be completely comfortable with target retirement funds. In addition, investors who do not mind doing a little research might find the exact fund they are looking for in the target fund lineup. </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>Just because the fund says 2045 on the label does not mean that a raging <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bullmarket.asp">bull market</a> will start and end just in time to keep the fund at the top of its game—nor does it mean that a severe <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bearmarket.asp">bear market</a> will not hit in 2044 and decimate the fund's holdings.</p></div></div></div> <span class="heading-toc" id="toc-disadvantages-of-target-date-funds"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_23-0"> <span class="mntl-sc-block-heading__text"> Disadvantages of Target-Date Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> There are several disadvantages that investors need to consider, including: </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"> Not All Funds Are Created Equal </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The first challenge with target-date funds is that all funds are not created equal. A sample of approximate holdings (as of Aug. 31, 2020) with a target date of 2045 demonstrates this point. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_29-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <tbody data-check="-1"> <tr> <td><strong>Fund</strong></td> <td><strong>Equity Proportion</strong></td> <td><strong>Fixed Income Proportion</strong></td> <td><strong>Equity Allocation</strong></td> <td><strong>Fixed Income Allocation</strong></td> </tr> <tr> <td><strong><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://fundresearch.fidelity.com/mutual-funds/composition/315792424" rel="sponsored nofollow">Fidelity Freedom® 2045</a></strong></td> <td>92.9%</td> <td>7.1%</td> <td>51.78% U.S. Equities</td> <td>6.0% Bonds</td> </tr> <tr> <td> </td> <td> </td> <td> </td> <td>41.16% International Equities</td> <td>1.1% Short-Term Debt &amp; Net Other Assets</td> </tr> <tr> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.troweprice.com/financial-intermediary/us/en/investments/mutual-funds/us-products/retirement-2045-fund.html#primary-asset-allocation" rel="sponsored nofollow"><strong>T. Rowe Price Retirement 2045 Fund</strong></a></td> <td>93.1%</td> <td>7.0%</td> <td>62.9% US Equities</td> <td>2.3% International &amp; High Yield Bonds</td> </tr> <tr> <td> </td> <td> </td> <td> </td> <td>30.2% International Equities</td> <td>3.0% Investment Grade Bonds</td> </tr> <tr> <td> </td> <td> </td> <td> </td> <td> </td> <td>1.7% Reserves</td> </tr> <tr> <td> </td> <td> </td> <td> </td> <td> </td> <td> </td> </tr> <tr> <td><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://investor.vanguard.com/mutual-funds/profile/VTIVX" rel="sponsored nofollow"><strong>Vanguard Target Retirement 2045</strong></a></td> <td>91%</td> <td>9.0%</td> <td>55.3% Total <a class="termLink" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stockmarket.asp">Stock Market</a> Index</td> <td>6.0% Total <a class="termLink" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bondmarket.asp">Bond Market</a> II Index</td> </tr> <tr> <td> </td> <td> </td> <td> </td> <td>35.7% Total International Stock Index</td> <td>3.0% Total International Bond Index</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> While each of these funds claims to be a good choice for investors seeking to retire in 2045, the contents of the funds are different. Keep in mind that this proportion may vary even more over time. That variance can be of particular concern to retirees. One retiree may have enough money on hand to invest strictly in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond.asp" rel="noopener noreferrer">bonds</a> and other fixed-income securities. Another, requiring both growth and income, may need an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/equity.asp" rel="noopener noreferrer">equity</a> component to keep the portfolio on track. A fund that meets the needs of one of these investors is unlikely to meet the needs of the other. </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"> Beyond holdings, the funds also differ in terms of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/investing_style.asp" rel="noopener noreferrer">investment style</a>. For instance, depending on what you are looking for, you can find a fund that is is made up entirely of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-advisors/082515/index-or-target-date-funds-401ks-which-better-vfinx-fusex.asp" rel="noopener noreferrer">index funds</a>. Based on algorithms, such a fund is likely to have lower fees (see below). But investors who prefer active management, with actual human beings tracking market trends and making choices would need to shop elsewhere. Finding a fund with the right date is just the beginning of the decision process. </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"> Expenses Can Add Up </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Funds also differ in terms of expenses. Since each is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fundsoffunds.asp" rel="noopener noreferrer">fund of funds</a>, the portfolio you buy into consists of multiple underlying mutual funds, each of which has an <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/expenseratio.asp" rel="noopener noreferrer">expense ratio</a>. Depending on how the fund family calculates fees, those expenses can add up quickly. For instance, one fund company may charge 0.21% of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/aum.asp" rel="noopener noreferrer">assets under management</a> while another may charge twice or even three times that amount. As such, expenses must be a point of consideration when choosing these funds. </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"> Underlying Funds Offered By Same Company </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> Beyond expenses, another consideration is that each of the underlying funds in a target portfolio is offered by the same fund company. Every target fund in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/110315/3-best-vanguard-target-retirement-funds.asp">Vanguard's lineup</a> has nothing but other Vanguard funds inside the portfolio. The same goes for <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fidelity-vs-t-rowe-price-4587946">the Fidelity and T. Rowe funds</a>. In an era with more than a few corporate scandals on record, you are trusting all of your assets to a single-fund family. </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-special-considerations"></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"> Special Considerations </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Choosing a fund is one thing, but correctly implementing your retirement savings strategy is another thing altogether. </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"> Effect of Other Investments </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Investors who have their assets in a target retirement fund need to be aware of how other retirement investments could skew their asset allocation. For example, if a target fund has an 80% stock and a 20% bond asset allocation, but the investor purchases a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp" rel="noopener noreferrer">certificate of deposit</a> with 10% of their retirement assets, this effectively decreases the stock allocation of the investor's overall portfolio and increases the bond allocation. </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"> Pre-Retirement Asset Allocation </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Even investors who use the funds as their sole retirement investment vehicle need to pay <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/news/dangers-putting-your-401k-autopilot/" rel="noopener noreferrer">attention to the overall asset allocation</a> because this allocation changes as the target date nears. Generally, funds are designed to move to a more conservative funding position to preserve assets as the investor gets closer to the target date. If retirement is fast approaching but the balance in the investor's account isn't enough to meet their retirement needs, this allocation change will leave the investor with a fund that may have no hope of providing the type of returns required to keep those retirement plans on track. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_50-0"> <span class="mntl-sc-block-subheading__text"> Post-Retirement Investing </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Similar concerns emerge once retirement age is reached. While many investors view these funds as being designed to provide for retirement on or around a certain date, assets can be left in the fund after retirement. Here again, the size of the nest egg may indicate that a conservative strategy is not enough to keep the bills paid and the lights on. </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"> Last but not least, reaching retirement by the chosen date is not just a function of choosing a fund and putting all of your money into that fund, it is also about putting the right amount of money into that fund. Regardless of the chosen date, an under-funded nest egg will simply not support a financially secure retirement. </p></div>

[Target-date funds](https://www.investopedia.com/terms/t/target-date_fund.asp) are a popular choice among investors for retirement savings, but like any investment they have pros and cons that need to be considered. ## Target-Date Funds: An Overview Target retirement funds are designed to be the only investment vehicle that an investor uses to save for retirement. Also referred to as [life-cycle funds](https://www.investopedia.com/terms/l/life_cycle_funds.asp) or age-based funds, the concept is simple: Pick a fund, put as much as you can into the fund, then forget about it until you reach retirement age. Of course, nothing is ever as simple as it seems. While simplicity is one of the pros of [these funds](https://www.investopedia.com/target-date-funds-vs-lifecycle-funds-5409267), investors still need to stay on top of fees, [asset allocation](https://www.investopedia.com/terms/a/assetallocation.asp), and the potential risks. ### Key Takeaways * Target-date funds provide a simple way to save for retirement. * They offer exposure to a variety of markets, active and passive management, and a selection of asset allocation. * Despite their simplicity, investors who use target-date funds need to stay on top of asset allocation, fees, and investment risk. ## Advantages of Target-Date Funds There are two [types of target-date funds](https://www.investopedia.com/articles/financial-advisors/073015/targetdate-vs-index-funds-one-better.asp) from which you can choose: target date and target risk. ### Simplicity of Choice A target-date fund operates under an asset allocation formula that assumes you will retire in a certain year and adjusts its asset allocation model as it gets closer to that year. The target year is identified in the name of the fund. So, for instance, if you plan to retire in or near 2045, you would pick a fund with 2045 in its name. With target-risk funds, you generally have three groups from which to choose. Each group is based on your [risk tolerance](https://www.investopedia.com/terms/r/risktolerance.asp), whether you are a conservative, aggressive, or moderate risk-taker. If you decide later that your risk tolerance has or needs to change as you get closer to retirement, you have the option of switching to a different risk level. ### Something for Everyone Target retirement funds offer something for everyone. You can find funds that feature [active management](https://www.investopedia.com/terms/a/activemanagement.asp), [passive management](https://www.investopedia.com/terms/p/passivemanagement.asp), exposure to a variety of markets, and a selection of asset allocation options are all available. Investors who are comfortable designating a percentage of their retirement, then forgetting about it for 30 years may be completely comfortable with target retirement funds. In addition, investors who do not mind doing a little research might find the exact fund they are looking for in the target fund lineup. ### Just because the fund says 2045 on the label does not mean that a raging [bull market](https://www.investopedia.com/terms/b/bullmarket.asp) will start and end just in time to keep the fund at the top of its game—nor does it mean that a severe [bear market](https://www.investopedia.com/terms/b/bearmarket.asp) will not hit in 2044 and decimate the fund's holdings. ## Disadvantages of Target-Date Funds There are several disadvantages that investors need to consider, including: ### Not All Funds Are Created Equal The first challenge with target-date funds is that all funds are not created equal. A sample of approximate holdings (as of Aug. 31, 2020) with a target date of 2045 demonstrates this point. | **Fund** | **Equity Proportion** | **Fixed Income Proportion** | **Equity Allocation** | **Fixed Income Allocation** | | --- | --- | --- | --- | --- | | **[Fidelity Freedom® 2045](https://fundresearch.fidelity.com/mutual-funds/composition/315792424)** | 92.9% | 7.1% | 51.78% U.S. Equities | 6.0% Bonds | | | | | 41.16% International Equities | 1.1% Short-Term Debt & Net Other Assets | | | | | | | | [**T. Rowe Price Retirement 2045 Fund**](https://www.troweprice.com/financial-intermediary/us/en/investments/mutual-funds/us-products/retirement-2045-fund.html#primary-asset-allocation) | 93.1% | 7.0% | 62.9% US Equities | 2.3% International & High Yield Bonds | | | | | 30.2% International Equities | 3.0% Investment Grade Bonds | | | | | | 1.7% Reserves | | | | | | | | [**Vanguard Target Retirement 2045**](https://investor.vanguard.com/mutual-funds/profile/VTIVX) | 91% | 9.0% | 55.3% Total [Stock Market](https://www.investopedia.com/terms/s/stockmarket.asp) Index | 6.0% Total [Bond Market](https://www.investopedia.com/terms/b/bondmarket.asp) II Index | | | | | 35.7% Total International Stock Index | 3.0% Total International Bond Index | While each of these funds claims to be a good choice for investors seeking to retire in 2045, the contents of the funds are different. Keep in mind that this proportion may vary even more over time. That variance can be of particular concern to retirees. One retiree may have enough money on hand to invest strictly in [bonds](https://www.investopedia.com/terms/b/bond.asp) and other fixed-income securities. Another, requiring both growth and income, may need an [equity](https://www.investopedia.com/terms/e/equity.asp) component to keep the portfolio on track. A fund that meets the needs of one of these investors is unlikely to meet the needs of the other. Beyond holdings, the funds also differ in terms of [investment style](https://www.investopedia.com/terms/i/investing_style.asp). For instance, depending on what you are looking for, you can find a fund that is is made up entirely of [index funds](https://www.investopedia.com/articles/financial-advisors/082515/index-or-target-date-funds-401ks-which-better-vfinx-fusex.asp). Based on algorithms, such a fund is likely to have lower fees (see below). But investors who prefer active management, with actual human beings tracking market trends and making choices would need to shop elsewhere. Finding a fund with the right date is just the beginning of the decision process. ### Expenses Can Add Up Funds also differ in terms of expenses. Since each is a [fund of funds](https://www.investopedia.com/terms/f/fundsoffunds.asp), the portfolio you buy into consists of multiple underlying mutual funds, each of which has an [expense ratio](https://www.investopedia.com/terms/e/expenseratio.asp). Depending on how the fund family calculates fees, those expenses can add up quickly. For instance, one fund company may charge 0.21% of [assets under management](https://www.investopedia.com/terms/a/aum.asp) while another may charge twice or even three times that amount. As such, expenses must be a point of consideration when choosing these funds. ### Underlying Funds Offered By Same Company Beyond expenses, another consideration is that each of the underlying funds in a target portfolio is offered by the same fund company. Every target fund in [Vanguard's lineup](https://www.investopedia.com/articles/investing/110315/3-best-vanguard-target-retirement-funds.asp) has nothing but other Vanguard funds inside the portfolio. The same goes for [the Fidelity and T. Rowe funds](https://www.investopedia.com/fidelity-vs-t-rowe-price-4587946). In an era with more than a few corporate scandals on record, you are trusting all of your assets to a single-fund family. ## Special Considerations Choosing a fund is one thing, but correctly implementing your retirement savings strategy is another thing altogether. ### Effect of Other Investments Investors who have their assets in a target retirement fund need to be aware of how other retirement investments could skew their asset allocation. For example, if a target fund has an 80% stock and a 20% bond asset allocation, but the investor purchases a [certificate of deposit](https://www.investopedia.com/terms/c/certificateofdeposit.asp) with 10% of their retirement assets, this effectively decreases the stock allocation of the investor's overall portfolio and increases the bond allocation. ### Pre-Retirement Asset Allocation Even investors who use the funds as their sole retirement investment vehicle need to pay [attention to the overall asset allocation](https://www.investopedia.com/news/dangers-putting-your-401k-autopilot/) because this allocation changes as the target date nears. Generally, funds are designed to move to a more conservative funding position to preserve assets as the investor gets closer to the target date. If retirement is fast approaching but the balance in the investor's account isn't enough to meet their retirement needs, this allocation change will leave the investor with a fund that may have no hope of providing the type of returns required to keep those retirement plans on track. ### Post-Retirement Investing Similar concerns emerge once retirement age is reached. While many investors view these funds as being designed to provide for retirement on or around a certain date, assets can be left in the fund after retirement. Here again, the size of the nest egg may indicate that a conservative strategy is not enough to keep the bills paid and the lights on. Last but not least, reaching retirement by the chosen date is not just a function of choosing a fund and putting all of your money into that fund, it is also about putting the right amount of money into that fund. Regardless of the chosen date, an under-funded nest egg will simply not support a financially secure retirement.

Target-date funds are a popular choice among investors for retirement savings, but like any investment they have pros and cons that need to be considered. Target-Date Funds: An Overview Target retirement funds are designed to be the only investment vehicle that an investor uses to save for retirement. Also referred to as life-cycle funds or age-based funds, the concept is simple: Pick a fund, put as much as you can into the fund, then forget about it until you reach retirement age. Of course, nothing is ever as simple as it seems. While simplicity is one of the pros of these funds, investors still need to stay on top of fees, asset allocation, and the potential risks. Key Takeaways Target-date funds provide a simple way to save for retirement. They offer exposure to a variety of markets, active and passive management, and a selection of asset allocation.Despite their simplicity, investors who use target-date funds need to stay on top of asset allocation, fees, and investment risk. Advantages of Target-Date Funds There are two types of target-date funds from which you can choose: target date and target risk. Simplicity of Choice A target-date fund operates under an asset allocation formula that assumes you will retire in a certain year and adjusts its asset allocation model as it gets closer to that year. The target year is identified in the name of the fund. So, for instance, if you plan to retire in or near 2045, you would pick a fund with 2045 in its name. With target-risk funds, you generally have three groups from which to choose. Each group is based on your risk tolerance, whether you are a conservative, aggressive, or moderate risk-taker. If you decide later that your risk tolerance has or needs to change as you get closer to retirement, you have the option of switching to a different risk level. Something for Everyone Target retirement funds offer something for everyone. You can find funds that feature active management, passive management, exposure to a variety of markets, and a selection of asset allocation options are all available. Investors who are comfortable designating a percentage of their retirement, then forgetting about it for 30 years may be completely comfortable with target retirement funds. In addition, investors who do not mind doing a little research might find the exact fund they are looking for in the target fund lineup. Just because the fund says 2045 on the label does not mean that a raging bull market will start and end just in time to keep the fund at the top of its game—nor does it mean that a severe bear market will not hit in 2044 and decimate the fund's holdings. Disadvantages of Target-Date Funds There are several disadvantages that investors need to consider, including: Not All Funds Are Created Equal The first challenge with target-date funds is that all funds are not created equal. A sample of approximate holdings (as of Aug. 31, 2020) with a target date of 2045 demonstrates this point. Fund Equity Proportion Fixed Income Proportion Equity Allocation Fixed Income Allocation Fidelity Freedom® 2045 92.9% 7.1% 51.78% U.S. Equities 6.0% Bonds       41.16% International Equities 1.1% Short-Term Debt & Net Other Assets           T. Rowe Price Retirement 2045 Fund 93.1% 7.0% 62.9% US Equities 2.3% International & High Yield Bonds       30.2% International Equities 3.0% Investment Grade Bonds         1.7% Reserves           Vanguard Target Retirement 2045 91% 9.0% 55.3% Total Stock Market Index 6.0% Total Bond Market II Index       35.7% Total International Stock Index 3.0% Total International Bond Index While each of these funds claims to be a good choice for investors seeking to retire in 2045, the contents of the funds are different. Keep in mind that this proportion may vary even more over time. That variance can be of particular concern to retirees. One retiree may have enough money on hand to invest strictly in bonds and other fixed-income securities. Another, requiring both growth and income, may need an equity component to keep the portfolio on track. A fund that meets the needs of one of these investors is unlikely to meet the needs of the other. Beyond holdings, the funds also differ in terms of investment style. For instance, depending on what you are looking for, you can find a fund that is is made up entirely of index funds. Based on algorithms, such a fund is likely to have lower fees (see below). But investors who prefer active management, with actual human beings tracking market trends and making choices would need to shop elsewhere. Finding a fund with the right date is just the beginning of the decision process. Expenses Can Add Up Funds also differ in terms of expenses. Since each is a fund of funds, the portfolio you buy into consists of multiple underlying mutual funds, each of which has an expense ratio. Depending on how the fund family calculates fees, those expenses can add up quickly. For instance, one fund company may charge 0.21% of assets under management while another may charge twice or even three times that amount. As such, expenses must be a point of consideration when choosing these funds. Underlying Funds Offered By Same Company Beyond expenses, another consideration is that each of the underlying funds in a target portfolio is offered by the same fund company. Every target fund in Vanguard's lineup has nothing but other Vanguard funds inside the portfolio. The same goes for the Fidelity and T. Rowe funds. In an era with more than a few corporate scandals on record, you are trusting all of your assets to a single-fund family. Special Considerations Choosing a fund is one thing, but correctly implementing your retirement savings strategy is another thing altogether. Effect of Other Investments Investors who have their assets in a target retirement fund need to be aware of how other retirement investments could skew their asset allocation. For example, if a target fund has an 80% stock and a 20% bond asset allocation, but the investor purchases a certificate of deposit with 10% of their retirement assets, this effectively decreases the stock allocation of the investor's overall portfolio and increases the bond allocation. Pre-Retirement Asset Allocation Even investors who use the funds as their sole retirement investment vehicle need to pay attention to the overall asset allocation because this allocation changes as the target date nears. Generally, funds are designed to move to a more conservative funding position to preserve assets as the investor gets closer to the target date. If retirement is fast approaching but the balance in the investor's account isn't enough to meet their retirement needs, this allocation change will leave the investor with a fund that may have no hope of providing the type of returns required to keep those retirement plans on track. Post-Retirement Investing Similar concerns emerge once retirement age is reached. While many investors view these funds as being designed to provide for retirement on or around a certain date, assets can be left in the fund after retirement. Here again, the size of the nest egg may indicate that a conservative strategy is not enough to keep the bills paid and the lights on. Last but not least, reaching retirement by the chosen date is not just a function of choosing a fund and putting all of your money into that fund, it is also about putting the right amount of money into that fund. Regardless of the chosen date, an under-funded nest egg will simply not support a financially secure retirement.

https://www.investopedia.com/terms/c/credit-denial.asp

Credit Denial: What it Means, How it Works, Example

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-what-is-credit-denial"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Credit Denial? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The term credit denial refers to the rejection of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-application.asp">credit application</a> by a prospective lender. Financial companies issue denials to applicants who aren't <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit-worthiness.asp">creditworthy</a>. The majority of denials are the result of previous blemishes on a borrower's credit history. A credit denial can also stem from an incomplete credit application or lack of any kind of borrowing history that would provide evidence of past repayment experience. Depending on the circumstances, consumers may be able to reverse a denial and still obtain credit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_3-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_4-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_5-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Credit denial is the rejection of a credit application by a lender.</li><li>Credit denial is common for individuals who miss or delay payments or default entirely on their debts.</li><li>Other creditors deny consumers credit because of missing or incorrect information or a lack of credit history. </li><li>Creditors must notify consumers of the reasons behind a denial as mandated by the Equal Credit Opportunity Act. </li><li>You can appeal the decision to deny credit directly through your lender. </li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-credit-denials"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding Credit Denials </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> If you're looking for a new credit card, car loan, mortgage, or any other type of credit, the lender requires you to fill out a credit application. You must include your personal details, <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>, employment history, and any other information deemed necessary in order to facilitate the application process. Lenders approve and advance <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit.asp">credit</a> to those who have good credit scores and repayment ability. </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"> Credit denial is common for individuals who miss or delay their payments or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/default2.asp">default</a> entirely on their previous debt obligations. When they apply for new credit, such as a store credit card to purchase a brand new television, they will most likely be denied because the merchant doesn't want to bear 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> that the customer won't make some or all of the scheduled payments for the expensive product. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/why-would-personal-loan-declined-7972355">Denial can also occur for other reasons</a>, including missing or incorrect information in the customer's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditreport.asp">credit report</a>. A lack of credit history is also a reason to reject a credit application, as a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/lender.asp">lender</a> simply doesn't have enough information on an applicant's past repayment behavior to approve a request for credit. This can occur when someone is just starting out in their 20's, recently moved to the U.S., or never had any credit before. </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 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ecoa.asp">Equal Credit Opportunity Act (ECOA)</a> mandates that lenders that deny credit to their applicants must state their reason for the rejection.<span class="ql-inline-citation" data-cite="2"></span> Borrowers who are rejected because of adverse reports from other creditors have the right to review a copy of their credit report.<span class="ql-inline-citation" data-cite="3"></span> More information on how to turn your rejection into an approval is listed below. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_15-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-warning" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_16-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>It is illegal for lenders to discriminate against anyone seeking credit based on their race, color, religion, country of origin, sex, marital status, age, or if they receive public assistance. If you feel you have been discriminated against by a lender, contact your state's attorney general's office.<span class="ql-inline-citation" data-cite="5"></span></p></div></div></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_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"> Receiving a credit denial isn't a be-all-end-all situation. Just because you are denied credit doesn't mean that you won't get any at all. But it helps to review the reasons why you were rejected. Understanding the lender's rationale can help you avoid further rejections and prevent more 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_19-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> You may be able to amend your application if there is missing or incorrect information and turn your rejection into an approval fairly quickly. Fix any errors or provide the lender with any information the lender says is missing. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> If you're rejected because of the lack of credit history, a short credit report, or a spotty <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/repayment.asp">repayment</a> history, you will need to work on your credit score to reach a minimum threshold where their future credit applications are no longer denied. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_23-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> In other cases, check with the lender if it is willing to provide you with a form of secured debt, such as a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/securedcard.asp">secured credit card</a>. This may require you to make a deposit or 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> that is valued at or worth the credit line in order to access your new credit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> You can also ask to speak directly to the lender's credit department and make an appeal for approval. Another option is to go through a different lender for the same product. Different lenders have different criteria, which means one may approve your application even if another doesn't. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_28-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_29-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>Although rejections do not hurt your credit on their own, having too many inquiries that do not result in open accounts on your credit report will put a dent in your credit score.</p></div></div></div> <span class="heading-toc" id="toc-example-of-credit-denial"></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 Credit Denial </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> Here's a hypothetical example to show credit denials work. Let's say Julia has a history of missed payments on her <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/credit-card-4689721">credit card</a> and her account was suspended by the issuer because of various personal and monetary problems. That negative behavior was reported to all three <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/creditbureau.asp">credit bureaus</a>. </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 she applies for another card at a department store near home, the lender rejects her because of her previous record. The company responsible for the department store's credit cards sends Julia a letter explaining the reasons that her credit application is rejected. </p></div>

## What Is Credit Denial? The term credit denial refers to the rejection of a [credit application](https://www.investopedia.com/terms/c/credit-application.asp) by a prospective lender. Financial companies issue denials to applicants who aren't [creditworthy](https://www.investopedia.com/terms/c/credit-worthiness.asp). The majority of denials are the result of previous blemishes on a borrower's credit history. A credit denial can also stem from an incomplete credit application or lack of any kind of borrowing history that would provide evidence of past repayment experience. Depending on the circumstances, consumers may be able to reverse a denial and still obtain credit. ### Key Takeaways * Credit denial is the rejection of a credit application by a lender. * Credit denial is common for individuals who miss or delay payments or default entirely on their debts. * Other creditors deny consumers credit because of missing or incorrect information or a lack of credit history. * Creditors must notify consumers of the reasons behind a denial as mandated by the Equal Credit Opportunity Act. * You can appeal the decision to deny credit directly through your lender. ## Understanding Credit Denials If you're looking for a new credit card, car loan, mortgage, or any other type of credit, the lender requires you to fill out a credit application. You must include your personal details, [Social Security number (SSN)](https://www.investopedia.com/terms/s/ssn.asp), employment history, and any other information deemed necessary in order to facilitate the application process. Lenders approve and advance [credit](https://www.investopedia.com/terms/c/credit.asp) to those who have good credit scores and repayment ability. Credit denial is common for individuals who miss or delay their payments or [default](https://www.investopedia.com/terms/d/default2.asp) entirely on their previous debt obligations. When they apply for new credit, such as a store credit card to purchase a brand new television, they will most likely be denied because the merchant doesn't want to bear the [risk](https://www.investopedia.com/terms/r/risk.asp) that the customer won't make some or all of the scheduled payments for the expensive product. [Denial can also occur for other reasons](https://www.investopedia.com/why-would-personal-loan-declined-7972355), including missing or incorrect information in the customer's [credit report](https://www.investopedia.com/terms/c/creditreport.asp). A lack of credit history is also a reason to reject a credit application, as a [lender](https://www.investopedia.com/terms/l/lender.asp) simply doesn't have enough information on an applicant's past repayment behavior to approve a request for credit. This can occur when someone is just starting out in their 20's, recently moved to the U.S., or never had any credit before. The [Equal Credit Opportunity Act (ECOA)](https://www.investopedia.com/terms/e/ecoa.asp) mandates that lenders that deny credit to their applicants must state their reason for the rejection. Borrowers who are rejected because of adverse reports from other creditors have the right to review a copy of their credit report. More information on how to turn your rejection into an approval is listed below. ### It is illegal for lenders to discriminate against anyone seeking credit based on their race, color, religion, country of origin, sex, marital status, age, or if they receive public assistance. If you feel you have been discriminated against by a lender, contact your state's attorney general's office. ## Special Considerations Receiving a credit denial isn't a be-all-end-all situation. Just because you are denied credit doesn't mean that you won't get any at all. But it helps to review the reasons why you were rejected. Understanding the lender's rationale can help you avoid further rejections and prevent more damage to your [credit score](https://www.investopedia.com/terms/c/credit_score.asp). You may be able to amend your application if there is missing or incorrect information and turn your rejection into an approval fairly quickly. Fix any errors or provide the lender with any information the lender says is missing. If you're rejected because of the lack of credit history, a short credit report, or a spotty [repayment](https://www.investopedia.com/terms/r/repayment.asp) history, you will need to work on your credit score to reach a minimum threshold where their future credit applications are no longer denied. In other cases, check with the lender if it is willing to provide you with a form of secured debt, such as a [secured credit card](https://www.investopedia.com/terms/s/securedcard.asp). This may require you to make a deposit or put up [collateral](https://www.investopedia.com/terms/c/collateral.asp) that is valued at or worth the credit line in order to access your new credit. You can also ask to speak directly to the lender's credit department and make an appeal for approval. Another option is to go through a different lender for the same product. Different lenders have different criteria, which means one may approve your application even if another doesn't. ### Although rejections do not hurt your credit on their own, having too many inquiries that do not result in open accounts on your credit report will put a dent in your credit score. ## Example of Credit Denial Here's a hypothetical example to show credit denials work. Let's say Julia has a history of missed payments on her [credit card](https://www.investopedia.com/credit-card-4689721) and her account was suspended by the issuer because of various personal and monetary problems. That negative behavior was reported to all three [credit bureaus](https://www.investopedia.com/terms/c/creditbureau.asp). When she applies for another card at a department store near home, the lender rejects her because of her previous record. The company responsible for the department store's credit cards sends Julia a letter explaining the reasons that her credit application is rejected.

What Is Credit Denial? The term credit denial refers to the rejection of a credit application by a prospective lender. Financial companies issue denials to applicants who aren't creditworthy. The majority of denials are the result of previous blemishes on a borrower's credit history. A credit denial can also stem from an incomplete credit application or lack of any kind of borrowing history that would provide evidence of past repayment experience. Depending on the circumstances, consumers may be able to reverse a denial and still obtain credit. Key Takeaways Credit denial is the rejection of a credit application by a lender.Credit denial is common for individuals who miss or delay payments or default entirely on their debts.Other creditors deny consumers credit because of missing or incorrect information or a lack of credit history. Creditors must notify consumers of the reasons behind a denial as mandated by the Equal Credit Opportunity Act. You can appeal the decision to deny credit directly through your lender. Understanding Credit Denials If you're looking for a new credit card, car loan, mortgage, or any other type of credit, the lender requires you to fill out a credit application. You must include your personal details, Social Security number (SSN), employment history, and any other information deemed necessary in order to facilitate the application process. Lenders approve and advance credit to those who have good credit scores and repayment ability. Credit denial is common for individuals who miss or delay their payments or default entirely on their previous debt obligations. When they apply for new credit, such as a store credit card to purchase a brand new television, they will most likely be denied because the merchant doesn't want to bear the risk that the customer won't make some or all of the scheduled payments for the expensive product. Denial can also occur for other reasons, including missing or incorrect information in the customer's credit report. A lack of credit history is also a reason to reject a credit application, as a lender simply doesn't have enough information on an applicant's past repayment behavior to approve a request for credit. This can occur when someone is just starting out in their 20's, recently moved to the U.S., or never had any credit before. The Equal Credit Opportunity Act (ECOA) mandates that lenders that deny credit to their applicants must state their reason for the rejection. Borrowers who are rejected because of adverse reports from other creditors have the right to review a copy of their credit report. More information on how to turn your rejection into an approval is listed below. It is illegal for lenders to discriminate against anyone seeking credit based on their race, color, religion, country of origin, sex, marital status, age, or if they receive public assistance. If you feel you have been discriminated against by a lender, contact your state's attorney general's office. Special Considerations Receiving a credit denial isn't a be-all-end-all situation. Just because you are denied credit doesn't mean that you won't get any at all. But it helps to review the reasons why you were rejected. Understanding the lender's rationale can help you avoid further rejections and prevent more damage to your credit score. You may be able to amend your application if there is missing or incorrect information and turn your rejection into an approval fairly quickly. Fix any errors or provide the lender with any information the lender says is missing. If you're rejected because of the lack of credit history, a short credit report, or a spotty repayment history, you will need to work on your credit score to reach a minimum threshold where their future credit applications are no longer denied. In other cases, check with the lender if it is willing to provide you with a form of secured debt, such as a secured credit card. This may require you to make a deposit or put up collateral that is valued at or worth the credit line in order to access your new credit. You can also ask to speak directly to the lender's credit department and make an appeal for approval. Another option is to go through a different lender for the same product. Different lenders have different criteria, which means one may approve your application even if another doesn't. Although rejections do not hurt your credit on their own, having too many inquiries that do not result in open accounts on your credit report will put a dent in your credit score. Example of Credit Denial Here's a hypothetical example to show credit denials work. Let's say Julia has a history of missed payments on her credit card and her account was suspended by the issuer because of various personal and monetary problems. That negative behavior was reported to all three credit bureaus. When she applies for another card at a department store near home, the lender rejects her because of her previous record. The company responsible for the department store's credit cards sends Julia a letter explaining the reasons that her credit application is rejected.

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

Trading Effect: 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-trading-effect"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> What Is Trading Effect? </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> The trading effect measures a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/portfoliomanager.asp">portfolio manager's</a> effectiveness by comparing their portfolio returns to that of a chosen <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp">benchmark</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>The trading effect measures a portfolio manager's effectiveness by comparing their portfolio returns to that of a chosen benchmark.</li><li>The trading effect answers the simple question of whether the portfolio manager or investor added value by actively managing the portfolio.</li><li>The trading effect can also be used to determine whether active investing (trading) is better than passive investing.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-trading-effect"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_6-0"> <span class="mntl-sc-block-heading__text"> Understanding Trading Effect </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The trading effect is the difference in performance between an active investor's portfolio and a chosen benchmark. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/activeinvesting.asp">Active investing</a> takes a hands-on approach and requires that someone act in the role of the portfolio manager. With active investing, the aim is to see if the chosen composition of the investor's portfolio, including any alterations that were made during the observed period, performed better or worse than the benchmark. The trading effect can also be used to determine whether active investing (trading) is better than more <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/passiveinvesting.asp">passive</a> buy-and-hold investing strategies. </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 chosen benchmark has to have relevancy to the portfolio being measured and must be widely recognized and used. For example, 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> would be an appropriate benchmark to measure an investor's portfolio that is predominantly comprised of U.S. large-cap <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/equity.asp">equities</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 trading effect serves as a way for investors to quantify a portfolio manager's performance. It answers the simple question of whether the manager (or investor) added value by making adjustments to the portfolio. </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 the benchmark, such as the Dow Jones Corporate Bond Index, outperforms the actively managed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bond.asp">bond</a> portfolio, then the portfolio manager subtracted value for the investor. If the bond portfolio earns more than the bond index, then the changes in portfolio composition have increased investor value, indicating a good management strategy. </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-trading-effect-and-bond-portfolios"></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"> Trading Effect and Bond Portfolios </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> Numerous and complex factors can influence bond portfolio returns. One reason for a lack of bond portfolio performance measures was that, prior to the 1970s, most bond portfolio managers followed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/buyandhold.asp">buy-and-hold</a> strategies, so their performance probably did not differ much. In that era, <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> were relatively stable, so one could gain little from the active management of bond portfolios. The environment in the <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bondmarket.asp">bond market</a> changed considerably in the late 1970s and 1980s when interest rates increased dramatically and became more volatile.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_17-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_18-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_19-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_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 techniques for evaluating stock portfolio performance have been in existence for decades, comparable techniques for examining bond portfolio performance were initiated more recently, when the bond market <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/v/volatility.asp">volatility</a> increased dramatically.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> This change created an incentive to trade bonds, and this trend toward active management led to more dispersed performances by bond portfolio managers. This dispersion in performance, in turn, created a demand for techniques that would help investors evaluate the performance of bond portfolio managers. </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 evaluation models for bonds typically consider the overall market factors and the impact of individual bond selection. This technique for measuring the trading effect breaks down the return based on the bond's <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/duration.asp">duration</a> as a comprehensive <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/riskmeasures.asp">risk measure</a>, but it does not consider differences in the risk of default. </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"> Specifically, the technique does not differentiate between an AAA bond with a duration of eight years and a BBB bond with the same duration, which could clearly affect the performance. A portfolio manager that invested in BBB bonds, for example, could experience a very positive trading effect simply because the bonds were of lower quality. </p></div>

## What Is Trading Effect? The trading effect measures a [portfolio manager's](https://www.investopedia.com/terms/p/portfoliomanager.asp) effectiveness by comparing their portfolio returns to that of a chosen [benchmark](https://www.investopedia.com/terms/b/benchmark.asp). ### Key Takeaways * The trading effect measures a portfolio manager's effectiveness by comparing their portfolio returns to that of a chosen benchmark. * The trading effect answers the simple question of whether the portfolio manager or investor added value by actively managing the portfolio. * The trading effect can also be used to determine whether active investing (trading) is better than passive investing. ## Understanding Trading Effect The trading effect is the difference in performance between an active investor's portfolio and a chosen benchmark. [Active investing](https://www.investopedia.com/terms/a/activeinvesting.asp) takes a hands-on approach and requires that someone act in the role of the portfolio manager. With active investing, the aim is to see if the chosen composition of the investor's portfolio, including any alterations that were made during the observed period, performed better or worse than the benchmark. The trading effect can also be used to determine whether active investing (trading) is better than more [passive](https://www.investopedia.com/terms/p/passiveinvesting.asp) buy-and-hold investing strategies. The chosen benchmark has to have relevancy to the portfolio being measured and must be widely recognized and used. For example, the [S&P 500 index](https://www.investopedia.com/terms/s/sp500.asp) would be an appropriate benchmark to measure an investor's portfolio that is predominantly comprised of U.S. large-cap [equities](https://www.investopedia.com/terms/e/equity.asp). The trading effect serves as a way for investors to quantify a portfolio manager's performance. It answers the simple question of whether the manager (or investor) added value by making adjustments to the portfolio. If the benchmark, such as the Dow Jones Corporate Bond Index, outperforms the actively managed [bond](https://www.investopedia.com/terms/b/bond.asp) portfolio, then the portfolio manager subtracted value for the investor. If the bond portfolio earns more than the bond index, then the changes in portfolio composition have increased investor value, indicating a good management strategy. ## Trading Effect and Bond Portfolios Numerous and complex factors can influence bond portfolio returns. One reason for a lack of bond portfolio performance measures was that, prior to the 1970s, most bond portfolio managers followed [buy-and-hold](https://www.investopedia.com/terms/b/buyandhold.asp) strategies, so their performance probably did not differ much. In that era, [interest rates](https://www.investopedia.com/terms/i/interestrate.asp) were relatively stable, so one could gain little from the active management of bond portfolios. The environment in the [bond market](https://www.investopedia.com/terms/b/bondmarket.asp) changed considerably in the late 1970s and 1980s when interest rates increased dramatically and became more volatile. ### Although the techniques for evaluating stock portfolio performance have been in existence for decades, comparable techniques for examining bond portfolio performance were initiated more recently, when the bond market [volatility](https://www.investopedia.com/terms/v/volatility.asp) increased dramatically. This change created an incentive to trade bonds, and this trend toward active management led to more dispersed performances by bond portfolio managers. This dispersion in performance, in turn, created a demand for techniques that would help investors evaluate the performance of bond portfolio managers. The evaluation models for bonds typically consider the overall market factors and the impact of individual bond selection. This technique for measuring the trading effect breaks down the return based on the bond's [duration](https://www.investopedia.com/terms/d/duration.asp) as a comprehensive [risk measure](https://www.investopedia.com/terms/r/riskmeasures.asp), but it does not consider differences in the risk of default. Specifically, the technique does not differentiate between an AAA bond with a duration of eight years and a BBB bond with the same duration, which could clearly affect the performance. A portfolio manager that invested in BBB bonds, for example, could experience a very positive trading effect simply because the bonds were of lower quality.

What Is Trading Effect? The trading effect measures a portfolio manager's effectiveness by comparing their portfolio returns to that of a chosen benchmark. Key Takeaways The trading effect measures a portfolio manager's effectiveness by comparing their portfolio returns to that of a chosen benchmark.The trading effect answers the simple question of whether the portfolio manager or investor added value by actively managing the portfolio.The trading effect can also be used to determine whether active investing (trading) is better than passive investing. Understanding Trading Effect The trading effect is the difference in performance between an active investor's portfolio and a chosen benchmark. Active investing takes a hands-on approach and requires that someone act in the role of the portfolio manager. With active investing, the aim is to see if the chosen composition of the investor's portfolio, including any alterations that were made during the observed period, performed better or worse than the benchmark. The trading effect can also be used to determine whether active investing (trading) is better than more passive buy-and-hold investing strategies. The chosen benchmark has to have relevancy to the portfolio being measured and must be widely recognized and used. For example, the S&P 500 index would be an appropriate benchmark to measure an investor's portfolio that is predominantly comprised of U.S. large-cap equities. The trading effect serves as a way for investors to quantify a portfolio manager's performance. It answers the simple question of whether the manager (or investor) added value by making adjustments to the portfolio. If the benchmark, such as the Dow Jones Corporate Bond Index, outperforms the actively managed bond portfolio, then the portfolio manager subtracted value for the investor. If the bond portfolio earns more than the bond index, then the changes in portfolio composition have increased investor value, indicating a good management strategy. Trading Effect and Bond Portfolios Numerous and complex factors can influence bond portfolio returns. One reason for a lack of bond portfolio performance measures was that, prior to the 1970s, most bond portfolio managers followed buy-and-hold strategies, so their performance probably did not differ much. In that era, interest rates were relatively stable, so one could gain little from the active management of bond portfolios. The environment in the bond market changed considerably in the late 1970s and 1980s when interest rates increased dramatically and became more volatile. Although the techniques for evaluating stock portfolio performance have been in existence for decades, comparable techniques for examining bond portfolio performance were initiated more recently, when the bond market volatility increased dramatically. This change created an incentive to trade bonds, and this trend toward active management led to more dispersed performances by bond portfolio managers. This dispersion in performance, in turn, created a demand for techniques that would help investors evaluate the performance of bond portfolio managers. The evaluation models for bonds typically consider the overall market factors and the impact of individual bond selection. This technique for measuring the trading effect breaks down the return based on the bond's duration as a comprehensive risk measure, but it does not consider differences in the risk of default. Specifically, the technique does not differentiate between an AAA bond with a duration of eight years and a BBB bond with the same duration, which could clearly affect the performance. A portfolio manager that invested in BBB bonds, for example, could experience a very positive trading effect simply because the bonds were of lower quality.

https://www.investopedia.com/ask/answers/061515/which-metric-should-i-pay-more-attention-evebitda-or-pe.asp

Should You Pay More Attention to the EV/EBITDA or P/E Multiple?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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/p/price-earningsratio.asp">price-to-earnings (P/E)</a> ratio is one of the most popular and widely used <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0910/6-basic-financial-ratios-and-what-they-tell-you.aspx">financial metrics</a>, but it has a number of inherent flaws for which the enterprise value to EBITDA (EV/EBITDA) ratio compensates. Investors who understand how both ratios work and how to evaluate their results give themselves an advantage when trying to determine which stocks offer the best wealth-building opportunities. </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 price-to-earnings (P/E) ratio is a popular valuation metric that indicates a company's future growth potential by comparing its current market price to its earnings per share (EPS).</li><li>Using the P/E ratio to evaluate a stock has its drawbacks, including the potential for management to manipulate the earnings portion of the metric and the potential for overly optimistic investors to run up the stock price, causing an inflated P/E ratio.</li><li>One advantage of the EV/EBITDA ratio is that it strips out debt costs, taxes, depreciation, and amortization, thereby providing a clearer picture of the company's financial performance.</li><li>One drawback of the EV/EBITDA ratio is that it can produce an overly favorable number because it doesn't include capital expenditures, which for some companies can be a huge expense.</li></ul></div></div></div> <span class="heading-toc" id="toc-understanding-how-the-pe-ratio-works"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_5-0"> <span class="mntl-sc-block-heading__text"> Understanding How the P/E Ratio Works </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The P/E ratio is a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/metrics.asp">valuation metric</a> that compares a company’s stock <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/eps.asp">earnings per share (EPS)</a> to its current market price. This metric is widely known and used as an indicator of a company's future growth potential. The P/E ratio does not reveal a full picture, and it is most useful when comparing only companies within the same industry or comparing companies against the general market. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> A high P/E ratio typically means that the market is willing to pay a higher price relative to earnings because there is an expectation of future growth in the company. Tech stocks, for example, usually carry high P/E ratios. A low P/E ratio indicates that the market is expecting lower growth in the company or perhaps less favorable <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/macroeconomics.asp">macroeconomic</a> conditions that might hurt the company. As a result, despite its earnings, the stock typically sells off somewhat if it has a low P/E since investors don't think the current price justifies the earnings outlook. </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-pe-ratio-shortfalls"></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"> P/E Ratio Shortfalls </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> There are problems that arise for investors with the use of the P/E ratio. The stock price can get run up if investors are overly optimistic causing an overvalued P/E ratio. Also, the earnings portion of the metric can be manipulated somewhat if, for example, a company's earnings are flat, but the company's management reduces their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/outstandingshares.asp">outstanding shares</a>, thus boosting the company's earnings on a per share basis. </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-advantages-of-using-the-evebitda-multiple"></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"> Advantages of Using the EV/EBITDA Multiple  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/ev-ebitda.asp">EV/EBITDA ratio</a> helps to allay some of the P/E ratio's downfalls and is a financial metric that measures the return a company makes on its capital investments. EBITDA stands for earnings before interest, taxes, depreciation, and amortization. In other words, EBITDA provides a clearer picture of the financial performance of a company since it strips out debt costs, taxes, and accounting measures like depreciation, which spreads the costs of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fixedasset.asp">fixed assets</a> out for many years. </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>One of the most effective ways to use EV/EBITDA is in a comparison valuation where the metric is used to evaluate similar companies in the same industry.</p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The other component is <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/enterprisevalue.asp">enterprise value (EV)</a> and is the sum of a company's equity value or market capitalization plus its debt less cash. EV is typically used in buyouts. The EV/EBITDA ratio is calculated by dividing EV by EBITDA to achieve an earnings multiple that is more comprehensive than the P/E ratio. </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-evebitda-flaws"></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"> EV/EBITDA Flaws </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> However, the EV/EBITDA ratio has its drawbacks, such as the fact that it doesn't include <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalexpenditure.asp">capital expenditures</a>, which for some industries can be significant. As a result, it may produce a more favorable multiple by not including those expenditures. </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"> Though the calculation of this ratio can be complex, EV and EBITDA for publicly traded companies are widely available on most financial websites. The ratio is often preferred to other return metrics because it evens out differences in taxation, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capitalstructure.asp">capital structure</a> (debt), and asset counting. </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-pe-ratio-versus-evebitda"></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"> P/E Ratio Versus EV/EBITDA </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> The P/E ratio has been established as a prime market valuation metric, and the sheer volume of current and historical data gives the metric weight in regard to <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stock-analysis.asp">stock analysis</a>. Some analysts contend that using the EV/EBITDA ratio versus the P/E ratio as a valuation method produces better investment returns. </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"> Both metrics have inherent advantages and disadvantages. As with any financial metric, it's important to consider several financial ratios including the P/E ratio and the EV/EBITDA ratio in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/072915/how-can-evebitda-be-used-conjunction-pe-ratio.asp">determining whether a company is fairly valued</a>, overvalued, or undervalued. </p></div>

The [price-to-earnings (P/E)](https://www.investopedia.com/terms/p/price-earningsratio.asp) ratio is one of the most popular and widely used [financial metrics](https://www.investopedia.com/financial-edge/0910/6-basic-financial-ratios-and-what-they-tell-you.aspx), but it has a number of inherent flaws for which the enterprise value to EBITDA (EV/EBITDA) ratio compensates. Investors who understand how both ratios work and how to evaluate their results give themselves an advantage when trying to determine which stocks offer the best wealth-building opportunities. ### Key Takeaways * The price-to-earnings (P/E) ratio is a popular valuation metric that indicates a company's future growth potential by comparing its current market price to its earnings per share (EPS). * Using the P/E ratio to evaluate a stock has its drawbacks, including the potential for management to manipulate the earnings portion of the metric and the potential for overly optimistic investors to run up the stock price, causing an inflated P/E ratio. * One advantage of the EV/EBITDA ratio is that it strips out debt costs, taxes, depreciation, and amortization, thereby providing a clearer picture of the company's financial performance. * One drawback of the EV/EBITDA ratio is that it can produce an overly favorable number because it doesn't include capital expenditures, which for some companies can be a huge expense. ## Understanding How the P/E Ratio Works The P/E ratio is a [valuation metric](https://www.investopedia.com/terms/m/metrics.asp) that compares a company’s stock [earnings per share (EPS)](https://www.investopedia.com/terms/e/eps.asp) to its current market price. This metric is widely known and used as an indicator of a company's future growth potential. The P/E ratio does not reveal a full picture, and it is most useful when comparing only companies within the same industry or comparing companies against the general market. A high P/E ratio typically means that the market is willing to pay a higher price relative to earnings because there is an expectation of future growth in the company. Tech stocks, for example, usually carry high P/E ratios. A low P/E ratio indicates that the market is expecting lower growth in the company or perhaps less favorable [macroeconomic](https://www.investopedia.com/terms/m/macroeconomics.asp) conditions that might hurt the company. As a result, despite its earnings, the stock typically sells off somewhat if it has a low P/E since investors don't think the current price justifies the earnings outlook. ## P/E Ratio Shortfalls There are problems that arise for investors with the use of the P/E ratio. The stock price can get run up if investors are overly optimistic causing an overvalued P/E ratio. Also, the earnings portion of the metric can be manipulated somewhat if, for example, a company's earnings are flat, but the company's management reduces their [outstanding shares](https://www.investopedia.com/terms/o/outstandingshares.asp), thus boosting the company's earnings on a per share basis. ## Advantages of Using the EV/EBITDA Multiple The [EV/EBITDA ratio](https://www.investopedia.com/terms/e/ev-ebitda.asp) helps to allay some of the P/E ratio's downfalls and is a financial metric that measures the return a company makes on its capital investments. EBITDA stands for earnings before interest, taxes, depreciation, and amortization. In other words, EBITDA provides a clearer picture of the financial performance of a company since it strips out debt costs, taxes, and accounting measures like depreciation, which spreads the costs of [fixed assets](https://www.investopedia.com/terms/f/fixedasset.asp) out for many years. ### One of the most effective ways to use EV/EBITDA is in a comparison valuation where the metric is used to evaluate similar companies in the same industry. The other component is [enterprise value (EV)](https://www.investopedia.com/terms/e/enterprisevalue.asp) and is the sum of a company's equity value or market capitalization plus its debt less cash. EV is typically used in buyouts. The EV/EBITDA ratio is calculated by dividing EV by EBITDA to achieve an earnings multiple that is more comprehensive than the P/E ratio. ## EV/EBITDA Flaws However, the EV/EBITDA ratio has its drawbacks, such as the fact that it doesn't include [capital expenditures](https://www.investopedia.com/terms/c/capitalexpenditure.asp), which for some industries can be significant. As a result, it may produce a more favorable multiple by not including those expenditures. Though the calculation of this ratio can be complex, EV and EBITDA for publicly traded companies are widely available on most financial websites. The ratio is often preferred to other return metrics because it evens out differences in taxation, [capital structure](https://www.investopedia.com/terms/c/capitalstructure.asp) (debt), and asset counting. ## P/E Ratio Versus EV/EBITDA The P/E ratio has been established as a prime market valuation metric, and the sheer volume of current and historical data gives the metric weight in regard to [stock analysis](https://www.investopedia.com/terms/s/stock-analysis.asp). Some analysts contend that using the EV/EBITDA ratio versus the P/E ratio as a valuation method produces better investment returns. Both metrics have inherent advantages and disadvantages. As with any financial metric, it's important to consider several financial ratios including the P/E ratio and the EV/EBITDA ratio in [determining whether a company is fairly valued](https://www.investopedia.com/ask/answers/072915/how-can-evebitda-be-used-conjunction-pe-ratio.asp), overvalued, or undervalued.

The price-to-earnings (P/E) ratio is one of the most popular and widely used financial metrics, but it has a number of inherent flaws for which the enterprise value to EBITDA (EV/EBITDA) ratio compensates. Investors who understand how both ratios work and how to evaluate their results give themselves an advantage when trying to determine which stocks offer the best wealth-building opportunities. Key Takeaways The price-to-earnings (P/E) ratio is a popular valuation metric that indicates a company's future growth potential by comparing its current market price to its earnings per share (EPS).Using the P/E ratio to evaluate a stock has its drawbacks, including the potential for management to manipulate the earnings portion of the metric and the potential for overly optimistic investors to run up the stock price, causing an inflated P/E ratio.One advantage of the EV/EBITDA ratio is that it strips out debt costs, taxes, depreciation, and amortization, thereby providing a clearer picture of the company's financial performance.One drawback of the EV/EBITDA ratio is that it can produce an overly favorable number because it doesn't include capital expenditures, which for some companies can be a huge expense. Understanding How the P/E Ratio Works The P/E ratio is a valuation metric that compares a company’s stock earnings per share (EPS) to its current market price. This metric is widely known and used as an indicator of a company's future growth potential. The P/E ratio does not reveal a full picture, and it is most useful when comparing only companies within the same industry or comparing companies against the general market. A high P/E ratio typically means that the market is willing to pay a higher price relative to earnings because there is an expectation of future growth in the company. Tech stocks, for example, usually carry high P/E ratios. A low P/E ratio indicates that the market is expecting lower growth in the company or perhaps less favorable macroeconomic conditions that might hurt the company. As a result, despite its earnings, the stock typically sells off somewhat if it has a low P/E since investors don't think the current price justifies the earnings outlook. P/E Ratio Shortfalls There are problems that arise for investors with the use of the P/E ratio. The stock price can get run up if investors are overly optimistic causing an overvalued P/E ratio. Also, the earnings portion of the metric can be manipulated somewhat if, for example, a company's earnings are flat, but the company's management reduces their outstanding shares, thus boosting the company's earnings on a per share basis. Advantages of Using the EV/EBITDA Multiple  The EV/EBITDA ratio helps to allay some of the P/E ratio's downfalls and is a financial metric that measures the return a company makes on its capital investments. EBITDA stands for earnings before interest, taxes, depreciation, and amortization. In other words, EBITDA provides a clearer picture of the financial performance of a company since it strips out debt costs, taxes, and accounting measures like depreciation, which spreads the costs of fixed assets out for many years. One of the most effective ways to use EV/EBITDA is in a comparison valuation where the metric is used to evaluate similar companies in the same industry. The other component is enterprise value (EV) and is the sum of a company's equity value or market capitalization plus its debt less cash. EV is typically used in buyouts. The EV/EBITDA ratio is calculated by dividing EV by EBITDA to achieve an earnings multiple that is more comprehensive than the P/E ratio. EV/EBITDA Flaws However, the EV/EBITDA ratio has its drawbacks, such as the fact that it doesn't include capital expenditures, which for some industries can be significant. As a result, it may produce a more favorable multiple by not including those expenditures. Though the calculation of this ratio can be complex, EV and EBITDA for publicly traded companies are widely available on most financial websites. The ratio is often preferred to other return metrics because it evens out differences in taxation, capital structure (debt), and asset counting. P/E Ratio Versus EV/EBITDA The P/E ratio has been established as a prime market valuation metric, and the sheer volume of current and historical data gives the metric weight in regard to stock analysis. Some analysts contend that using the EV/EBITDA ratio versus the P/E ratio as a valuation method produces better investment returns. Both metrics have inherent advantages and disadvantages. As with any financial metric, it's important to consider several financial ratios including the P/E ratio and the EV/EBITDA ratio in determining whether a company is fairly valued, overvalued, or undervalued.

https://www.investopedia.com/ask/answers/12/beating-the-market.asp

Can Anybody Beat the Market?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> The phrase "beating the market" means earning an investment return that exceeds the performance of the Standard &amp; Poor's 500 index. Commonly called the S&amp;P 500, it's one of the most popular <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/benchmark.asp">benchmarks</a> of the overall U.S. <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> performance. </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"> Everybody tries to beat it, but few succeed. </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-barriers"></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 Barriers </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> Investment fees are one major barrier to beating the market. If you take the popular advice to invest in an S&amp;P 500 <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> rather than on individual stocks, your fund's performance should be identical to the performance of the S&amp;P 500, for better or worse. But investment fees will be subtracted from those returns, so you won't quite match it, never mind beat it. Look for index funds with ultra-low fees of 0.05% to 0.2% a year, and you'll get close to equaling the market, though you won't beat it. </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"> Taxes are another major barrier to beating the market. When you pay tax on your investment returns, you lose a significant percentage of your profit. The capital gains tax rate is 15% to 20%, unless your income is very low. And that's the tax on investments held for at least one year. Stocks held for a shorter-term are taxed as ordinary income.<span class="ql-inline-citation" data-cite="1"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Investor psychology presents a third barrier to beating the market. Perversely, most people have a tendency to buy high and sell low because they're inclined to buy when the market is performing well and sell out of fear when the market starts to drop. This one at least is within your control. Learn how to analyze a stock and consider the company's potential for future gains. It's not foolproof, but at least you'll be buying for sound reasons. </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-risk-is-key"></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"> Risk Is Key </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> One way to try to beat the market is to take on more risk, but while greater risk can bring greater returns it can also bring greater losses. </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"> You might also be able 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> the market if you have superior information. There are few ways that an individual investor can possess superior information unless they are company insiders, and trading on nonpublic information is a serious crime called <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>. </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"> Defined more broadly, though, you may have superior information based on your expertise in an industry or a product. There's no crime in investing in what you know. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Some investors have made fortunes through what appear to be superior analytical skills. Household names like <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/peterlynch.asp">Peter Lynch</a> and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/01/071801.asp">Warren Buffett</a> achieved their successes by picking individual stocks. Many individuals you've never heard of have attempted similar strategies and failed. Even most professional mutual <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fundmanager.asp">fund managers</a> can't beat the market. </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-sometimes-its-just-luck"></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"> Sometimes It's Just Luck </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Meaning no disrespect, Lynch and Buffett may have just been exceptionally lucky, even if they are financial whizzes. Highly regarded economists have shown that a portfolio of randomly chosen stocks can perform as well as a carefully assembled one. </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"> Yes, you may be <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/trading/10/beat-the-market.asp">able to beat the market</a>, but with investment fees, taxes, and human emotion working against you, you're more likely to do so through luck than skill. If you can merely match the S&amp;P 500, minus a small fee, you'll be doing better than most investors. </p></div>

The phrase "beating the market" means earning an investment return that exceeds the performance of the Standard & Poor's 500 index. Commonly called the S&P 500, it's one of the most popular [benchmarks](https://www.investopedia.com/terms/b/benchmark.asp) of the overall U.S. [stock market](https://www.investopedia.com/terms/s/stockmarket.asp) performance. Everybody tries to beat it, but few succeed. ## The Barriers Investment fees are one major barrier to beating the market. If you take the popular advice to invest in an S&P 500 [index fund](https://www.investopedia.com/terms/i/indexfund.asp) rather than on individual stocks, your fund's performance should be identical to the performance of the S&P 500, for better or worse. But investment fees will be subtracted from those returns, so you won't quite match it, never mind beat it. Look for index funds with ultra-low fees of 0.05% to 0.2% a year, and you'll get close to equaling the market, though you won't beat it. Taxes are another major barrier to beating the market. When you pay tax on your investment returns, you lose a significant percentage of your profit. The capital gains tax rate is 15% to 20%, unless your income is very low. And that's the tax on investments held for at least one year. Stocks held for a shorter-term are taxed as ordinary income. Investor psychology presents a third barrier to beating the market. Perversely, most people have a tendency to buy high and sell low because they're inclined to buy when the market is performing well and sell out of fear when the market starts to drop. This one at least is within your control. Learn how to analyze a stock and consider the company's potential for future gains. It's not foolproof, but at least you'll be buying for sound reasons. ## Risk Is Key One way to try to beat the market is to take on more risk, but while greater risk can bring greater returns it can also bring greater losses. You might also be able to [outperform](https://www.investopedia.com/terms/o/outperform.asp) the market if you have superior information. There are few ways that an individual investor can possess superior information unless they are company insiders, and trading on nonpublic information is a serious crime called [insider trading](https://www.investopedia.com/terms/i/insidertrading.asp). Defined more broadly, though, you may have superior information based on your expertise in an industry or a product. There's no crime in investing in what you know. Some investors have made fortunes through what appear to be superior analytical skills. Household names like [Peter Lynch](https://www.investopedia.com/terms/p/peterlynch.asp) and [Warren Buffett](https://www.investopedia.com/articles/01/071801.asp) achieved their successes by picking individual stocks. Many individuals you've never heard of have attempted similar strategies and failed. Even most professional mutual [fund managers](https://www.investopedia.com/terms/f/fundmanager.asp) can't beat the market. ## Sometimes It's Just Luck Meaning no disrespect, Lynch and Buffett may have just been exceptionally lucky, even if they are financial whizzes. Highly regarded economists have shown that a portfolio of randomly chosen stocks can perform as well as a carefully assembled one. Yes, you may be [able to beat the market](https://www.investopedia.com/articles/trading/10/beat-the-market.asp), but with investment fees, taxes, and human emotion working against you, you're more likely to do so through luck than skill. If you can merely match the S&P 500, minus a small fee, you'll be doing better than most investors.

The phrase "beating the market" means earning an investment return that exceeds the performance of the Standard & Poor's 500 index. Commonly called the S&P 500, it's one of the most popular benchmarks of the overall U.S. stock market performance. Everybody tries to beat it, but few succeed. The Barriers Investment fees are one major barrier to beating the market. If you take the popular advice to invest in an S&P 500 index fund rather than on individual stocks, your fund's performance should be identical to the performance of the S&P 500, for better or worse. But investment fees will be subtracted from those returns, so you won't quite match it, never mind beat it. Look for index funds with ultra-low fees of 0.05% to 0.2% a year, and you'll get close to equaling the market, though you won't beat it. Taxes are another major barrier to beating the market. When you pay tax on your investment returns, you lose a significant percentage of your profit. The capital gains tax rate is 15% to 20%, unless your income is very low. And that's the tax on investments held for at least one year. Stocks held for a shorter-term are taxed as ordinary income. Investor psychology presents a third barrier to beating the market. Perversely, most people have a tendency to buy high and sell low because they're inclined to buy when the market is performing well and sell out of fear when the market starts to drop. This one at least is within your control. Learn how to analyze a stock and consider the company's potential for future gains. It's not foolproof, but at least you'll be buying for sound reasons. Risk Is Key One way to try to beat the market is to take on more risk, but while greater risk can bring greater returns it can also bring greater losses. You might also be able to outperform the market if you have superior information. There are few ways that an individual investor can possess superior information unless they are company insiders, and trading on nonpublic information is a serious crime called insider trading. Defined more broadly, though, you may have superior information based on your expertise in an industry or a product. There's no crime in investing in what you know. Some investors have made fortunes through what appear to be superior analytical skills. Household names like Peter Lynch and Warren Buffett achieved their successes by picking individual stocks. Many individuals you've never heard of have attempted similar strategies and failed. Even most professional mutual fund managers can't beat the market. Sometimes It's Just Luck Meaning no disrespect, Lynch and Buffett may have just been exceptionally lucky, even if they are financial whizzes. Highly regarded economists have shown that a portfolio of randomly chosen stocks can perform as well as a carefully assembled one. Yes, you may be able to beat the market, but with investment fees, taxes, and human emotion working against you, you're more likely to do so through luck than skill. If you can merely match the S&P 500, minus a small fee, you'll be doing better than most investors.

https://www.investopedia.com/ask/answers/how-can-i-buy-sp-500-fund/

How To Invest in the S&P 500

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Individuals can invest in the S&amp;P 500 through index funds or ETFs that follow the index. Investors can choose a taxable brokerage account, a 401(k), or an IRA. 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> index tracks the largest companies in the United States based on factors like <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>, sector allocation, and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/liquidity.asp">liquidity</a>.<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_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> The S&amp;P 500 Index was launched in 1957 as the first U.S. market-cap-weighted equity index and is considered the best single gauge of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/l/large-cap.asp">large-cap</a> U.S. equities.<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_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 tracks the largest U.S. companies based on market capitalization.</li><li>An S&amp;P 500 Index fund can help investors gain broad exposure to the constituent stocks in the S&amp;P 500 index.</li><li>Index mutual funds and ETFs maintain a strategy of passive index replication, affording investors broad access to all of the securities within the given index.<span class="ql-inline-citation" data-cite="14"></span></li></ul><p><br/></p></div></div></div> <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_7-0"> <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_8-0"> The index includes <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/08/find-stocks-in-sp500.asp">500 leading U.S. companies</a>, although that number may fluctuate. The S&amp;P 500 represents approximately 80% of available U.S. market capitalization. As of May 2024, 503 constituents comprise the S&amp;P 500, with an estimated $43.4 trillion total market capitalization.<span class="ql-inline-citation" data-cite="35"></span><span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> S&amp;P 500 stocks reflect the U.S. economy's growth drivers. As of Apr. 30, 2024, the top 10 <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/constituent.asp">constituents</a> of the S&amp;P 500 by index weight include:<span class="ql-inline-citation" data-cite="10"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> <li>Microsoft Corp. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT">MSFT</a>)</li> <li>Apple Inc. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL">AAPL</a>)</li> <li>Nvidia Corp. (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA">NVDA</a>)</li> <li>Amazon.com Inc. (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMZN">AMZN</a>)</li> <li>Alphabet Inc. A (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOGL">GOOGL</a>)</li> <li>Meta Platforms Inc. Class A (<a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=META">META</a>)</li> <li>Alphabet Inc. C (<a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOG">GOOG</a>)</li> <li>Berkshire Hathaway B (<a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=BRK.B">BRK.B</a>)</li> <li>Eli Lilly &amp; Co. (<a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=LLY">LLY</a>)</li> <li>Broadcom Inc. (<a data-component="link" data-ordinal="10" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AVGO">AVGO</a>)</li> </ol> <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"> Three sectors hold the largest concentration of companies in the S&amp;P 500 in April 2024: Information Technology 29.2%, Financials 13.1 %, and Healthcare 12.3%.<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> <span class="heading-toc" id="toc-why-investors-choose-the-sp-500"></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"> Why Investors Choose 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_17-0"> Index investing allows individuals to effectively follow the market activity of up to 500 companies with the S&amp;P 500. An index fund or <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">exchange-traded fund (ETF)</a> that benchmarks to the S&amp;P 500 allows investors to gain exposure to all those stocks. </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"> ETFs focus on <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/exchangetradedfunds/11/advantages-disadvantages-etfs.asp">passive index replication</a>, giving investors access to every security within a particular index. Index ETFs are generally low-cost and trade throughout the day just like stocks. Consequently, they are highly liquid and subject to <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/intraday.asp">intraday</a> price fluctuations.<span class="ql-inline-citation" data-cite="14"></span>Nearly all major brokerages and fund companies offer some type of S&amp;P 500 fund, such as the iShares S&amp;P 500 Value ETF (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=IVE">IVE</a>), the SPDR Portfolio S&amp;P 500 Value ETF (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPY">SPY</a>), and the Vanguard S&amp;P 500 Value ETF (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=VOO">VOO</a>). </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> S&amp;P 500 index funds tend to have slightly higher fees than ETFs because of higher operating expenses. Because a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/mutualfund.asp">mutual fund</a> has a structure that differs from an ETF, investors can only buy it at the day’s closing price, based on the fund's <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 (NAV)</a>.<span class="ql-inline-citation" data-cite="14"></span>Index investing pioneer Vanguard's S&amp;P 500 Index Fund (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://finance.yahoo.com/quote/VFINX?.tsrc=fin-srch">VFINX</a>) was the first index mutual fund for individual investors. The Vanguard 500 Index Fund Admiral Shares (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="externalLink" href="https://finance.yahoo.com/quote/VFIAX/">VFIAX</a>) is one of the largest index funds.<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_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>An index is a measure of the performance of its constituent <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/security.asp">securities</a>. Individuals invest in an index through ETFs and index funds that try to replicate the performance of specific indexes.</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_25-0"> <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_26-0"> To invest in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/022216/put-10000-sp-500-etf-and-wait-20-years.asp">S&amp;P 500 ETFs</a>, investors can gain exposure through <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/discountbroker.asp">discount brokers</a> with commission-free trading. S&amp;P 500 index funds trade through <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/broker.asp">brokers</a> and discount brokers and may be accessed directly from the fund companies. Investors may also access ETFs and mutual funds through employer <a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/1/401kplan.asp">401(k)</a> programs, <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ira.asp">individual retirement accounts (IRA)</a>, or <a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp">roboadvisor</a> platforms. </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 expense ratio for ETFs is the overall annual cost paid to the fund manager by investors. Many mutual funds include loads or commissions paid to the fund managers. These may be classified as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/front-endload.asp">front-end</a> or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/back-end-load.asp">back-end loads</a>.<span class="ql-inline-citation" data-cite="16"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_29-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> Investors can review the performance by accessing the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/020116/what-mutual-fund-fact-sheet.asp">fact sheet</a> for every investment on the company's website that offers the ETF or the mutual fund. Using the name and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stocksymbol.asp">ticker symbol</a> of the funds, investors can then determine the amount of <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capital.asp">capital</a> they have to invest.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <span class="heading-toc" id="toc-advantages-of-investing-in-the-sp-500"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_32-0"> <span class="mntl-sc-block-heading__text"> Advantages of Investing in 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_33-0"> <li><strong>Exposure to the world's most dynamic companies</strong>: Investing in the S&amp;P 500 exposes individuals to some of the world's most dynamic companies, such as Apple, Amazon, Walmart, and Johnson &amp; Johnson.</li><li><strong>Consistent long-term returns</strong>: Although returns in any single year can vary widely over a long-term period, the S&amp;P 500 has consistently performed.<span class="ql-inline-citation" data-cite="10"></span></li><li><strong>Intricate analysis not required</strong>: Investing in the S&amp;P 500 through an ETF or index fund means investors do not have to analyze or pick stocks.</li><li><strong>Can serve as a core holding</strong>: S&amp;P 500 index funds and ETFs are liquid and trade with tight bid-ask spreads, making S&amp;P 500 funds and ETFs ideal as core holdings for most investment portfolios.<span class="ql-inline-citation" data-cite="22"></span><span class="ql-inline-citation" data-cite="10"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <span class="heading-toc" id="toc-disadvantages-of-investing-in-the-sp-500"></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"> Disadvantages of Investing in 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_36-0"> <li><strong>The index is dominated by large-cap companies</strong>: The S&amp;P 500 is dominated by large-cap companies, with its 10 biggest constituents accounting for almost one-third of the index. This means that the S&amp;P 500 index has limited exposure to small-cap and mid-cap stocks that may have the ability to grow much faster.<span class="ql-inline-citation" data-cite="10"></span></li><li><strong>The index has risks inherent in equity investing</strong>: The S&amp;P 500 has risks inherent in equity investing, such as volatility and downside risk. Newer investors may find it difficult to tolerate such volatility.</li><li><strong>Only includes U.S. companies</strong>: The S&amp;P 500 only includes U.S. companies.<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_37-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_38-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_39-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block 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>We recommend the best products through an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/review-process-4802351">independent review process</a>, and advertisers do not influence our picks. We may receive compensation if you visit partners we recommend. Read our <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/legal-4768893#advertising-disclosure">advertiser disclosure</a> for more info.</p></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_40-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="5">Compare the Best Online Brokers</th> </tr> </thead> <tbody data-check="-1"> <tr> <td><b>Company</b></td> <td><b>Category </b></td> <td><b>Investopedia Rating</b></td> <td><b>Account Minimum</b></td> <td><b>Basic Fee</b></td> </tr> <tr> <td><b><a class="null" data-affiliate-link-rewriter="u1=${REQUEST_ID}-${DOC_ID}" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://click.linksynergy.com/fs-bin/click?id=RL7M2q*4kuk&amp;offerid=1500096.1134&amp;type=3&amp;subid=0" rel="sponsored nofollow">Fidelity Investments</a></b></td> <td>Best Overall, Best for Low Costs, Best for ETFs</td> <td> 4.8</td> <td>$0 </td> <td>$0 for stock/ETF trades, $0 plus $0.65/contract for options trade</td> </tr> <tr> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://ad.doubleclick.net/ddm/trackclk/N3941.investopedia.com/B26958620.323528883;dc_trk_aid=517538065;dc_trk_cid=67442974;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=" rel="sponsored nofollow">TD Ameritrade</a></b></td> <td>Best for Beginners and Best Mobile App</td> <td> 4.5</td> <td>$0 </td> <td>$0 for stock/ETF trades, $0 plus $0.65/contract for options trade</td> </tr> <tr> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://ad.doubleclick.net/ddm/trackclk/N7118.110872.INVESTOPEDIAUS/B30800776.384837585;dc_trk_aid=575518463;dc_trk_cid=203470243;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=;dc_tdv=1" rel="sponsored nofollow">Tastyworks</a></b></td> <td>Best for Options</td> <td> 3.9</td> <td>$0 </td> <td>$0 stock/ETF trades, $1.00 to open options trades and $0 to close</td> </tr> <tr> <td><b><a class="null" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.interactivebrokers.com/mkt/?src=investopedia98a&amp;url=%2Fen%2Fwhyib%2Foverview.php" rel="sponsored nofollow">Interactive Brokers</a></b></td> <td>Best for Advanced Traders and Best for International Trading</td> <td> 4.2</td> <td>$0 </td> <td>$0 for IBKR Lite, Maximum $0.005 per share for Pro platform or 1% of trade value </td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_41-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_42-0"><span class="heading-toc" id="toc-what-are-smart-beta-indexes"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Smart Beta Indexes?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Investors may choose an advanced approach to S&amp;P 500 fund investing and consider <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/smart-beta.asp">smart beta</a> indexes. These options have lower costs and offer the advantage of fundamental or customized investing. Examples of such funds include the AAM S&amp;P 500 High Dividend Fund (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPDV">SPDV</a>) and the S&amp;P 500 Equal Weight Index Fund (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=RSP">RSP</a>). Investors can also target index segments that offer capital appreciation potential, with funds like the SPDR sector series or dividend-focused funds.<span class="ql-inline-citation" data-cite="24"></span><span class="ql-inline-citation" data-cite="23"></span><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bull.asp">Bullish</a> leveraged funds use leverage to multiply the return of the S&amp;P 500 when it performs well. <a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bear.asp">Bearish</a> leveraged funds short the S&amp;P 500 to pull in positive returns when the index falls.<span class="ql-inline-citation" data-cite="32"></span><span class="ql-inline-citation" data-cite="31"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_44-0"><span class="heading-toc" id="toc-how-much-does-it-cost-to-invest-in-the-sp-500"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much Does It Cost to Invest in the S&amp;P 500?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The difference in fees between S&amp;P 500 index funds and ETFs these days is marginal. For example, some of the biggest and most popular S&amp;P 500 ETFs have a very low <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>. Vanguard's S&amp;P 500 ETF (VOO) has an expense ratio of 0.03%, while the Vanguard 500 Index Fund Admiral Shares (VFIAX) has an expense ratio of 0.03%.<span class="ql-inline-citation" data-cite="21"></span><span class="ql-inline-citation" data-cite="20"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_45-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_46-0"><span class="heading-toc" id="toc-do-sp-500-etfs-and-funds-pay-a-dividend"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do S&amp;P 500 ETFs and Funds Pay a Dividend?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>S&amp;P 500 index ETFs and mutual funds pay dividends to the constituent companies. The S&amp;P 500 index has a dividend yield of about 1.47% as of Apr. 2024.<span class="ql-inline-citation" data-cite="10"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_48-0"><span class="heading-toc" id="toc-what-are-some-required-criteria-for-a-company-to-be-included-in-the-sp-500"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are Some Required Criteria for a Company To Be Included in the S&amp;P 500?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>For a company to be in the S&amp;P 500, it must be a U.S. company, it should have an unadjusted market cap of at least $12.7 billion and a float-adjusted market cap of at least 50% of that minimum threshold, and it must have positive as-reported earnings over the most recent quarter as well as over the four most recent quarters combined.<span class="ql-inline-citation" data-cite="19"></span><span class="ql-inline-citation" data-cite="25"></span></p><p><br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_50-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> Investing in an S&amp;P 500 index fund is a way to diversify an investor's portfolio. An ETF or a mutual fund allows investors to gain exposure to a variety of stocks included in the index such as Apple, Microsoft, or Walmart. </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"> <em>Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, please read<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.theocc.com/Company-Information/Documents-and-Archives/Options-Disclosure-Document"> Characteristics and Risks of Standardized Options</a>. Supporting documentation for any claims, if applicable, will be furnished upon request.</em> </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"> <em>There is an Options Regulatory Fee that applies to both option buy and sell transactions. The fee is subject to change. See <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="http://fidelity.com/commissions]%28https://www.fidelity.com/trading/commissions-margin-rates%29">Fidelity.com/commissions</a> for details.</em> </p></div>

Individuals can invest in the S&P 500 through index funds or ETFs that follow the index. Investors can choose a taxable brokerage account, a 401(k), or an IRA. The [S&P 500](https://www.investopedia.com/terms/s/sp500.asp) index tracks the largest companies in the United States based on factors like [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp), sector allocation, and [liquidity](https://www.investopedia.com/terms/l/liquidity.asp). The S&P 500 Index was launched in 1957 as the first U.S. market-cap-weighted equity index and is considered the best single gauge of [large-cap](https://www.investopedia.com/terms/l/large-cap.asp) U.S. equities. ### Key Takeaways * The S&P 500 tracks the largest U.S. companies based on market capitalization. * An S&P 500 Index fund can help investors gain broad exposure to the constituent stocks in the S&P 500 index. * Index mutual funds and ETFs maintain a strategy of passive index replication, affording investors broad access to all of the securities within the given index. ## What Is the S&P 500 Index? The index includes [500 leading U.S. companies](https://www.investopedia.com/ask/answers/08/find-stocks-in-sp500.asp), although that number may fluctuate. The S&P 500 represents approximately 80% of available U.S. market capitalization. As of May 2024, 503 constituents comprise the S&P 500, with an estimated $43.4 trillion total market capitalization. S&P 500 stocks reflect the U.S. economy's growth drivers. As of Apr. 30, 2024, the top 10 [constituents](https://www.investopedia.com/terms/c/constituent.asp) of the S&P 500 by index weight include: 1. Microsoft Corp. ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)) 2. Apple Inc. ([AAPL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AAPL)) 3. Nvidia Corp. ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA)) 4. Amazon.com Inc. ([AMZN](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMZN)) 5. Alphabet Inc. A ([GOOGL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOGL)) 6. Meta Platforms Inc. Class A ([META](https://www.investopedia.com/markets/quote?tvwidgetsymbol=META)) 7. Alphabet Inc. C ([GOOG](https://www.investopedia.com/markets/quote?tvwidgetsymbol=GOOG)) 8. Berkshire Hathaway B ([BRK.B](https://www.investopedia.com/markets/quote?tvwidgetsymbol=BRK.B)) 9. Eli Lilly & Co. ([LLY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=LLY)) 10. Broadcom Inc. ([AVGO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AVGO)) Three sectors hold the largest concentration of companies in the S&P 500 in April 2024: Information Technology 29.2%, Financials 13.1 %, and Healthcare 12.3%. ## Why Investors Choose the S&P 500 Index investing allows individuals to effectively follow the market activity of up to 500 companies with the S&P 500. An index fund or [exchange-traded fund (ETF)](https://www.investopedia.com/terms/e/etf.asp) that benchmarks to the S&P 500 allows investors to gain exposure to all those stocks. ETFs focus on [passive index replication](https://www.investopedia.com/articles/exchangetradedfunds/11/advantages-disadvantages-etfs.asp), giving investors access to every security within a particular index. Index ETFs are generally low-cost and trade throughout the day just like stocks. Consequently, they are highly liquid and subject to [intraday](https://www.investopedia.com/terms/i/intraday.asp) price fluctuations.Nearly all major brokerages and fund companies offer some type of S&P 500 fund, such as the iShares S&P 500 Value ETF ([IVE](https://www.investopedia.com/markets/quote?tvwidgetsymbol=IVE)), the SPDR Portfolio S&P 500 Value ETF ([SPY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPY)), and the Vanguard S&P 500 Value ETF ([VOO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=VOO)). S&P 500 index funds tend to have slightly higher fees than ETFs because of higher operating expenses. Because a [mutual fund](https://www.investopedia.com/terms/m/mutualfund.asp) has a structure that differs from an ETF, investors can only buy it at the day’s closing price, based on the fund's [net asset value (NAV)](https://www.investopedia.com/terms/n/nav.asp).Index investing pioneer Vanguard's S&P 500 Index Fund ([VFINX](https://finance.yahoo.com/quote/VFINX?.tsrc=fin-srch)) was the first index mutual fund for individual investors. The Vanguard 500 Index Fund Admiral Shares ([VFIAX](https://finance.yahoo.com/quote/VFIAX/)) is one of the largest index funds. ### An index is a measure of the performance of its constituent [securities](https://www.investopedia.com/terms/s/security.asp). Individuals invest in an index through ETFs and index funds that try to replicate the performance of specific indexes. ## How To Invest in the S&P 500 To invest in [S&P 500 ETFs](https://www.investopedia.com/articles/personal-finance/022216/put-10000-sp-500-etf-and-wait-20-years.asp), investors can gain exposure through [discount brokers](https://www.investopedia.com/terms/d/discountbroker.asp) with commission-free trading. S&P 500 index funds trade through [brokers](https://www.investopedia.com/terms/b/broker.asp) and discount brokers and may be accessed directly from the fund companies. Investors may also access ETFs and mutual funds through employer [401(k)](https://www.investopedia.com/terms/1/401kplan.asp) programs, [individual retirement accounts (IRA)](https://www.investopedia.com/terms/i/ira.asp), or [roboadvisor](https://www.investopedia.com/terms/r/roboadvisor-roboadviser.asp) platforms. The expense ratio for ETFs is the overall annual cost paid to the fund manager by investors. Many mutual funds include loads or commissions paid to the fund managers. These may be classified as [front-end](https://www.investopedia.com/terms/f/front-endload.asp) or [back-end loads](https://www.investopedia.com/terms/b/back-end-load.asp). Investors can review the performance by accessing the [fact sheet](https://www.investopedia.com/articles/investing/020116/what-mutual-fund-fact-sheet.asp) for every investment on the company's website that offers the ETF or the mutual fund. Using the name and [ticker symbol](https://www.investopedia.com/terms/s/stocksymbol.asp) of the funds, investors can then determine the amount of [capital](https://www.investopedia.com/terms/c/capital.asp) they have to invest. ## Advantages of Investing in the S&P 500 * **Exposure to the world's most dynamic companies**: Investing in the S&P 500 exposes individuals to some of the world's most dynamic companies, such as Apple, Amazon, Walmart, and Johnson & Johnson. * **Consistent long-term returns**: Although returns in any single year can vary widely over a long-term period, the S&P 500 has consistently performed. * **Intricate analysis not required**: Investing in the S&P 500 through an ETF or index fund means investors do not have to analyze or pick stocks. * **Can serve as a core holding**: S&P 500 index funds and ETFs are liquid and trade with tight bid-ask spreads, making S&P 500 funds and ETFs ideal as core holdings for most investment portfolios. ## Disadvantages of Investing in the S&P 500 * **The index is dominated by large-cap companies**: The S&P 500 is dominated by large-cap companies, with its 10 biggest constituents accounting for almost one-third of the index. This means that the S&P 500 index has limited exposure to small-cap and mid-cap stocks that may have the ability to grow much faster. * **The index has risks inherent in equity investing**: The S&P 500 has risks inherent in equity investing, such as volatility and downside risk. Newer investors may find it difficult to tolerate such volatility. * **Only includes U.S. companies**: The S&P 500 only includes U.S. companies. ### We recommend the best products through an [independent review process](https://www.investopedia.com/review-process-4802351), and advertisers do not influence our picks. We may receive compensation if you visit partners we recommend. Read our [advertiser disclosure](https://www.investopedia.com/legal-4768893#advertising-disclosure) for more info. | Compare the Best Online Brokers | | | | | | --- | --- | --- | --- | --- | | **Company** | **Category** | **Investopedia Rating** | **Account Minimum** | **Basic Fee** | | **[Fidelity Investments](https://click.linksynergy.com/fs-bin/click?id=RL7M2q*4kuk&offerid=1500096.1134&type=3&subid=0)** | Best Overall, Best for Low Costs, Best for ETFs | 4.8 | $0 | $0 for stock/ETF trades, $0 plus $0.65/contract for options trade | | **[TD Ameritrade](https://ad.doubleclick.net/ddm/trackclk/N3941.investopedia.com/B26958620.323528883;dc_trk_aid=517538065;dc_trk_cid=67442974;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=)** | Best for Beginners and Best Mobile App | 4.5 | $0 | $0 for stock/ETF trades, $0 plus $0.65/contract for options trade | | **[Tastyworks](https://ad.doubleclick.net/ddm/trackclk/N7118.110872.INVESTOPEDIAUS/B30800776.384837585;dc_trk_aid=575518463;dc_trk_cid=203470243;dc_lat=;dc_rdid=;tag_for_child_directed_treatment=;tfua=;ltd=;dc_tdv=1)** | Best for Options | 3.9 | $0 | $0 stock/ETF trades, $1.00 to open options trades and $0 to close | | **[Interactive Brokers](https://www.interactivebrokers.com/mkt/?src=investopedia98a&url=%2Fen%2Fwhyib%2Foverview.php)** | Best for Advanced Traders and Best for International Trading | 4.2 | $0 | $0 for IBKR Lite, Maximum $0.005 per share for Pro platform or 1% of trade value | ## What Are Smart Beta Indexes? Investors may choose an advanced approach to S&P 500 fund investing and consider [smart beta](https://www.investopedia.com/terms/s/smart-beta.asp) indexes. These options have lower costs and offer the advantage of fundamental or customized investing. Examples of such funds include the AAM S&P 500 High Dividend Fund ([SPDV](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SPDV)) and the S&P 500 Equal Weight Index Fund ([RSP](https://www.investopedia.com/markets/quote?tvwidgetsymbol=RSP)). Investors can also target index segments that offer capital appreciation potential, with funds like the SPDR sector series or dividend-focused funds.[Bullish](https://www.investopedia.com/terms/b/bull.asp) leveraged funds use leverage to multiply the return of the S&P 500 when it performs well. [Bearish](https://www.investopedia.com/terms/b/bear.asp) leveraged funds short the S&P 500 to pull in positive returns when the index falls. ## How Much Does It Cost to Invest in the S&P 500? The difference in fees between S&P 500 index funds and ETFs these days is marginal. For example, some of the biggest and most popular S&P 500 ETFs have a very low [expense ratio](https://www.investopedia.com/terms/e/expenseratio.asp). Vanguard's S&P 500 ETF (VOO) has an expense ratio of 0.03%, while the Vanguard 500 Index Fund Admiral Shares (VFIAX) has an expense ratio of 0.03%. ## Do S&P 500 ETFs and Funds Pay a Dividend? S&P 500 index ETFs and mutual funds pay dividends to the constituent companies. The S&P 500 index has a dividend yield of about 1.47% as of Apr. 2024. ## What Are Some Required Criteria for a Company To Be Included in the S&P 500? For a company to be in the S&P 500, it must be a U.S. company, it should have an unadjusted market cap of at least $12.7 billion and a float-adjusted market cap of at least 50% of that minimum threshold, and it must have positive as-reported earnings over the most recent quarter as well as over the four most recent quarters combined. ## The Bottom Line Investing in an S&P 500 index fund is a way to diversify an investor's portfolio. An ETF or a mutual fund allows investors to gain exposure to a variety of stocks included in the index such as Apple, Microsoft, or Walmart. *Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, please read[Characteristics and Risks of Standardized Options](https://www.theocc.com/Company-Information/Documents-and-Archives/Options-Disclosure-Document). Supporting documentation for any claims, if applicable, will be furnished upon request.* *There is an Options Regulatory Fee that applies to both option buy and sell transactions. The fee is subject to change. See [Fidelity.com/commissions](http://fidelity.com/commissions]%28https://www.fidelity.com/trading/commissions-margin-rates%29) for details.*

Individuals can invest in the S&P 500 through index funds or ETFs that follow the index. Investors can choose a taxable brokerage account, a 401(k), or an IRA. The S&P 500 index tracks the largest companies in the United States based on factors like market capitalization, sector allocation, and liquidity. The S&P 500 Index was launched in 1957 as the first U.S. market-cap-weighted equity index and is considered the best single gauge of large-cap U.S. equities. Key Takeaways The S&P 500 tracks the largest U.S. companies based on market capitalization.An S&P 500 Index fund can help investors gain broad exposure to the constituent stocks in the S&P 500 index.Index mutual funds and ETFs maintain a strategy of passive index replication, affording investors broad access to all of the securities within the given index. What Is the S&P 500 Index? The index includes 500 leading U.S. companies, although that number may fluctuate. The S&P 500 represents approximately 80% of available U.S. market capitalization. As of May 2024, 503 constituents comprise the S&P 500, with an estimated $43.4 trillion total market capitalization. S&P 500 stocks reflect the U.S. economy's growth drivers. As of Apr. 30, 2024, the top 10 constituents of the S&P 500 by index weight include: Microsoft Corp. (MSFT) Apple Inc. (AAPL) Nvidia Corp. (NVDA) Amazon.com Inc. (AMZN) Alphabet Inc. A (GOOGL) Meta Platforms Inc. Class A (META) Alphabet Inc. C (GOOG) Berkshire Hathaway B (BRK.B) Eli Lilly & Co. (LLY) Broadcom Inc. (AVGO) Three sectors hold the largest concentration of companies in the S&P 500 in April 2024: Information Technology 29.2%, Financials 13.1 %, and Healthcare 12.3%. Why Investors Choose the S&P 500 Index investing allows individuals to effectively follow the market activity of up to 500 companies with the S&P 500. An index fund or exchange-traded fund (ETF) that benchmarks to the S&P 500 allows investors to gain exposure to all those stocks. ETFs focus on passive index replication, giving investors access to every security within a particular index. Index ETFs are generally low-cost and trade throughout the day just like stocks. Consequently, they are highly liquid and subject to intraday price fluctuations.Nearly all major brokerages and fund companies offer some type of S&P 500 fund, such as the iShares S&P 500 Value ETF (IVE), the SPDR Portfolio S&P 500 Value ETF (SPY), and the Vanguard S&P 500 Value ETF (VOO). S&P 500 index funds tend to have slightly higher fees than ETFs because of higher operating expenses. Because a mutual fund has a structure that differs from an ETF, investors can only buy it at the day’s closing price, based on the fund's net asset value (NAV).Index investing pioneer Vanguard's S&P 500 Index Fund (VFINX) was the first index mutual fund for individual investors. The Vanguard 500 Index Fund Admiral Shares (VFIAX) is one of the largest index funds. An index is a measure of the performance of its constituent securities. Individuals invest in an index through ETFs and index funds that try to replicate the performance of specific indexes. How To Invest in the S&P 500 To invest in S&P 500 ETFs, investors can gain exposure through discount brokers with commission-free trading. S&P 500 index funds trade through brokers and discount brokers and may be accessed directly from the fund companies. Investors may also access ETFs and mutual funds through employer 401(k) programs, individual retirement accounts (IRA), or roboadvisor platforms. The expense ratio for ETFs is the overall annual cost paid to the fund manager by investors. Many mutual funds include loads or commissions paid to the fund managers. These may be classified as front-end or back-end loads. Investors can review the performance by accessing the fact sheet for every investment on the company's website that offers the ETF or the mutual fund. Using the name and ticker symbol of the funds, investors can then determine the amount of capital they have to invest. Advantages of Investing in the S&P 500 Exposure to the world's most dynamic companies: Investing in the S&P 500 exposes individuals to some of the world's most dynamic companies, such as Apple, Amazon, Walmart, and Johnson & Johnson.Consistent long-term returns: Although returns in any single year can vary widely over a long-term period, the S&P 500 has consistently performed.Intricate analysis not required: Investing in the S&P 500 through an ETF or index fund means investors do not have to analyze or pick stocks.Can serve as a core holding: S&P 500 index funds and ETFs are liquid and trade with tight bid-ask spreads, making S&P 500 funds and ETFs ideal as core holdings for most investment portfolios. Disadvantages of Investing in the S&P 500 The index is dominated by large-cap companies: The S&P 500 is dominated by large-cap companies, with its 10 biggest constituents accounting for almost one-third of the index. This means that the S&P 500 index has limited exposure to small-cap and mid-cap stocks that may have the ability to grow much faster.The index has risks inherent in equity investing: The S&P 500 has risks inherent in equity investing, such as volatility and downside risk. Newer investors may find it difficult to tolerate such volatility.Only includes U.S. companies: The S&P 500 only includes U.S. companies. We recommend the best products through an independent review process, and advertisers do not influence our picks. We may receive compensation if you visit partners we recommend. Read our advertiser disclosure for more info. Compare the Best Online Brokers Company Category  Investopedia Rating Account Minimum Basic Fee Fidelity Investments Best Overall, Best for Low Costs, Best for ETFs  4.8 $0  $0 for stock/ETF trades, $0 plus $0.65/contract for options trade TD Ameritrade Best for Beginners and Best Mobile App  4.5 $0  $0 for stock/ETF trades, $0 plus $0.65/contract for options trade Tastyworks Best for Options  3.9 $0  $0 stock/ETF trades, $1.00 to open options trades and $0 to close Interactive Brokers Best for Advanced Traders and Best for International Trading  4.2 $0  $0 for IBKR Lite, Maximum $0.005 per share for Pro platform or 1% of trade value  What Are Smart Beta Indexes? Investors may choose an advanced approach to S&P 500 fund investing and consider smart beta indexes. These options have lower costs and offer the advantage of fundamental or customized investing. Examples of such funds include the AAM S&P 500 High Dividend Fund (SPDV) and the S&P 500 Equal Weight Index Fund (RSP). Investors can also target index segments that offer capital appreciation potential, with funds like the SPDR sector series or dividend-focused funds.Bullish leveraged funds use leverage to multiply the return of the S&P 500 when it performs well. Bearish leveraged funds short the S&P 500 to pull in positive returns when the index falls. How Much Does It Cost to Invest in the S&P 500? The difference in fees between S&P 500 index funds and ETFs these days is marginal. For example, some of the biggest and most popular S&P 500 ETFs have a very low expense ratio. Vanguard's S&P 500 ETF (VOO) has an expense ratio of 0.03%, while the Vanguard 500 Index Fund Admiral Shares (VFIAX) has an expense ratio of 0.03%. Do S&P 500 ETFs and Funds Pay a Dividend? S&P 500 index ETFs and mutual funds pay dividends to the constituent companies. The S&P 500 index has a dividend yield of about 1.47% as of Apr. 2024. What Are Some Required Criteria for a Company To Be Included in the S&P 500? For a company to be in the S&P 500, it must be a U.S. company, it should have an unadjusted market cap of at least $12.7 billion and a float-adjusted market cap of at least 50% of that minimum threshold, and it must have positive as-reported earnings over the most recent quarter as well as over the four most recent quarters combined. The Bottom Line Investing in an S&P 500 index fund is a way to diversify an investor's portfolio. An ETF or a mutual fund allows investors to gain exposure to a variety of stocks included in the index such as Apple, Microsoft, or Walmart. Options trading entails significant risk and is not appropriate for all investors. Certain complex options strategies carry additional risk. Before trading options, please read Characteristics and Risks of Standardized Options. Supporting documentation for any claims, if applicable, will be furnished upon request. There is an Options Regulatory Fee that applies to both option buy and sell transactions. The fee is subject to change. See Fidelity.com/commissions for details.

https://www.investopedia.com/short-sellers-target-spacs-5116187

Short Sellers Target SPACs

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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/s/spac.asp">Special Purpose Acquisition Companies (SPACs)</a>, which have been the beauties of the ball for the past six months, now find themselves in the cross-hairs of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/shortselling.asp">short sellers</a> who are betting on many of them to stumble. The dollar value of bearish bets against shares of SPACs has more than tripled to about $2.7 billion from $724 million at the start of the year, according to S3 Partners. </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"> Some of the most popular SPACs have seen the sharpest climb in short bets, including one formed by venture capitalist <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/who-is-chamath-palihapitiya-5105271">Chamath Palihapitiya</a> that plans to merge with lending startup Social Finance, according to <em>The Wall Street Journal</em>.<span class="ql-inline-citation" data-cite="1"></span> That SPAC has 19% of its shares outstanding sold short, according to data from S&amp;P Global Market Intelligence. </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-ev-spacs-among-the-hardest-hit"></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"> EV SPACs Among the Hardest Hit </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> The short interest in Churchill Capital Corp. IV, a SPAC that is merging with electric-vehicle startup Lucid Motors, more than doubled in March to about 5%. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_7-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> XL Fleet, an electric vehicle fleet electrification company, was targeted last week by famed short seller Muddy Waters Capital, which issued a report alleging that XL inflated its sales pipeline and made misleading claims about its technology, among other issues.<span class="ql-inline-citation" data-cite="2"></span> The short seller blasted XL for an unsatisfying response to its challenge and ended the report with this choice quote: "Based on XL’s response with its numerous non-denials, we continue to believe that the company greatly exaggerates its pipeline, performance, and potential sales. In short, XL is more SPAC trash." Shares of XL fell 13% last week when that report was released. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> Even Lordstown Motors, the darling of the electric vehicle boom, has been targeted. Shares of Lordstown fell nearly 17% Friday after Hindenburg Research released a report saying the electric-truck startup had misled investors on its orders and production.<span class="ql-inline-citation" data-cite="3"></span> Short interest in Lordstown shares rose to 5% from 3.4% in the week before the report’s publication, according to data from S&amp;P, as reported by <em>The Wall Street Journal</em>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_12-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:59.1%;"> <img alt="Share price chart for EV SPACs" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/qt2aC1zFKiCN_ZGswHa57CmrBzk=/850x0/filters:no_upscale():max_bytes(150000):strip_icc()/CCIV_RIDE_IPOE_XL_chart-f275be5075214a0ba74c58627246943c.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/l-zQLy9YtwMIVrnSJ76BXSUGW5I=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/CCIV_RIDE_IPOE_XL_chart-f275be5075214a0ba74c58627246943c.png" data-srcset="https://www.investopedia.com/thmb/d7ny4vN9nUj3nKX1DxvMfZX9QyU=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/CCIV_RIDE_IPOE_XL_chart-f275be5075214a0ba74c58627246943c.png 750w" data-tracking-container="true" height="503" id="mntl-sc-block-image_1-0" width="850"/> <noscript> <img alt="Share price chart for EV SPACs" class="img--noscript universal-image__image" height="503" sizes="750px" src="https://www.investopedia.com/thmb/l-zQLy9YtwMIVrnSJ76BXSUGW5I=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/CCIV_RIDE_IPOE_XL_chart-f275be5075214a0ba74c58627246943c.png" srcset="https://www.investopedia.com/thmb/d7ny4vN9nUj3nKX1DxvMfZX9QyU=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/CCIV_RIDE_IPOE_XL_chart-f275be5075214a0ba74c58627246943c.png 750w" width="850"/> </noscript> </div> </div> <figcaption class="comp mntl-figure-caption type--mouse figure-caption figure-article-caption" id="mntl-figure-caption_1-0"> <span class="figure-article-caption-text">Chart courtesy YCharts.</span> </figcaption></figure> <span class="heading-toc" id="toc-sec-warns-of-celebrity-spacs"></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"> SEC Warns of Celebrity SPACs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> Right on time, as usual, the Securities &amp; Exchange Commission (SEC) issued a warning on March 10, alerting investors that SPACs can be risky, and not to invest in them because it has a celebrity endorsement.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> "However, celebrity involvement in a SPAC does not mean that the investment in a particular SPAC or SPACs generally is appropriate for all investors," the SEC said. "Celebrities, like anyone else, can be lured into participating in a risky investment or may be better able to sustain the risk of loss. It is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment." </p></div>

[Special Purpose Acquisition Companies (SPACs)](https://www.investopedia.com/terms/s/spac.asp), which have been the beauties of the ball for the past six months, now find themselves in the cross-hairs of [short sellers](https://www.investopedia.com/terms/s/shortselling.asp) who are betting on many of them to stumble. The dollar value of bearish bets against shares of SPACs has more than tripled to about $2.7 billion from $724 million at the start of the year, according to S3 Partners. Some of the most popular SPACs have seen the sharpest climb in short bets, including one formed by venture capitalist [Chamath Palihapitiya](https://www.investopedia.com/who-is-chamath-palihapitiya-5105271) that plans to merge with lending startup Social Finance, according to *The Wall Street Journal*. That SPAC has 19% of its shares outstanding sold short, according to data from S&P Global Market Intelligence. ## EV SPACs Among the Hardest Hit The short interest in Churchill Capital Corp. IV, a SPAC that is merging with electric-vehicle startup Lucid Motors, more than doubled in March to about 5%. XL Fleet, an electric vehicle fleet electrification company, was targeted last week by famed short seller Muddy Waters Capital, which issued a report alleging that XL inflated its sales pipeline and made misleading claims about its technology, among other issues. The short seller blasted XL for an unsatisfying response to its challenge and ended the report with this choice quote: "Based on XL’s response with its numerous non-denials, we continue to believe that the company greatly exaggerates its pipeline, performance, and potential sales. In short, XL is more SPAC trash." Shares of XL fell 13% last week when that report was released. Even Lordstown Motors, the darling of the electric vehicle boom, has been targeted. Shares of Lordstown fell nearly 17% Friday after Hindenburg Research released a report saying the electric-truck startup had misled investors on its orders and production. Short interest in Lordstown shares rose to 5% from 3.4% in the week before the report’s publication, according to data from S&P, as reported by *The Wall Street Journal*. ![Share price chart for EV SPACs]() :max_bytes(150000):strip_icc()/CCIV_RIDE_IPOE_XL_chart-f275be5075214a0ba74c58627246943c.png) Chart courtesy YCharts. ## SEC Warns of Celebrity SPACs Right on time, as usual, the Securities & Exchange Commission (SEC) issued a warning on March 10, alerting investors that SPACs can be risky, and not to invest in them because it has a celebrity endorsement.  "However, celebrity involvement in a SPAC does not mean that the investment in a particular SPAC or SPACs generally is appropriate for all investors," the SEC said. "Celebrities, like anyone else, can be lured into participating in a risky investment or may be better able to sustain the risk of loss. It is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment."

Special Purpose Acquisition Companies (SPACs), which have been the beauties of the ball for the past six months, now find themselves in the cross-hairs of short sellers who are betting on many of them to stumble. The dollar value of bearish bets against shares of SPACs has more than tripled to about $2.7 billion from $724 million at the start of the year, according to S3 Partners. Some of the most popular SPACs have seen the sharpest climb in short bets, including one formed by venture capitalist Chamath Palihapitiya that plans to merge with lending startup Social Finance, according to The Wall Street Journal. That SPAC has 19% of its shares outstanding sold short, according to data from S&P Global Market Intelligence. EV SPACs Among the Hardest Hit The short interest in Churchill Capital Corp. IV, a SPAC that is merging with electric-vehicle startup Lucid Motors, more than doubled in March to about 5%. XL Fleet, an electric vehicle fleet electrification company, was targeted last week by famed short seller Muddy Waters Capital, which issued a report alleging that XL inflated its sales pipeline and made misleading claims about its technology, among other issues. The short seller blasted XL for an unsatisfying response to its challenge and ended the report with this choice quote: "Based on XL’s response with its numerous non-denials, we continue to believe that the company greatly exaggerates its pipeline, performance, and potential sales. In short, XL is more SPAC trash." Shares of XL fell 13% last week when that report was released. Even Lordstown Motors, the darling of the electric vehicle boom, has been targeted. Shares of Lordstown fell nearly 17% Friday after Hindenburg Research released a report saying the electric-truck startup had misled investors on its orders and production. Short interest in Lordstown shares rose to 5% from 3.4% in the week before the report’s publication, according to data from S&P, as reported by The Wall Street Journal. Chart courtesy YCharts. SEC Warns of Celebrity SPACs Right on time, as usual, the Securities & Exchange Commission (SEC) issued a warning on March 10, alerting investors that SPACs can be risky, and not to invest in them because it has a celebrity endorsement.  "However, celebrity involvement in a SPAC does not mean that the investment in a particular SPAC or SPACs generally is appropriate for all investors," the SEC said. "Celebrities, like anyone else, can be lured into participating in a risky investment or may be better able to sustain the risk of loss. It is never a good idea to invest in a SPAC just because someone famous sponsors or invests in it or says it is a good investment."

https://www.investopedia.com/how-do-mid-caps-perform-during-bear-markets-5224694

How Do Mid-Caps Perform During Bear Markets?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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/b/bearmarket.asp">Bear markets</a> are prolonged periods of time over which the value of securities decreases. There is much debate around the exact conditions that a certain period must meet to officially be declared a bear market, but the most accepted definition is a sustained period of usually two months or more in which security prices fall 20% or more from recent highs.<span class="ql-inline-citation" data-cite="6"></span> Bear markets are often accompanied by negative investor sentiment or periods of weak or declining economic growth, such as those seen during <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/recession.asp">recessions</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"> Since April 1947, there have been 14 bear markets, which have ranged in length from one month to 1.7 years. On average, bear markets lasted 11.3 months with an average cumulative loss of -32.1%.<span class="ql-inline-citation" data-cite="7"></span> Another form of market sell-off is called a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/correction.asp">correction</a>. The most common definition of a correction is that security prices move decrease from their recent highs by 10%.<span class="ql-inline-citation" data-cite="8"></span> Like in a bear market, a correction is often accompanied by investor pessimism or negativity. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> For the purposes of this article, the exact boundaries between a correction and a bear market are not of significant concern. The crux of what is important to most investors is how a certain group of companies—those that occupy the middle of the business curve, known as <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/midcapstock.asp">mid-caps</a>—perform during periods of weakness. In this article, we'll look at how mid-cap companies perform during periods of market weakness relative to their more popular <a data-component="link" data-ordinal="2" 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_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>Mid-cap companies tend to outperform large-caps <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-do-mid-cap-stocks-perform-during-bull-markets-5224692">during bull markets</a>. During periods of falling prices, mid-caps either move in lockstep or underperform the large-cap group.</li> <li>The choice of whether this segment is right for an investor will depend on factors such as risk tolerance and investment horizon.</li> <li>The extra level of volatility and risk that is associated with the mid-cap segment can work against investors' best interests when the markets are concerned about economic 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_9-0"> As aforementioned, mid-cap companies occupy the middle of the business lifecycle. Typically, a mid-cap company has a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/marketcapitalization.asp">market capitalization</a> of between $2 billion and $20 billion.<span class="ql-inline-citation" data-cite="9"></span> This group is usually of interest to investors because mid-cap companies have moved beyond the risks that are associated with early-stage businesses and have significant room for growth and expansion. </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"> Historically, mid-caps have performed well relative to large-cap counterparts when prices were rising. According to research conducted by S&amp;P Dow Jones Indices, mid-cap companies, as measured by 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 400 MidCap Index</a>, outperformed the S&amp;P 500 and S&amp;P 600 between Dec. 30, 1994, and May 31, 2019, at an annualized rate of 2.03%, and 0.92% respectively.<span class="ql-inline-citation" data-cite="10"></span> Past performance, especially when viewed in comparison, is never a guarantee of future performance. The arguments of expected price behavior are only based on opinion and are only for informational and planning purposes. </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"> Many would suggest that higher returns would be expected due to the higher level of risk associated with their relatively smaller size. However, it is interesting to note that the same performance profile was not present during periods of market declines. More specifically, when looking at monthly returns, the average excess return posted by the mid-cap group was -0.08%.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> In other words, with history as a guide, mid-cap investors would look for prices to significantly outperform large-caps during up months and only slightly underperform during down markets. Because the mid-cap group is about 15% more volatile on average, 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 profile</a> outlined above would likely be acceptable for many types of investors.<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_16-0"></div> <span class="heading-toc" id="toc-2007-to-2009"></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"> 2007 to 2009 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> One of the most significant bear markets in history occurred between 2007 and 2009. During this 1.1-year span, markets suffered a total return of -51.9%.<span class="ql-inline-citation" data-cite="7"></span> Looking at the chart, you can see that the S&amp;P MidCap Index and the S&amp;P 500 moved in near lockstep for much of this period. Relative to the large-cap index, the mid-cap index has a strong tilt toward sectors such as industrials, materials, and utilities. On the other hand, the large-cap index offers greater exposure to technology. </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 fundamental sector composition of mid-cap and large-cap funds along with the nature of investor sentiment during periods of market weakness ultimately play a major role in how correlated prices are. During bear markets, all segments are often highly correlated as investors are scrambling to find the exit and sell-off positions regardless of their fundamental qualities. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_22-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:49.6%;"> <img alt="Relative performance between the S&amp;P 400 and S&amp;P 500 during 2007 and 2009. " class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/WXo3P9f8DdBahGmP7zK6deBpSIo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID-0709_040322-0f560d3a864d497babcbd39ab448a81c.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/WXo3P9f8DdBahGmP7zK6deBpSIo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID-0709_040322-0f560d3a864d497babcbd39ab448a81c.png" data-srcset="https://www.investopedia.com/thmb/qznz00gkuImxgarytiVTBIwCvkQ=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID-0709_040322-0f560d3a864d497babcbd39ab448a81c.png 750w" data-tracking-container="true" height="791" id="mntl-sc-block-image_1-0" width="1594"/> <noscript> <img alt="Relative performance between the S&amp;P 400 and S&amp;P 500 during 2007 and 2009. " class="img--noscript universal-image__image" height="791" sizes="750px" src="https://www.investopedia.com/thmb/WXo3P9f8DdBahGmP7zK6deBpSIo=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID-0709_040322-0f560d3a864d497babcbd39ab448a81c.png" srcset="https://www.investopedia.com/thmb/qznz00gkuImxgarytiVTBIwCvkQ=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID-0709_040322-0f560d3a864d497babcbd39ab448a81c.png 750w" width="1594"/> </noscript> </div> </div> </figure> <span class="heading-toc" id="toc-2011"></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"> 2011 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The market declines in 2011, though not technically considered to be a bear market, were significant because of the high level of negative investor sentiment. From late 2009 through 2012, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/european-sovereign-debt-crisis.asp">European sovereign debt crisis</a> was a major threat to global economic growth. As you may recall, at that time, several eurozone member states such as Greece, Portugal, Spain, and Ireland were having difficulties servicing their government debt and required third-party assistance to bail out some major financial institutions.<span class="ql-inline-citation" data-cite="12"></span> Meanwhile, back in the United States, 2011 marked the first year in history that S&amp;P downgraded the creditworthiness of the U.S. federal government to a rating below AAA.<span class="ql-inline-citation" data-cite="13"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> With concerns of slow global economic growth ruling the day, investors started to fear recession, and equity prices started to decline. Looking at the chart below, you can see that the mid-cap segment of the market strongly correlated to the large-caps and started to underperform as domestic economic growth concerns ramped up in the latter part of the year. </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:49.6%;"> <img alt="Relative performance of the S&amp;P 400 and S&amp;P 500 during 2011. " class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/7nBxZUg8kPXzseiOJ8QLXBn1n2M=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID-11_040322-2cc3f19bf4fa44ec8212e59c041b1f39.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/7nBxZUg8kPXzseiOJ8QLXBn1n2M=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID-11_040322-2cc3f19bf4fa44ec8212e59c041b1f39.png" data-srcset="https://www.investopedia.com/thmb/RAPoxNsaqYv7YMgfrYqEf4Z63Qg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID-11_040322-2cc3f19bf4fa44ec8212e59c041b1f39.png 750w" data-tracking-container="true" height="791" id="mntl-sc-block-image_2-0" width="1594"/> <noscript> <img alt="Relative performance of the S&amp;P 400 and S&amp;P 500 during 2011. " class="img--noscript universal-image__image" height="791" sizes="750px" src="https://www.investopedia.com/thmb/7nBxZUg8kPXzseiOJ8QLXBn1n2M=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID-11_040322-2cc3f19bf4fa44ec8212e59c041b1f39.png" srcset="https://www.investopedia.com/thmb/RAPoxNsaqYv7YMgfrYqEf4Z63Qg=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID-11_040322-2cc3f19bf4fa44ec8212e59c041b1f39.png 750w" width="1594"/> </noscript> </div> </div> </figure> <span class="heading-toc" id="toc-2015-to-2016"></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"> 2015 to 2016  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_30-0"> During the period of 2015 to 2016, concerns again started to mount around weakening prospects for economic growth. This time, slower-than-expected GDP growth from China sparked a sudden decision to devalue the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/c/cny-china-yuan-renminbi.asp">yuan</a> by 3% relative to the U.S. dollar.<span class="ql-inline-citation" data-cite="2"></span> On Aug. 24, investors panicked and looked for the exits. The flood of selling pressure sent the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/sse-composite.asp">Chinese Shanghai Stock Exchange Composite Index</a> down by 8.5%.<span class="ql-inline-citation" data-cite="14"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> Looking at the chart below, you can see that mid-caps had a strong performance at the beginning of the year with the typical type of divergence between the major indexes seen during rising markets. As prices started to decline, mid-caps started to underperform. This chart clearly illustrates how mid-caps lead the way when market prices are rising and how prices between the segments can tend to move in tandem when prices are falling. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_34-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:49.6%;"> <img alt="Relative performance of the S&amp;P 400 and the S&amp;P 500 during 2015-16. " class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/AQYnto0_rsSzcvjHeQwW7XxojOg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID-201516_040322-1d4e8cba0fee4f19aae013a3d328b2aa.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/AQYnto0_rsSzcvjHeQwW7XxojOg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID-201516_040322-1d4e8cba0fee4f19aae013a3d328b2aa.png" data-srcset="https://www.investopedia.com/thmb/UR-6AIP4apFKR8wA2N1H4eJMBwo=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID-201516_040322-1d4e8cba0fee4f19aae013a3d328b2aa.png 750w" data-tracking-container="true" height="791" id="mntl-sc-block-image_3-0" width="1594"/> <noscript> <img alt="Relative performance of the S&amp;P 400 and the S&amp;P 500 during 2015-16. " class="img--noscript universal-image__image" height="791" sizes="750px" src="https://www.investopedia.com/thmb/AQYnto0_rsSzcvjHeQwW7XxojOg=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID-201516_040322-1d4e8cba0fee4f19aae013a3d328b2aa.png" srcset="https://www.investopedia.com/thmb/UR-6AIP4apFKR8wA2N1H4eJMBwo=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID-201516_040322-1d4e8cba0fee4f19aae013a3d328b2aa.png 750w" width="1594"/> </noscript> </div> </div> </figure> <span class="heading-toc" id="toc-2018-to-19"></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"> 2018 to 19 </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> It was a difficult year for North American investors in 2018. Concerns of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/trade-war.asp">trade war</a> with China, threats of higher interest rates, and lingering fears of an economic slowdown caused investors to send prices lower.<span class="ql-inline-citation" data-cite="15"></span> In the case of 2018, it is interesting to see how prices moved in lockstep for the first part of the year, but as economic concerns started to deepen, the mid-caps then started to underperform. </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"> This chart highlights the double-edged nature of mid-caps and how the extra level of volatility and risk that is associated with the smaller mid-cap segment can work against investors' best interests when the markets are concerned about future growth. </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-2020"></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"> 2020 </span> </h2> <figure class="comp mntl-sc-block finance-sc-block-image mntl-sc-block-universal-image mntl-sc-block-image--no-theme no-theme mntl-sc-block-image inline-image figure-landscape figure-high-res" id="mntl-sc-block_41-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:49.6%;"> <img alt="Relative performance of S&amp;P 400 compared to the S&amp;P 500 during 2018-19." class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/hQxoVRtQIReiVVzssScpRxG9rVQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID_201819_040322-fb80a35ad8294e63acdb4a8639557e5c.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/hQxoVRtQIReiVVzssScpRxG9rVQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID_201819_040322-fb80a35ad8294e63acdb4a8639557e5c.png" data-srcset="https://www.investopedia.com/thmb/_vTLiifr2ACOhja6pxbvmnSGNdk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID_201819_040322-fb80a35ad8294e63acdb4a8639557e5c.png 750w" data-tracking-container="true" height="791" id="mntl-sc-block-image_4-0" width="1594"/> <noscript> <img alt="Relative performance of S&amp;P 400 compared to the S&amp;P 500 during 2018-19." class="img--noscript universal-image__image" height="791" sizes="750px" src="https://www.investopedia.com/thmb/hQxoVRtQIReiVVzssScpRxG9rVQ=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID_201819_040322-fb80a35ad8294e63acdb4a8639557e5c.png" srcset="https://www.investopedia.com/thmb/_vTLiifr2ACOhja6pxbvmnSGNdk=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID_201819_040322-fb80a35ad8294e63acdb4a8639557e5c.png 750w" width="1594"/> </noscript> </div> </div> </figure> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> The onset of the COVID-19 pandemic in early 2020 was filled with fear and uncertainty. The lockdown orders and sudden changes to day-to-day business highlighted the key role of technology in today's world.<span class="ql-inline-citation" data-cite="17"></span><span class="ql-inline-citation" data-cite="16"></span> The added exposure to large-cap technology companies helped cushion the returns of the S&amp;P 500 in relation to the mid- and small-cap segments. </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"> This chart highlights how mid-caps don’t always move in lockstep with other market segments and how they can greatly underperform during periods of panic selling and uncertainty. It is a good reminder that prices between market segments don't always move as close together as some would hope or expect. </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-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_46-0"> <div class="figure-media"> <div class="img-placeholder" style="padding-bottom:49.6%;"> <img alt="Relative performance of the S&amp;P 400 and S&amp;P 500 in 2020. " class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" data-hi-res-src="https://www.investopedia.com/thmb/pzNgXpT_Knh329hzbIxhdd_mStA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID_2020_040322-35c82e4dbf5a4d7bbe8de59ee982b059.png" data-img-lightbox="true" data-sizes="750px" data-src="https://www.investopedia.com/thmb/pzNgXpT_Knh329hzbIxhdd_mStA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID_2020_040322-35c82e4dbf5a4d7bbe8de59ee982b059.png" data-srcset="https://www.investopedia.com/thmb/PnRK88sPp1wgAEqwXguM2K3w0ng=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID_2020_040322-35c82e4dbf5a4d7bbe8de59ee982b059.png 750w" data-tracking-container="true" height="791" id="mntl-sc-block-image_5-0" width="1594"/> <noscript> <img alt="Relative performance of the S&amp;P 400 and S&amp;P 500 in 2020. " class="img--noscript universal-image__image" height="791" sizes="750px" src="https://www.investopedia.com/thmb/pzNgXpT_Knh329hzbIxhdd_mStA=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID_2020_040322-35c82e4dbf5a4d7bbe8de59ee982b059.png" srcset="https://www.investopedia.com/thmb/PnRK88sPp1wgAEqwXguM2K3w0ng=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/MID_2020_040322-35c82e4dbf5a4d7bbe8de59ee982b059.png 750w" width="1594"/> </noscript> </div> </div> </figure> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_47-0"><span class="heading-toc" id="toc-how-many-bear-markets-have-there-been-in-the-us"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Many Bear Markets Have There Been in the U.S?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>As of March 31, 2022, there have been 14 bear markets in the U.S. since 1947. Bear markets have ranged from one month to 1.7 years. On average, bear markets lasted 11.3 months, with an average cumulative loss of -32.1%.<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_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-much-more-volatile-are-mid-cap-stocks-compared-to-large-caps"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Much More Volatile Are Mid-Cap Stocks Compared to Large-Caps?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Between 1994 and 2019, the mid-cap group was about 15% more volatile than large-caps. During the same period, the S&amp;P 400 outperformed the S&amp;P 500 and S&amp;P 600 indexes by an annualized rate of 2.03% and 0.92% respectively.<span class="ql-inline-citation" data-cite="18"></span> With history as a guide, mid-cap investors would look for prices to significantly outperform large-caps during up months and only slightly underperform during down markets. This type of risk/reward profile is one of the reasons many investors seek exposure to mid-cap companies.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_51-0"><span class="heading-toc" id="toc-what-is-the-difference-between-a-correction-and-a-bear-market"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between a Correction and a Bear Market?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Both a correction and a bear market are scenarios in which broad equity markets experience a period of falling prices. Both a correction and a bear market are typically accompanied by negative investor sentiment. In the case of a correction, prices usually decline 10% or more from their most recent peak, while a bear market is more significant, with prices falling 20% or more from their recent peak.<span class="ql-inline-citation" data-cite="6"></span><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_52-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_53-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> Historically, mid-cap companies have posted strong returns relative to large-caps during periods when markets were rising. Conversely, during periods of falling market prices, the higher risk associated with their smaller size can tend to cause the mid-cap group to slightly underperform. </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"> Investor risk tolerance and investment horizons are the integral components of the type of allocation that this segment deserves within a diversified portfolio. In short, the mid-cap segment is a deserving candidate for investors who are looking for higher excess returns relative to the large-cap indexes while also assuming a reasonable amount of risk.<br> </br></p></div>

[Bear markets](https://www.investopedia.com/terms/b/bearmarket.asp) are prolonged periods of time over which the value of securities decreases. There is much debate around the exact conditions that a certain period must meet to officially be declared a bear market, but the most accepted definition is a sustained period of usually two months or more in which security prices fall 20% or more from recent highs. Bear markets are often accompanied by negative investor sentiment or periods of weak or declining economic growth, such as those seen during [recessions](https://www.investopedia.com/terms/r/recession.asp). Since April 1947, there have been 14 bear markets, which have ranged in length from one month to 1.7 years. On average, bear markets lasted 11.3 months with an average cumulative loss of -32.1%. Another form of market sell-off is called a [correction](https://www.investopedia.com/terms/c/correction.asp). The most common definition of a correction is that security prices move decrease from their recent highs by 10%. Like in a bear market, a correction is often accompanied by investor pessimism or negativity. For the purposes of this article, the exact boundaries between a correction and a bear market are not of significant concern. The crux of what is important to most investors is how a certain group of companies—those that occupy the middle of the business curve, known as [mid-caps](https://www.investopedia.com/terms/m/midcapstock.asp)—perform during periods of weakness. In this article, we'll look at how mid-cap companies perform during periods of market weakness relative to their more popular [large-cap](https://www.investopedia.com/terms/l/large-cap.asp) counterparts. ### Key Takeaways * Mid-cap companies tend to outperform large-caps [during bull markets](https://www.investopedia.com/how-do-mid-cap-stocks-perform-during-bull-markets-5224692). During periods of falling prices, mid-caps either move in lockstep or underperform the large-cap group. * The choice of whether this segment is right for an investor will depend on factors such as risk tolerance and investment horizon. * The extra level of volatility and risk that is associated with the mid-cap segment can work against investors' best interests when the markets are concerned about economic growth. As aforementioned, mid-cap companies occupy the middle of the business lifecycle. Typically, a mid-cap company has a [market capitalization](https://www.investopedia.com/terms/m/marketcapitalization.asp) of between $2 billion and $20 billion. This group is usually of interest to investors because mid-cap companies have moved beyond the risks that are associated with early-stage businesses and have significant room for growth and expansion. Historically, mid-caps have performed well relative to large-cap counterparts when prices were rising. According to research conducted by S&P Dow Jones Indices, mid-cap companies, as measured by the [S&P 400 MidCap Index](https://www.investopedia.com/terms/s/sp-midcap-400-index.asp), outperformed the S&P 500 and S&P 600 between Dec. 30, 1994, and May 31, 2019, at an annualized rate of 2.03%, and 0.92% respectively. Past performance, especially when viewed in comparison, is never a guarantee of future performance. The arguments of expected price behavior are only based on opinion and are only for informational and planning purposes. Many would suggest that higher returns would be expected due to the higher level of risk associated with their relatively smaller size. However, it is interesting to note that the same performance profile was not present during periods of market declines. More specifically, when looking at monthly returns, the average excess return posted by the mid-cap group was -0.08%. In other words, with history as a guide, mid-cap investors would look for prices to significantly outperform large-caps during up months and only slightly underperform during down markets. Because the mid-cap group is about 15% more volatile on average, the [risk/reward profile](https://www.investopedia.com/terms/r/riskrewardratio.asp) outlined above would likely be acceptable for many types of investors. ## 2007 to 2009 One of the most significant bear markets in history occurred between 2007 and 2009. During this 1.1-year span, markets suffered a total return of -51.9%. Looking at the chart, you can see that the S&P MidCap Index and the S&P 500 moved in near lockstep for much of this period. Relative to the large-cap index, the mid-cap index has a strong tilt toward sectors such as industrials, materials, and utilities. On the other hand, the large-cap index offers greater exposure to technology. The fundamental sector composition of mid-cap and large-cap funds along with the nature of investor sentiment during periods of market weakness ultimately play a major role in how correlated prices are. During bear markets, all segments are often highly correlated as investors are scrambling to find the exit and sell-off positions regardless of their fundamental qualities. ![Relative performance between the S&P 400 and S&P 500 during 2007 and 2009. ]() :max_bytes(150000):strip_icc()/MID-0709_040322-0f560d3a864d497babcbd39ab448a81c.png) ## 2011 The market declines in 2011, though not technically considered to be a bear market, were significant because of the high level of negative investor sentiment. From late 2009 through 2012, the [European sovereign debt crisis](https://www.investopedia.com/terms/e/european-sovereign-debt-crisis.asp) was a major threat to global economic growth. As you may recall, at that time, several eurozone member states such as Greece, Portugal, Spain, and Ireland were having difficulties servicing their government debt and required third-party assistance to bail out some major financial institutions. Meanwhile, back in the United States, 2011 marked the first year in history that S&P downgraded the creditworthiness of the U.S. federal government to a rating below AAA. With concerns of slow global economic growth ruling the day, investors started to fear recession, and equity prices started to decline. Looking at the chart below, you can see that the mid-cap segment of the market strongly correlated to the large-caps and started to underperform as domestic economic growth concerns ramped up in the latter part of the year. ![Relative performance of the S&P 400 and S&P 500 during 2011. ]() :max_bytes(150000):strip_icc()/MID-11_040322-2cc3f19bf4fa44ec8212e59c041b1f39.png) ## 2015 to 2016 During the period of 2015 to 2016, concerns again started to mount around weakening prospects for economic growth. This time, slower-than-expected GDP growth from China sparked a sudden decision to devalue the [yuan](https://www.investopedia.com/terms/forex/c/cny-china-yuan-renminbi.asp) by 3% relative to the U.S. dollar. On Aug. 24, investors panicked and looked for the exits. The flood of selling pressure sent the [Chinese Shanghai Stock Exchange Composite Index](https://www.investopedia.com/terms/s/sse-composite.asp) down by 8.5%. Looking at the chart below, you can see that mid-caps had a strong performance at the beginning of the year with the typical type of divergence between the major indexes seen during rising markets. As prices started to decline, mid-caps started to underperform. This chart clearly illustrates how mid-caps lead the way when market prices are rising and how prices between the segments can tend to move in tandem when prices are falling. ![Relative performance of the S&P 400 and the S&P 500 during 2015-16. ]() :max_bytes(150000):strip_icc()/MID-201516_040322-1d4e8cba0fee4f19aae013a3d328b2aa.png) ## 2018 to 19 It was a difficult year for North American investors in 2018. Concerns of a [trade war](https://www.investopedia.com/terms/t/trade-war.asp) with China, threats of higher interest rates, and lingering fears of an economic slowdown caused investors to send prices lower. In the case of 2018, it is interesting to see how prices moved in lockstep for the first part of the year, but as economic concerns started to deepen, the mid-caps then started to underperform. This chart highlights the double-edged nature of mid-caps and how the extra level of volatility and risk that is associated with the smaller mid-cap segment can work against investors' best interests when the markets are concerned about future growth. ## 2020 ![Relative performance of S&P 400 compared to the S&P 500 during 2018-19.]() :max_bytes(150000):strip_icc()/MID_201819_040322-fb80a35ad8294e63acdb4a8639557e5c.png) The onset of the COVID-19 pandemic in early 2020 was filled with fear and uncertainty. The lockdown orders and sudden changes to day-to-day business highlighted the key role of technology in today's world. The added exposure to large-cap technology companies helped cushion the returns of the S&P 500 in relation to the mid- and small-cap segments. This chart highlights how mid-caps don’t always move in lockstep with other market segments and how they can greatly underperform during periods of panic selling and uncertainty. It is a good reminder that prices between market segments don't always move as close together as some would hope or expect. ![Relative performance of the S&P 400 and S&P 500 in 2020. ]() :max_bytes(150000):strip_icc()/MID_2020_040322-35c82e4dbf5a4d7bbe8de59ee982b059.png) ## How Many Bear Markets Have There Been in the U.S? As of March 31, 2022, there have been 14 bear markets in the U.S. since 1947. Bear markets have ranged from one month to 1.7 years. On average, bear markets lasted 11.3 months, with an average cumulative loss of -32.1%. ## How Much More Volatile Are Mid-Cap Stocks Compared to Large-Caps? Between 1994 and 2019, the mid-cap group was about 15% more volatile than large-caps. During the same period, the S&P 400 outperformed the S&P 500 and S&P 600 indexes by an annualized rate of 2.03% and 0.92% respectively. With history as a guide, mid-cap investors would look for prices to significantly outperform large-caps during up months and only slightly underperform during down markets. This type of risk/reward profile is one of the reasons many investors seek exposure to mid-cap companies. ## What Is the Difference Between a Correction and a Bear Market? Both a correction and a bear market are scenarios in which broad equity markets experience a period of falling prices. Both a correction and a bear market are typically accompanied by negative investor sentiment. In the case of a correction, prices usually decline 10% or more from their most recent peak, while a bear market is more significant, with prices falling 20% or more from their recent peak. ## The Bottom Line Historically, mid-cap companies have posted strong returns relative to large-caps during periods when markets were rising. Conversely, during periods of falling market prices, the higher risk associated with their smaller size can tend to cause the mid-cap group to slightly underperform. Investor risk tolerance and investment horizons are the integral components of the type of allocation that this segment deserves within a diversified portfolio. In short, the mid-cap segment is a deserving candidate for investors who are looking for higher excess returns relative to the large-cap indexes while also assuming a reasonable amount of risk.

Bear markets are prolonged periods of time over which the value of securities decreases. There is much debate around the exact conditions that a certain period must meet to officially be declared a bear market, but the most accepted definition is a sustained period of usually two months or more in which security prices fall 20% or more from recent highs. Bear markets are often accompanied by negative investor sentiment or periods of weak or declining economic growth, such as those seen during recessions. Since April 1947, there have been 14 bear markets, which have ranged in length from one month to 1.7 years. On average, bear markets lasted 11.3 months with an average cumulative loss of -32.1%. Another form of market sell-off is called a correction. The most common definition of a correction is that security prices move decrease from their recent highs by 10%. Like in a bear market, a correction is often accompanied by investor pessimism or negativity. For the purposes of this article, the exact boundaries between a correction and a bear market are not of significant concern. The crux of what is important to most investors is how a certain group of companies—those that occupy the middle of the business curve, known as mid-caps—perform during periods of weakness. In this article, we'll look at how mid-cap companies perform during periods of market weakness relative to their more popular large-cap counterparts. Key Takeaways Mid-cap companies tend to outperform large-caps during bull markets. During periods of falling prices, mid-caps either move in lockstep or underperform the large-cap group. The choice of whether this segment is right for an investor will depend on factors such as risk tolerance and investment horizon. The extra level of volatility and risk that is associated with the mid-cap segment can work against investors' best interests when the markets are concerned about economic growth. As aforementioned, mid-cap companies occupy the middle of the business lifecycle. Typically, a mid-cap company has a market capitalization of between $2 billion and $20 billion. This group is usually of interest to investors because mid-cap companies have moved beyond the risks that are associated with early-stage businesses and have significant room for growth and expansion. Historically, mid-caps have performed well relative to large-cap counterparts when prices were rising. According to research conducted by S&P Dow Jones Indices, mid-cap companies, as measured by the S&P 400 MidCap Index, outperformed the S&P 500 and S&P 600 between Dec. 30, 1994, and May 31, 2019, at an annualized rate of 2.03%, and 0.92% respectively. Past performance, especially when viewed in comparison, is never a guarantee of future performance. The arguments of expected price behavior are only based on opinion and are only for informational and planning purposes. Many would suggest that higher returns would be expected due to the higher level of risk associated with their relatively smaller size. However, it is interesting to note that the same performance profile was not present during periods of market declines. More specifically, when looking at monthly returns, the average excess return posted by the mid-cap group was -0.08%. In other words, with history as a guide, mid-cap investors would look for prices to significantly outperform large-caps during up months and only slightly underperform during down markets. Because the mid-cap group is about 15% more volatile on average, the risk/reward profile outlined above would likely be acceptable for many types of investors. 2007 to 2009 One of the most significant bear markets in history occurred between 2007 and 2009. During this 1.1-year span, markets suffered a total return of -51.9%. Looking at the chart, you can see that the S&P MidCap Index and the S&P 500 moved in near lockstep for much of this period. Relative to the large-cap index, the mid-cap index has a strong tilt toward sectors such as industrials, materials, and utilities. On the other hand, the large-cap index offers greater exposure to technology. The fundamental sector composition of mid-cap and large-cap funds along with the nature of investor sentiment during periods of market weakness ultimately play a major role in how correlated prices are. During bear markets, all segments are often highly correlated as investors are scrambling to find the exit and sell-off positions regardless of their fundamental qualities. 2011 The market declines in 2011, though not technically considered to be a bear market, were significant because of the high level of negative investor sentiment. From late 2009 through 2012, the European sovereign debt crisis was a major threat to global economic growth. As you may recall, at that time, several eurozone member states such as Greece, Portugal, Spain, and Ireland were having difficulties servicing their government debt and required third-party assistance to bail out some major financial institutions. Meanwhile, back in the United States, 2011 marked the first year in history that S&P downgraded the creditworthiness of the U.S. federal government to a rating below AAA. With concerns of slow global economic growth ruling the day, investors started to fear recession, and equity prices started to decline. Looking at the chart below, you can see that the mid-cap segment of the market strongly correlated to the large-caps and started to underperform as domestic economic growth concerns ramped up in the latter part of the year. 2015 to 2016  During the period of 2015 to 2016, concerns again started to mount around weakening prospects for economic growth. This time, slower-than-expected GDP growth from China sparked a sudden decision to devalue the yuan by 3% relative to the U.S. dollar. On Aug. 24, investors panicked and looked for the exits. The flood of selling pressure sent the Chinese Shanghai Stock Exchange Composite Index down by 8.5%. Looking at the chart below, you can see that mid-caps had a strong performance at the beginning of the year with the typical type of divergence between the major indexes seen during rising markets. As prices started to decline, mid-caps started to underperform. This chart clearly illustrates how mid-caps lead the way when market prices are rising and how prices between the segments can tend to move in tandem when prices are falling. 2018 to 19 It was a difficult year for North American investors in 2018. Concerns of a trade war with China, threats of higher interest rates, and lingering fears of an economic slowdown caused investors to send prices lower. In the case of 2018, it is interesting to see how prices moved in lockstep for the first part of the year, but as economic concerns started to deepen, the mid-caps then started to underperform. This chart highlights the double-edged nature of mid-caps and how the extra level of volatility and risk that is associated with the smaller mid-cap segment can work against investors' best interests when the markets are concerned about future growth. 2020 The onset of the COVID-19 pandemic in early 2020 was filled with fear and uncertainty. The lockdown orders and sudden changes to day-to-day business highlighted the key role of technology in today's world. The added exposure to large-cap technology companies helped cushion the returns of the S&P 500 in relation to the mid- and small-cap segments. This chart highlights how mid-caps don’t always move in lockstep with other market segments and how they can greatly underperform during periods of panic selling and uncertainty. It is a good reminder that prices between market segments don't always move as close together as some would hope or expect. How Many Bear Markets Have There Been in the U.S? As of March 31, 2022, there have been 14 bear markets in the U.S. since 1947. Bear markets have ranged from one month to 1.7 years. On average, bear markets lasted 11.3 months, with an average cumulative loss of -32.1%. How Much More Volatile Are Mid-Cap Stocks Compared to Large-Caps? Between 1994 and 2019, the mid-cap group was about 15% more volatile than large-caps. During the same period, the S&P 400 outperformed the S&P 500 and S&P 600 indexes by an annualized rate of 2.03% and 0.92% respectively. With history as a guide, mid-cap investors would look for prices to significantly outperform large-caps during up months and only slightly underperform during down markets. This type of risk/reward profile is one of the reasons many investors seek exposure to mid-cap companies. What Is the Difference Between a Correction and a Bear Market? Both a correction and a bear market are scenarios in which broad equity markets experience a period of falling prices. Both a correction and a bear market are typically accompanied by negative investor sentiment. In the case of a correction, prices usually decline 10% or more from their most recent peak, while a bear market is more significant, with prices falling 20% or more from their recent peak. The Bottom Line Historically, mid-cap companies have posted strong returns relative to large-caps during periods when markets were rising. Conversely, during periods of falling market prices, the higher risk associated with their smaller size can tend to cause the mid-cap group to slightly underperform. Investor risk tolerance and investment horizons are the integral components of the type of allocation that this segment deserves within a diversified portfolio. In short, the mid-cap segment is a deserving candidate for investors who are looking for higher excess returns relative to the large-cap indexes while also assuming a reasonable amount of risk.

https://www.investopedia.com/employer-sponsored-health-benefit-costs-to-rise-in-2024-7966987

Employer-Sponsored Health Benefit Costs Could Rise 5.4% in 2024

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> Employers expect health benefit costs could rise an average of 5.4% per employee next year, a recent survey by Mercer found.<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>Employers expect health benefit costs may rise an average of 5.4% per employee next year, a survey by Mercer found. </li><li>The anticipated 5.4% spike is much higher than the 3% to 4% typical for over a decade.</li><li>Rising costs and labor shortages in the healthcare sector may have contributed to the increase.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The anticipated 5.4% rise is higher than the 3% to 4% typical for over a decade but still not as high as the jump in 2001, when health benefit costs per employee shot up to 6.3% following the COVID-19 pandemic, according to Mercer. </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"> Rising prices and labor shortages in the healthcare industry likely played a role in driving healthcare costs up, Mercer suggested. Consolidation and “the introduction of ultra-expensive gene and cellular therapies” may have also contributed, along with the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/booming-demand-boosts-forecasts-for-weight-loss-drugs-7564897">surge in popularity of diabetes and obesity drugs</a>. <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_8-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_9-0"> However, many employers are choosing to cover those extra costs themselves rather than passing them on to employees in 2024, in part to attract and retain workers, responses indicated.  </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"> “Many employer plan sponsors have chosen to absorb cost increases in recent years rather than ask employees to pay more out of pocket for healthcare. This also contributes to faster health plan cost growth,” said Sunit Patel, Mercer's chief actuary for health and benefits, in a release. </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 report noted that “enhancing benefits to improve attraction and retention” was the top strategic priority for corporate respondents amid a tight labor market, ahead of cost-cutting measures. <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>

Employers expect health benefit costs could rise an average of 5.4% per employee next year, a recent survey by Mercer found. ### Key Takeaways * Employers expect health benefit costs may rise an average of 5.4% per employee next year, a survey by Mercer found. * The anticipated 5.4% spike is much higher than the 3% to 4% typical for over a decade. * Rising costs and labor shortages in the healthcare sector may have contributed to the increase. The anticipated 5.4% rise is higher than the 3% to 4% typical for over a decade but still not as high as the jump in 2001, when health benefit costs per employee shot up to 6.3% following the COVID-19 pandemic, according to Mercer. Rising prices and labor shortages in the healthcare industry likely played a role in driving healthcare costs up, Mercer suggested. Consolidation and “the introduction of ultra-expensive gene and cellular therapies” may have also contributed, along with the [surge in popularity of diabetes and obesity drugs](https://www.investopedia.com/booming-demand-boosts-forecasts-for-weight-loss-drugs-7564897).  However, many employers are choosing to cover those extra costs themselves rather than passing them on to employees in 2024, in part to attract and retain workers, responses indicated.  “Many employer plan sponsors have chosen to absorb cost increases in recent years rather than ask employees to pay more out of pocket for healthcare. This also contributes to faster health plan cost growth,” said Sunit Patel, Mercer's chief actuary for health and benefits, in a release. The report noted that “enhancing benefits to improve attraction and retention” was the top strategic priority for corporate respondents amid a tight labor market, ahead of cost-cutting measures.  Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Employers expect health benefit costs could rise an average of 5.4% per employee next year, a recent survey by Mercer found. Key Takeaways Employers expect health benefit costs may rise an average of 5.4% per employee next year, a survey by Mercer found. The anticipated 5.4% spike is much higher than the 3% to 4% typical for over a decade.Rising costs and labor shortages in the healthcare sector may have contributed to the increase. The anticipated 5.4% rise is higher than the 3% to 4% typical for over a decade but still not as high as the jump in 2001, when health benefit costs per employee shot up to 6.3% following the COVID-19 pandemic, according to Mercer. Rising prices and labor shortages in the healthcare industry likely played a role in driving healthcare costs up, Mercer suggested. Consolidation and “the introduction of ultra-expensive gene and cellular therapies” may have also contributed, along with the surge in popularity of diabetes and obesity drugs.  However, many employers are choosing to cover those extra costs themselves rather than passing them on to employees in 2024, in part to attract and retain workers, responses indicated.  “Many employer plan sponsors have chosen to absorb cost increases in recent years rather than ask employees to pay more out of pocket for healthcare. This also contributes to faster health plan cost growth,” said Sunit Patel, Mercer's chief actuary for health and benefits, in a release. The report noted that “enhancing benefits to improve attraction and retention” was the top strategic priority for corporate respondents amid a tight labor market, ahead of cost-cutting measures.  Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/ask/answers/021315/what-difference-between-sharpe-ratio-and-alpha.asp

What is the difference between the Sharpe ratio and alpha?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Measuring risk is an important part of evaluation in investing. There are hardly any risk-free asset classes, so knowing how to assess the inherent risk of an investment is key. Two common risk measurements in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/managing-wealth/modern-portfolio-theory-why-its-still-hip/" rel="noopener noreferrer">modern portfolio theory</a>, or MPT, applied to both individual stock and mutual fund analysis are the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/07/sharpe_ratio.asp" rel="noopener noreferrer">Sharpe ratio</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/financial-theory/08/deeper-look-at-alpha.asp" rel="noopener noreferrer">alpha</a>. These statistical measures can show historical volatility, helping investors determine which stocks and funds fit well in line with their investment risk tolerance. </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 Sharpe ratio is a risk-adjusted return measurement developed by economist William Sharpe.<span class="ql-inline-citation" data-cite="1"></span> It is calculated by subtracting the risk-free return, defined as a U.S. Treasury Bond, from the investment's rate of return, and then dividing by the investment's standard deviation of returns. For investors, the Sharpe ratio illustrates how a mutual fund achieves its returns. It is useful in this way for comparing funds with similar historical returns. For example, if fund A and fund B both have 10-year returns of 5%, and fund A has a Sharpe ratio of 1.40 and fund B has a Sharpe ratio of 1.25, the conservative investor chooses fund A, as a higher Sharpe ratio indicates a higher risk-adjusted return. </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"> Alpha also offers a way to measure returns on a risk-adjusted basis but applies the measure in relation to a benchmark to gauge performance. For investors seeking an investment that closely matches the performance of a chosen benchmark, alpha is the number to review. Alpha equal to 1.0 indicates the fund has beaten the benchmark by 1%, so the higher the alpha, the better. If the fund holds similar investments to the benchmark, a positive alpha indicates the fund manager's worth. </p></div>

Measuring risk is an important part of evaluation in investing. There are hardly any risk-free asset classes, so knowing how to assess the inherent risk of an investment is key. Two common risk measurements in [modern portfolio theory](https://www.investopedia.com/managing-wealth/modern-portfolio-theory-why-its-still-hip/), or MPT, applied to both individual stock and mutual fund analysis are the [Sharpe ratio](https://www.investopedia.com/articles/07/sharpe_ratio.asp) and [alpha](https://www.investopedia.com/articles/financial-theory/08/deeper-look-at-alpha.asp). These statistical measures can show historical volatility, helping investors determine which stocks and funds fit well in line with their investment risk tolerance. The Sharpe ratio is a risk-adjusted return measurement developed by economist William Sharpe. It is calculated by subtracting the risk-free return, defined as a U.S. Treasury Bond, from the investment's rate of return, and then dividing by the investment's standard deviation of returns. For investors, the Sharpe ratio illustrates how a mutual fund achieves its returns. It is useful in this way for comparing funds with similar historical returns. For example, if fund A and fund B both have 10-year returns of 5%, and fund A has a Sharpe ratio of 1.40 and fund B has a Sharpe ratio of 1.25, the conservative investor chooses fund A, as a higher Sharpe ratio indicates a higher risk-adjusted return. Alpha also offers a way to measure returns on a risk-adjusted basis but applies the measure in relation to a benchmark to gauge performance. For investors seeking an investment that closely matches the performance of a chosen benchmark, alpha is the number to review. Alpha equal to 1.0 indicates the fund has beaten the benchmark by 1%, so the higher the alpha, the better. If the fund holds similar investments to the benchmark, a positive alpha indicates the fund manager's worth.

Measuring risk is an important part of evaluation in investing. There are hardly any risk-free asset classes, so knowing how to assess the inherent risk of an investment is key. Two common risk measurements in modern portfolio theory, or MPT, applied to both individual stock and mutual fund analysis are the Sharpe ratio and alpha. These statistical measures can show historical volatility, helping investors determine which stocks and funds fit well in line with their investment risk tolerance. The Sharpe ratio is a risk-adjusted return measurement developed by economist William Sharpe. It is calculated by subtracting the risk-free return, defined as a U.S. Treasury Bond, from the investment's rate of return, and then dividing by the investment's standard deviation of returns. For investors, the Sharpe ratio illustrates how a mutual fund achieves its returns. It is useful in this way for comparing funds with similar historical returns. For example, if fund A and fund B both have 10-year returns of 5%, and fund A has a Sharpe ratio of 1.40 and fund B has a Sharpe ratio of 1.25, the conservative investor chooses fund A, as a higher Sharpe ratio indicates a higher risk-adjusted return. Alpha also offers a way to measure returns on a risk-adjusted basis but applies the measure in relation to a benchmark to gauge performance. For investors seeking an investment that closely matches the performance of a chosen benchmark, alpha is the number to review. Alpha equal to 1.0 indicates the fund has beaten the benchmark by 1%, so the higher the alpha, the better. If the fund holds similar investments to the benchmark, a positive alpha indicates the fund manager's worth.

https://www.investopedia.com/saic-misses-profit-estimates-on-costs-warns-about-future-dividends-8610456

SAIC Misses Profit Estimates on Costs; Warns About Future Dividends

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>Higher divestiture and compensation costs led SAIC to miss fourth-quarter earnings estimates, and its shares sank Monday.</li><li>The defense and government technology provider also noted that future dividend payouts would be subject to various financial metrics.</li><li>SAIC's shares reached a record high earlier this month, and even with Monday's losses are up more than 20% year-over-year.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Shares of Science Applications International Corp., or SAIC (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SAIC">SAIC</a>), slumped nearly 9% Monday as the defense and government technology provider posted lower-than-expected profit on higher costs—including those related to its CEO transition—and delivered a warning about its dividend. </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"> SAIC reported fourth-quarter fiscal 2024 adjusted <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/eps.asp">earnings per share (EPS</a>) of $1.43, short of forecasts. Revenue fell 11.7% to $1.74 billion, ahead of estimates. Excluding the effect of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/divestiture.asp">divestitures</a>, deconsolidation, and fewer working days, revenue rose 7.7% year-over-year.<span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> The company noted <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/o/operatingincome.asp">operating income</a> as a percentage of revenue slipped to 4.5% from 6% the prior year. It said that was primarily because of the sale of its  logistics and supply chain management business, deconsolidation of Forfeiture Support Associates, and “higher incentive-based compensation expense, including acceleration of <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/stockcompensation.asp">stock-based compensation</a> related to the reorganization and executive transition, and a reserve on a customer receivable related to a program completed prior to FY2022.” </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"> Former Chief Executive Nazzic Keene stepped down in May 2023 after serving in that role since 2019. She was replaced by current CEO Toni Townes-Whitley.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> SAIC said it planned on paying out its 37-cent-per-share <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/dividendyield.asp">dividend</a> in April, but added that “any future dividends will be determined by the Board of Directors each quarter and will depend on earnings, financial condition, capital requirements and other factors.” </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 company also raised its full-year revenue outlook to a range of $7.35 billion to $7.50 billion from $7.25 billion to $7.40 billion previously. </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"> SAIC shares, which were down 8.7% at $130.26 as of 3:10 p.m. ET, had hit an all-time high earlier this month, and even with Monday’s losses they have added more than 20% over the past year. </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[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 * Higher divestiture and compensation costs led SAIC to miss fourth-quarter earnings estimates, and its shares sank Monday. * The defense and government technology provider also noted that future dividend payouts would be subject to various financial metrics. * SAIC's shares reached a record high earlier this month, and even with Monday's losses are up more than 20% year-over-year. Shares of Science Applications International Corp., or SAIC ([SAIC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SAIC)), slumped nearly 9% Monday as the defense and government technology provider posted lower-than-expected profit on higher costs—including those related to its CEO transition—and delivered a warning about its dividend. SAIC reported fourth-quarter fiscal 2024 adjusted [earnings per share (EPS](https://www.investopedia.com/terms/e/eps.asp)) of $1.43, short of forecasts. Revenue fell 11.7% to $1.74 billion, ahead of estimates. Excluding the effect of [divestitures](https://www.investopedia.com/terms/d/divestiture.asp), deconsolidation, and fewer working days, revenue rose 7.7% year-over-year. The company noted [operating income](https://www.investopedia.com/terms/o/operatingincome.asp) as a percentage of revenue slipped to 4.5% from 6% the prior year. It said that was primarily because of the sale of its  logistics and supply chain management business, deconsolidation of Forfeiture Support Associates, and “higher incentive-based compensation expense, including acceleration of [stock-based compensation](https://www.investopedia.com/terms/s/stockcompensation.asp) related to the reorganization and executive transition, and a reserve on a customer receivable related to a program completed prior to FY2022.” Former Chief Executive Nazzic Keene stepped down in May 2023 after serving in that role since 2019. She was replaced by current CEO Toni Townes-Whitley. SAIC said it planned on paying out its 37-cent-per-share [dividend](https://www.investopedia.com/terms/d/dividendyield.asp) in April, but added that “any future dividends will be determined by the Board of Directors each quarter and will depend on earnings, financial condition, capital requirements and other factors.” The company also raised its full-year revenue outlook to a range of $7.35 billion to $7.50 billion from $7.25 billion to $7.40 billion previously. SAIC shares, which were down 8.7% at $130.26 as of 3:10 p.m. ET, had hit an all-time high earlier this month, and even with Monday’s losses they have added more than 20% over the past year. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Higher divestiture and compensation costs led SAIC to miss fourth-quarter earnings estimates, and its shares sank Monday.The defense and government technology provider also noted that future dividend payouts would be subject to various financial metrics.SAIC's shares reached a record high earlier this month, and even with Monday's losses are up more than 20% year-over-year. Shares of Science Applications International Corp., or SAIC (SAIC), slumped nearly 9% Monday as the defense and government technology provider posted lower-than-expected profit on higher costs—including those related to its CEO transition—and delivered a warning about its dividend. SAIC reported fourth-quarter fiscal 2024 adjusted earnings per share (EPS) of $1.43, short of forecasts. Revenue fell 11.7% to $1.74 billion, ahead of estimates. Excluding the effect of divestitures, deconsolidation, and fewer working days, revenue rose 7.7% year-over-year. The company noted operating income as a percentage of revenue slipped to 4.5% from 6% the prior year. It said that was primarily because of the sale of its  logistics and supply chain management business, deconsolidation of Forfeiture Support Associates, and “higher incentive-based compensation expense, including acceleration of stock-based compensation related to the reorganization and executive transition, and a reserve on a customer receivable related to a program completed prior to FY2022.” Former Chief Executive Nazzic Keene stepped down in May 2023 after serving in that role since 2019. She was replaced by current CEO Toni Townes-Whitley. SAIC said it planned on paying out its 37-cent-per-share dividend in April, but added that “any future dividends will be determined by the Board of Directors each quarter and will depend on earnings, financial condition, capital requirements and other factors.” The company also raised its full-year revenue outlook to a range of $7.35 billion to $7.50 billion from $7.25 billion to $7.40 billion previously. SAIC shares, which were down 8.7% at $130.26 as of 3:10 p.m. ET, had hit an all-time high earlier this month, and even with Monday’s losses they have added more than 20% over the past year. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/marcus-by-goldman-sachs-bank-review-4843783

Marcus by Goldman Sachs Bank Review

<div class="comp mntl-external-basic-sublayout-content sc-ad-container article-content" id="mntl-external-basic-sublayout-content_1-0"><div class="loc content-body"> <span class="comp external-content mntl-external-component" id="external-content_1-0"><div class="comp product-review-content product-review-content--finance product-review--base" id="product-review-content--finance_1-0"> <div class="comp js-toc-appear article-container article-intro mntl-block" id="article-intro_1-0"> <div class="comp product-card" data-tracking-container="true" data-tracking-id="product-card" id="product-card_1-0" style="--imgWidth: 0px"> <div class="product-card__content"> <div class="product-card__intro expert-content"> <figure class="comp figure-article figure-2x1 product-card__image litho-figure-article mntl-universal-primary-image primary-image" id="product-card__image_1-0"> <div class="primary-image__media"> <div class="img-placeholder" style="padding-bottom:50.0%;"> <img alt="M" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/FgF5j9YWUpvkURlHxyisfooh2FA=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/marcus-by-goldman-sachs-0f0cc9081d9f4c9ab20389c800ef101c.png" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhDgAFAPIAAAA1XxlJb1J2kvDz9v///wA1XwA1XwA1XywAAAAADgAFAEIIIgABEBBIoKDBgwEOCgSwcCCBAQwBCCB4sOAAhwwratx4MCAAOw==')" width="1500"/> <noscript> <img alt="M" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/FgF5j9YWUpvkURlHxyisfooh2FA=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/marcus-by-goldman-sachs-0f0cc9081d9f4c9ab20389c800ef101c.png" width="1500"/> </noscript> </div> </div> </figure><!-- end: comp figure-article figure-2x1 product-card__image litho-figure-article mntl-universal-primary-image primary-image --> <div class="comp js-sticky-riser-show product-card__cta commerce-block mntl-block" id="product-card__cta_1-0"> <a class="commerce-button mntl-text-link" data-tracking-container="false" href="https://www.marcus.com/us/en" id="commerce-button_1-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open Account</span></a><!-- end: commerce-button mntl-text-link --> </div><!-- end: comp js-sticky-riser-show product-card__cta commerce-block mntl-block --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_1-0"> Marcus is a recent addition to the offerings from 154-year-old Wall Street investment bank Goldman Sachs, having launched in 2016.<span class="ql-inline-citation" data-cite="15"></span><span class="ql-inline-citation" data-cite="16"></span> Officially known as “Marcus by Goldman Sachs,” it is an online-only bank offering <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp">high-yield savings accounts</a>, high-yield and penalty-free <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/certificateofdeposit.asp">certificates of deposit</a> (CDs), and no-fee personal loans. This comprehensive review of Marcus will help you decide if it is the right financial institution for you. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> </div> <div class="tabbed-sc-block" data-click-action="Product Tab Click" data-tracking-container="true" data-tracking-id="Full Product Review"> <ul class="tabbed-sc-block__tabs"> <li class="tabbed-sc-block__tab js-tabbed-tab is-active is-initial-load" data-tab-index="1"><span class="tabbed-sc-block__title">Pros &amp; Cons</span></li> <li class="tabbed-sc-block__tab js-tabbed-tab" data-tab-index="2"><span class="tabbed-sc-block__title">Company Overview</span></li> </ul> <div class="tabbed-sc-block__heading js-tabbed-tab is-active is-initial-load js-single-tab-control" data-tab-index="1"> <span class="tabbed-sc-block__text">Pros &amp; Cons</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content is-active is-initial-load" data-tab-index="1"> <div class="comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist" id="mntl-sc-block_1-0-2"> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Pros</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>Higher-than-average savings and CD rates</p></li> <li><p>No monthly fees on savings accounts</p></li> <li><p>No minimum deposits on savings, low minimum deposits on CDs</p></li> <li><p>Penalty-free CDs</p></li> </ul> </div> <div class="prm-sc-block-comparisonlist__wrapper mntl-sc-block-comparisonlist__wrapper"> <span class="prm-sc-block-comparisonlist__heading mntl-sc-block-comparisonlist__heading">Cons</span> <ul class="prm-sc-block-comparisonlist__list mntl-sc-block-comparisonlist__list"> <li><p>No checking accounts</p></li> <li><p>No ATM network</p></li> <li><p>No branches</p></li> <li><p>No mobile check deposits</p></li> </ul> </div> </div><!-- end: comp mntl-sc-block prm-sc-block-comparisonlist mntl-sc-block-comparisonlist --> </div> <div class="tabbed-sc-block__heading js-tabbed-tab js-single-tab-control" data-tab-index="2"> <span class="tabbed-sc-block__text">Company Overview</span> </div> <div class="tabbed-sc-block__content js-tabbed-content expert-content" data-tab-index="2"> <div class="comp mntl-sc-block--product-spec-tool mntl-sc-block prm-sc-block-tool mntl-sc-block-tool mntl-block" id="mntl-sc-block_1-0-4"> <div class="comp product-spec-tool definition-list" id="product-spec-tool_1-0"> <ul class="definition-list__container"> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Year Founded</span> <span class="definition-list__item-content definition-list__item-content-0"> 2016 </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Official Website</span> <span class="definition-list__item-content definition-list__item-content-1"> www.marcus.com </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Banking Products Offered</span> <span class="definition-list__item-content definition-list__item-content-2"> Savings, CDs </span> </span> </li> <li class="definition-list__item"> <span class="definition-list__item-content-container"> <span class="definition-list__item-title">Customer Service</span> <span class="definition-list__item-content definition-list__item-content-3"> Phone line: Monday–Friday, 8 a.m. to 10 p.m. (CST); Saturday and Sunday, 9 a.m. to 7 p.m. (CST): 1-855-730-7283 </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="M" class="primary-image__image mntl-primary-image--blurry" height="750" onload="(function(e){e.classList.add('loaded')})(this)" src="https://www.investopedia.com/thmb/FgF5j9YWUpvkURlHxyisfooh2FA=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/marcus-by-goldman-sachs-0f0cc9081d9f4c9ab20389c800ef101c.png" style="--blurry: url('data:image/gif;charset=utf-8;base64,R0lGODlhDgAFAPIAAAA1XxlJb1J2kvDz9v///wA1XwA1XwA1XywAAAAADgAFAEIIIgABEBBIoKDBgwEOCgSwcCCBAQwBCCB4sOAAhwwratx4MCAAOw==')" width="1500"/> <noscript> <img alt="M" class="loaded primary-img--noscript primary-image__image mntl-primary-image--blurry" height="750" src="https://www.investopedia.com/thmb/FgF5j9YWUpvkURlHxyisfooh2FA=/fit-in/1500x750/filters:format(png):fill(white):max_bytes(150000):strip_icc()/marcus-by-goldman-sachs-0f0cc9081d9f4c9ab20389c800ef101c.png" width="1500"/> </noscript> </div> </div> </figure><!-- end: comp figure-article sticky-toc-widget__image litho-figure-article mntl-universal-primary-image primary-image --> <div class="comp sticky-toc-widget__cta commerce-block mntl-block" id="sticky-toc-widget__cta_1-0"> <a class="commerce-button mntl-text-link" data-tracking-container="false" href="https://www.marcus.com/us/en" id="commerce-button_2-0" rel="noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open Account</span></a><!-- end: commerce-button mntl-text-link --> </div><!-- end: comp sticky-toc-widget__cta commerce-block mntl-block --> </div><!-- end: comp sticky-toc-widget__product-container mntl-block --> <div class="comp sticky-toc-widget sticky-toc-widget__toc sticky-toc--finance sticky-toc--base mntl-sticky-toc mntl-block" data-chop-desktop="false" data-chop-mobile="false" data-desktop-bp="54em" data-tracking-container="true" id="sticky-toc-widget__toc_3-0"> <div class="comp toc-wrapper mntl-toc mntl-block" data-chop-mobile="true" data-offset="60" data-tracking-container="true" id="toc-wrapper_3-0"> <div class="comp mntl-toc__inner mntl-block" id="mntl-toc__inner_3-0"> <div class="comp js-toc-toggle mntl-toc__heading mntl-block" data-click-tracked="true" id="mntl-toc__heading_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_5-0"> Table of Contents</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> <div class="comp mntl-toc-toggle mntl-block" id="mntl-toc-toggle_3-0"> <button class="comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block" data-collapsed-text="Expand" data-expanded-text="View All" id="mntl-toc-toggle__btn_3-0"> View All</button><!-- end: comp js-mntl-toc-toggle mntl-toc-toggle__btn mntl-text-block --> </div><!-- end: comp mntl-toc-toggle mntl-block --> </div><!-- end: comp js-toc-toggle mntl-toc__heading mntl-block --> <div class="comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block" data-click-action="OnPageClick-Marcus by Goldman Sachs Bank Review" data-click-tracked="true" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" id="mntl-toc__mobile-toggle_3-0"> <span class="comp mntl-toc__heading-text mntl-text-block" id="mntl-toc__heading-text_6-0"> Marcus by Goldman Sachs Bank Review</span><!-- end: comp mntl-toc__heading-text mntl-text-block --> </div><!-- end: comp js-sticky-toggle mntl-toc__mobile-toggle mntl-block --> <ul class="comp mntl-toc__list-heading expert-content mntl-toc__list" id="mntl-toc__list_3-0"> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Pros Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-pros-explained" id="mntl-toc__list-item-link_3-0" rel="nocaes"><span class="link__wrapper">Pros Explained</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-1"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-1"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Cons Explained" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-cons-explained" id="mntl-toc__list-item-link_3-0-1" rel="nocaes"><span class="link__wrapper">Cons Explained</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-2"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-2"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Best for" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-who-is-marcus-by-goldman-sachs-best-for" id="mntl-toc__list-item-link_3-0-2" rel="nocaes"><span class="link__wrapper">Best for</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-3"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-3"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Bank Offerings" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-what-does-marcus-by-goldman-sachs-offer" id="mntl-toc__list-item-link_3-0-3" rel="nocaes"><span class="link__wrapper">Bank Offerings</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-4"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-4"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Customer Service" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-marcus-by-goldman-sachs-customer-service" id="mntl-toc__list-item-link_3-0-4" rel="nocaes"><span class="link__wrapper">Customer Service</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-5"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-5"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-How to Bank" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-how-to-bank-with-marcus-by-goldman-sachs" id="mntl-toc__list-item-link_3-0-5" rel="nocaes"><span class="link__wrapper">How to Bank</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> <li class="comp mntl-toc__list-item mntl-block" id="mntl-toc__list-item_3-0-6"> <div class="comp mntl-toc__list-item-heading mntl-block" id="mntl-toc__list-item-heading_3-0-6"> <a class="mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link" data-click-action="OnPageClick-Methodology" data-tracking-container="true" data-tracking-id="PRM Roundup | Table of Contents" href="#toc-methodology" id="mntl-toc__list-item-link_3-0-6" rel="nocaes"><span class="link__wrapper">Methodology</span></a><!-- end: mntl-toc__list-item-link mntl-text-link mntl-toc__list-item-link js-mntl-toc-link --> </div><!-- end: comp mntl-toc__list-item-heading mntl-block --> </li><!-- end: comp mntl-toc__list-item mntl-block --> </ul><!-- end: comp mntl-toc__list-heading expert-content mntl-toc__list --> </div><!-- end: comp mntl-toc__inner mntl-block --> </div><!-- end: comp toc-wrapper mntl-toc mntl-block --> </div><!-- end: comp sticky-toc-widget sticky-toc-widget__toc sticky-toc--finance sticky-toc--base mntl-sticky-toc mntl-block --> </div><!-- end: comp mntl-sticky-toc product-review__toc--finance product-review__toc sticky-toc-widget mntl-block --> </div><!-- end: comp left-nav js-sticky-container product-review__left-nav mntl-block --> <div class="comp mntl-sc-page--commerce expert-content product-review__content prm-sc-page mntl-sc-page mntl-block" data-tracking-container="true" id="product-review__content_1-0"> <span class="heading-toc" id="toc-pros-explained"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0"> <span class="mntl-sc-block-heading__text"> Pros Explained </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-1"> <li><strong>Higher-than-average savings and CD rates: </strong>Marcus by Goldman Sachs's 4.40% savings account <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apy.asp">annual percentage yield</a> (APY) is nearly 10 times the national average of 0.46%.<span class="ql-inline-citation" data-cite="23"></span> In addition, every term of Marcus CDs also boasts a higher APY than those offered at other banks.<span class="ql-inline-citation" data-cite="10"></span></li> <li><strong>No monthly fees on savings accounts: </strong>Marcus does not charge a monthly maintenance fee for its savings accounts.</li> <li><strong>No minimum deposits on savings, low minimum deposits on CDs: </strong>Customers can open a savings account with no deposit, although you must fund your account within 60 days of opening it.<span class="ql-inline-citation" data-cite="17"></span> CDs only require a $500 minimum deposit, and you can take up to 10 days from opening the CD before depositing.<span class="ql-inline-citation" data-cite="18"></span></li> <li><strong>Penalty-free CDs: </strong>In addition to its high-yield CD offerings, Marcus also has No-Penalty CDs, which allow customers to withdraw the entire balance before the maturity date without paying a penalty.<span class="ql-inline-citation" data-cite="11"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-cons-explained"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-2"> <span class="mntl-sc-block-heading__text"> Cons Explained </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-3"> <li><strong>No checking accounts: </strong>As Marcus does not offer any checking accounts, you will not be able to handle all of your banking needs with it. The lack of checking accounts also means you will need to connect your Marcus account to another institution for many banking options, such as deposits and withdrawals.</li> <li><strong>No ATM network: </strong>You will not be able to easily access the money in your Marcus accounts, as there is no ATM network whatsoever. This is more than simply having to pay for an out-of-network ATM fee. If you need cash from your savings account in a hurry, you must initiate an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/ach.asp">ACH transaction</a> or wire funds to another bank.</li> <li><strong>No branches: </strong><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/11/benefits-and-drawbacks-of-internet-banks.asp">As an online-only bank</a>, there are no physical branches you can visit. The lack of branches further limits your ability to access your Marcus account funds.</li> <li><strong>No mobile check deposit: </strong>Despite an easy-to-use mobile app for both iOS and Android, the only way to deposit a check into your Marcus account is to send it via U.S. mail. However, you can also set up fund transfers with a linked external bank account, make direct deposits into savings, and send a domestic wire transfer.<span class="ql-inline-citation" data-cite="12"></span></li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-who-is-marcus-by-goldman-sachs-best-for"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-4"> <span class="mntl-sc-block-heading__text"> Who Is Marcus by Goldman Sachs Best for? </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-5"> Marcus by Goldman Sachs will appeal to customers who are looking for excellent rates from a trusted name in banking. It will be an especially good fit for customers who: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-6"> <li>Want higher-than-average savings and CD rates</li><li>Need a savings account with no minimum deposit</li><li>Are looking for flexibility in their CDs</li><li>Want a savings account that is difficult to access</li><li>Need a personal loan with no fees and a fixed rate</li><li>Do not need a bank to handle all of their account needs</li><li>Want to bank with an established institution with a long history</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-what-does-marcus-by-goldman-sachs-offer"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-7"> <span class="mntl-sc-block-heading__text"> What Does Marcus by Goldman Sachs Offer? </span> </h2><!-- end: comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-8"> Marcus by Goldman Sachs has a limited menu of product offerings, although it strives to make its small list of products stand out. These offerings include: </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <ul class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-9"> <li>Savings account</li><li>CDs</li> </ul><!-- end: comp mntl-sc-block mntl-sc-block-html --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-10"> <span class="mntl-sc-block-subheading__text"> Savings Account </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-11"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/marcus-savings-account-interest-rates-7500585">high-yield savings account</a> is Marcus’ only traditional bank account offering. Still, no minimum deposit, no monthly maintenance fee, and a 4.40% APY mean this account is structured to give savers the biggest bang for their bucks.<span class="ql-inline-citation" data-cite="11"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-12"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="4">Marcus by Goldman Sachs Savings Account</th> </tr> <tr> <th>Account Name</th> <th>Min Opening Deposit</th> <th>Monthly Fee</th> <th>APY</th> </tr> </thead> <tbody data-check="0"> <tr> <td>Online Savings Account</td> <td>$0</td> <td>$0</td> <td>4.40%</td> </tr> </tbody> </table> <figcaption>As of April 30, 2024</figcaption> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-13"> <span class="mntl-sc-block-subheading__text"> CDs </span> </h3><!-- end: comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-14"> Marcus offers three types of CD: High-Yield CD, No-Penalty CD, and Rate Bump CD (which includes the option to switch to a higher rate, if available, during the CD's term). The High-Yield version has more term options, ranging from six months to 72 months. All three CDs have a minimum deposit of $500. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-15"> The High-Yield CD offers a 10-day CD rate guarantee. Open a CD and deposit at least $500 within 10 days, and even if the rate has gone up within that 10-day period, you’ll automatically get the highest rate available during it. In addition, High-Yield CD holders have 30 days following the day they opened the account to fully fund the CD.<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_2-0-16"> If you need to access the money in your High-Yield CD prior to its maturity date, you will pay an early withdrawal penalty. The penalty is 90 days of interest for CDs with terms of 12 months or less, 180 days of interest for CDs with terms between 12 months and five years, and 270 days of interest for CDs with terms greater than five years.<span class="ql-inline-citation" data-cite="21"></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_2-0-17"> No-Penalty CDs don’t have the same rates offered by the High-Yield CDs, but that is because you can withdraw the entire balance of your No-Penalty CD without giving up any of your interest, provided the CD has been fully funded for at least seven days. However, you cannot make a partial withdrawal from your No-Penalty CD. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-warning mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0-18"> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"> <p>Pay close attention to your CD’s maturity date. If you do not take any action to withdraw your balance within 10 days of it, Marcus will automatically renew your CD for another term.<span class="ql-inline-citation" data-cite="19"></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 --> <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_2-0-19"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">High-Yield CD Rates</th> </tr> <tr> <th>Terms</th> <th>APY</th> </tr> </thead> <tbody data-check="0"> <tr> <td>6 Months</td> <td>5.10%</td> </tr> <tr> <td>9 Months</td> <td>5.00%</td> </tr> <tr> <td>12 Months</td> <td>5.00%</td> </tr> <tr> <td>18 Months</td> <td>4.60%</td> </tr> <tr> <td>24 Months</td> <td>4.20%</td> </tr> <tr> <td>36 Months</td> <td>4.15%</td> </tr> <tr> <td>48 Months</td> <td>4.05%</td> </tr> <tr> <td>60 Months</td> <td>4.00%</td> </tr> <tr> <td>72 Months</td> <td>3.90%</td> </tr> </tbody> </table> <figcaption>As of April 30, 2024</figcaption> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-20"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">No-Penalty CD Rates</th> </tr> <tr> <th>Terms</th> <th>APY</th> </tr> </thead> <tbody data-check="0"> <tr> <td>7 Months</td> <td>4.70%</td> </tr> <tr> <td>11 Months</td> <td>4.70%</td> </tr> <tr> <td>13 Months</td> <td>4.70%</td> </tr> </tbody> </table> <figcaption>As of April 30, 2024</figcaption> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <figure class="comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table" data-tracking-container="true" data-tracking-id="table-block" id="mntl-sc-block_2-0-21"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">Rate-Bump CD Rates</th> </tr> <tr> <th> Terms</th> <th> APY</th> </tr> </thead> <tbody data-check="0"> <tr> <td>20 Months </td> <td> 4.40%</td> </tr> </tbody> </table> <figcaption>As of April 30, 2024</figcaption> </div></figure><!-- end: comp js-table-scroll sc-block-table--base sc-block-table--finance mntl-sc-block prm-sc-block-table--finance prm-sc-block-table mntl-sc-block-table --> <h3 class="comp finance-sc-block-subheading mntl-sc-block prm-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_2-0-22"> <span class="mntl-sc-block-subheading__text"> Other Financial Products Offered by Marcus by Goldman Sachs </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"> Other than its single high-yield savings account and the High-Yield, No Penalty CDs, and Rate-Bump CDs, the only other product Marcus offers is a no-fee personal loan. However, as of 2023, Marcus is no longer accepting online applications for personal loans without an invitation code.<span class="ql-inline-citation" data-cite="22"></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_2-0-24"> In keeping with its apparent focus on doing a few things extremely well, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/marcus-personal-loans-review-4800575">Marcus’ personal loans</a> were ranked highest in customer satisfaction by J.D. Power in 2019.<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-marcus-by-goldman-sachs-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"> Marcus by Goldman Sachs 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"> With no branches, Marcus customers must access their accounts online, via the mobile app, or even over the phone. However, even without brick-and-mortar branches, Marcus offers a number of methods for getting your questions answered. To start, the FAQ section on the Marcus by Goldman Sachs website provides detailed and easy-to-understand responses to a comprehensive list of potential questions. </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"> Customers can also access a live chat while logged onto their accounts on the Marcus website, as well as reach customer service representatives by phone seven days a week. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <p class="comp mntl-sc-block mntl-sc-block-html" id="mntl-sc-block_2-0-28"> As an online-only bank, Marcus also has a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.marcus.com/us/en/marcus-mobile-banking-app" rel="sponsored nofollow">robust mobile app</a> that is available for both iOS and Android. The iOS version has a near-perfect 4.8-star rating on the App Store, while the Android version enjoys a 4.5-star rating.<span class="ql-inline-citation" data-cite="13"></span><span class="ql-inline-citation" data-cite="14"></span> </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <span class="heading-toc" id="toc-how-to-bank-with-marcus-by-goldman-sachs"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-29"> <span class="mntl-sc-block-heading__text"> How to Bank With Marcus by Goldman Sachs </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_2-0-30"> Opening an account or applying for a loan with Marcus only takes a few minutes on its website. However, if you do not already have an external checking account, it will be more difficult for you to access Marcus’s offerings. </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"> Though the bank’s mobile app is otherwise robust and user-friendly, it does not allow for a mobile check deposit. If you need to make a deposit into your high-yield savings account, you will have to mail a paper check, make a transfer from a linked external bank account, set up a direct deposit, or effectuate a wire transfer. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp theme-finalverdict mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0-32"> <span class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0"> Verdict</span><!-- end: comp mntl-sc-block-callout-heading mntl-text-block --> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0-1"> <p>Marcus by Goldman Sachs may not offer much in the way of banking products, but it provides maximum value to its customers within the narrow confines of the few products on offer. Thanks to highly competitive APYs on its savings and CD accounts, as well as its no-fee personal loans, customers looking for these specific products will likely be satisfied with their options. That said, the limited number of products means that Marcus is not a bank that will work for anyone who is looking for a convenient institution to handle all of their banking needs. The fact that there is no checking account, no ATM access, and no mobile check deposit, makes this more of a niche banking option rather than one that will appeal to a large swath of customers. This means that Marcus customers are likely a self-selecting group that is specifically looking to maximize APY and minimize personal loan fees.</p></div><!-- end: comp mntl-sc-block-callout-body mntl-text-block --> </div><!-- end: comp theme-finalverdict mntl-sc-block prm-sc-block-callout--finance prm-sc-block-callout mntl-sc-block-callout mntl-block --> <span class="heading-toc" id="toc-methodology"></span> <h2 class="comp finance-sc-block-heading mntl-sc-block prm-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_2-0-33"> <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_2-0-34"> Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of banks. We collected over 20 data points across more than 80 banks—including products available, interest rates, fees, and accessibility—to ensure that our content helps users make the right decision for their savings and banking needs. </p><!-- end: comp mntl-sc-block mntl-sc-block-html --> <div class="comp review-content js-sticky-riser-hide mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block" data-click-tracked="false" data-link-closest-header="false" data-tracking-container="true" data-use-child-url=".mntl-sc-block-commerce__button" data-use-external-image="false" id="mntl-sc-block_2-0-35"> <div class="comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block" id="mntl-sc-block-commerce-button-list_1-0"> <a class="button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button" data-retailer-type="none" data-tracking-container="true" href="https://www.marcus.com/us/en" id="button_1-0" rel="noskim noopener nofollow sponsored nocaes" target="_blank"><span class="link__wrapper">Open Account</span></a><!-- end: button mntl-commerce-button js-extended-commerce__button mntl-sc-block-commerce__button --> </div><!-- end: comp mntl-sc-block-commerce-button-list mntl-commerce-button-list-block mntl-block --> </div><!-- end: comp review-content js-sticky-riser-hide mntl-sc-block prm-sc-block-commerce--finance prm-sc-block-commerce mntl-sc-block-commerce--universal-image mntl-sc-block-commerce mntl-block --> </div><!-- end: comp mntl-sc-page--commerce expert-content product-review__content prm-sc-page mntl-sc-page mntl-block --> </div><!-- end: comp article-body article-content mntl-block --> </div> </div><!-- end: comp product-review-content product-review-content--finance product-review--base --> </span> </div><div class="loc content-bottom"><div class="comp prm-article-sources article-sources mntl-article-sources mntl-expandable-block" data-scroll-offset="100" id="prm-article-sources_1-0"><div class="loc toggle-content"><div class="comp mntl-article-sources__wrapper mntl-block article-sources__wrapper" data-click-tracked="true" id="mntl-article-sources__wrapper_1-0"><div class="comp mntl-article-sources__heading mntl-text-block article-sources__heading" id="mntl-article-sources__heading_1-0">Article Sources</div> <div class="comp mntl-article-sources__icon-wrapper mntl-block article-sources__icon-wrapper" id="mntl-article-sources__icon-wrapper_1-0"><div class="comp article-sources__show-icon mntl-block" id="article-sources__show-icon_1-0"></div> <div class="comp article-sources__hide-icon mntl-block" id="article-sources__hide-icon_1-0"></div></div></div> </div><div class="loc expandable-content"> <div class="comp article-sources__disclaimer mntl-block" id="article-sources__disclaimer_1-0">Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our <a class="article-sources__disclaimer-text-link mntl-text-link" data-tracking-container="true" href="https://www.investopedia.com/legal-4768893#EditorialPolicy" id="article-sources__disclaimer-text-link_1-0" rel="nocaes"><span class="link__wrapper">editorial policy.</span></a></div> <div class="comp mntl-article-sources__citation-sources-1 mntl-citation-sources mntl-sources" data-tracking-container="true" id="mntl-article-sources__citation-sources-1_1-0"> <ol class="mntl-sources__content"> <li class="mntl-sources__source" id="citation-23"><p>Federal Deposit Insurance Corporation. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.fdic.gov/resources/bankers/national-rates/index.html">National Rates and Rate Caps</a>."</p></li> <li class="mntl-sources__source" id="citation-10"><p>Marcus by Goldman Sachs. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.marcus.com/us/en/savings/high-yield-cds" rel="nofollow sponsored">High-Yield Certificates of Deposit</a>."</p></li> <li class="mntl-sources__source" id="citation-17"><p>Marcus by Goldman Sachs. "<a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.marcus.com/us/en/faqs" rel="nofollow sponsored">Frequently Asked Questions</a>," Click "Is There a Minimum Deposit Required to Open an Online Savings Account?"</p></li> <li class="mntl-sources__source" id="citation-18"><p>Marcus by Goldman Sachs. "<a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.marcus.com/us/en/faqs" rel="nofollow sponsored">Frequently Asked Questions</a>," Click "What Is the 10-Day CD Rate Guarantee?"</p></li> <li class="mntl-sources__source" id="citation-11"><p>Marcus by Goldman Sachs. "<a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.marcus.com/us/en/savings" rel="nofollow sponsored">Compare Savings Products</a>."</p></li> <li class="mntl-sources__source" id="citation-12"><p>Marcus by Goldman Sachs. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.marcus.com/us/en/faqs" rel="nofollow sponsored">Frequently Asked Questions</a>," Click "How Can I Fund My Account or Make Deposits?"</p></li> <li class="mntl-sources__source" id="citation-20"><p>Marcus by Goldman Sachs. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.marcus.com/us/en/savings/high-yield-cds" rel="nofollow sponsored">High-Yield CD</a>."</p></li> <li class="mntl-sources__source" id="citation-21"><p>Marcus by Goldman Sachs. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.marcus.com/us/en/faqs#CD" rel="nofollow sponsored">Frequently Asked Questions</a>," Click "What Fees or Penalties Are Associated With My CD?"</p></li> <li class="mntl-sources__source" id="citation-19"><p>Marcus by Goldman Sachs. "<a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.marcus.com/us/en/faqs" rel="nofollow sponsored">Frequently Asked Questions</a>," Click "What Are My Options When My CD Matures?"</p></li> <li class="mntl-sources__source" id="citation-22"><p>Marcus by Goldman Sachs. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.marcus.com/us/en/personal-loans" rel="nofollow sponsored">Personal Loans</a>."</p></li> <li class="mntl-sources__source" id="citation-8"><p>J.D. Power. "<a class="pseudoStyle" data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.jdpower.com/business/press-releases/2019-personal-loan-satisfaction-study">Alternative Lenders Satisfying Customers With Digital Platforms and Quick Approvals, but Still Not Viewed as Customer Driven, J.D. Power Finds: Study Rankings</a>."</p></li> <li class="mntl-sources__source" id="citation-13"><p>App Store. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://apps.apple.com/us/app/id1489511701" rel="nofollow sponsored">Marcus by Goldman Sachs</a>."</p></li> <li class="mntl-sources__source" id="citation-14"><p>Google Play. "<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://play.google.com/store/apps/details?id=com.marcus.android&amp;hl=en_US&amp;shortlink=lpgoogleplaybadge&amp;c=lp-androidbadge&amp;pid=web&amp;af_channel=applp&amp;af_adset=gtm&amp;source_caller=ui" rel="nofollow sponsored">Marcus by Goldman Sachs</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" 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class="card__content" data-tag="Bank Reviews"> <div class="card__header"></div> <span class="card__title"><span class="card__title-text">Barclays Bank Review</span></span> <div class="card__byline mntl-card__byline" data-byline="By Lee Huffman"></div> </div> </a></div> </div></section></div> </div></div>

:fill(white):max_bytes(150000):strip_icc()/marcus-by-goldman-sachs-0f0cc9081d9f4c9ab20389c800ef101c.png) :fill(white):max_bytes(150000):strip_icc()/marcus-by-goldman-sachs-0f0cc9081d9f4c9ab20389c800ef101c.png) [Open Account](https://www.marcus.com/us/en) Marcus is a recent addition to the offerings from 154-year-old Wall Street investment bank Goldman Sachs, having launched in 2016. Officially known as “Marcus by Goldman Sachs,” it is an online-only bank offering [high-yield savings accounts](https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp), high-yield and penalty-free [certificates of deposit](https://www.investopedia.com/terms/c/certificateofdeposit.asp) (CDs), and no-fee personal loans. This comprehensive review of Marcus will help you decide if it is the right financial institution for you. * Pros & Cons * Company Overview Pros & Cons Pros * Higher-than-average savings and CD rates * No monthly fees on savings accounts * No minimum deposits on savings, low minimum deposits on CDs * Penalty-free CDs Cons * No checking accounts * No ATM network * No branches * No mobile check deposits Company Overview * Year Founded 2016 * Official Website www.marcus.com * Banking Products Offered Savings, CDs * Customer Service Phone line: Monday–Friday, 8 a.m. to 10 p.m. (CST); Saturday and Sunday, 9 a.m. to 7 p.m. (CST): 1-855-730-7283 :fill(white):max_bytes(150000):strip_icc()/marcus-by-goldman-sachs-0f0cc9081d9f4c9ab20389c800ef101c.png) :fill(white):max_bytes(150000):strip_icc()/marcus-by-goldman-sachs-0f0cc9081d9f4c9ab20389c800ef101c.png) [Open Account](https://www.marcus.com/us/en) Table of Contents View All Marcus by Goldman Sachs Bank Review * [Pros Explained](#toc-pros-explained) * [Cons Explained](#toc-cons-explained) * [Best for](#toc-who-is-marcus-by-goldman-sachs-best-for) * [Bank Offerings](#toc-what-does-marcus-by-goldman-sachs-offer) * [Customer Service](#toc-marcus-by-goldman-sachs-customer-service) * [How to Bank](#toc-how-to-bank-with-marcus-by-goldman-sachs) * [Methodology](#toc-methodology) ## Pros Explained * **Higher-than-average savings and CD rates:** Marcus by Goldman Sachs's 4.40% savings account [annual percentage yield](https://www.investopedia.com/terms/a/apy.asp) (APY) is nearly 10 times the national average of 0.46%. In addition, every term of Marcus CDs also boasts a higher APY than those offered at other banks. * **No monthly fees on savings accounts:** Marcus does not charge a monthly maintenance fee for its savings accounts. * **No minimum deposits on savings, low minimum deposits on CDs:** Customers can open a savings account with no deposit, although you must fund your account within 60 days of opening it. CDs only require a $500 minimum deposit, and you can take up to 10 days from opening the CD before depositing. * **Penalty-free CDs:** In addition to its high-yield CD offerings, Marcus also has No-Penalty CDs, which allow customers to withdraw the entire balance before the maturity date without paying a penalty. ## Cons Explained * **No checking accounts:** As Marcus does not offer any checking accounts, you will not be able to handle all of your banking needs with it. The lack of checking accounts also means you will need to connect your Marcus account to another institution for many banking options, such as deposits and withdrawals. * **No ATM network:** You will not be able to easily access the money in your Marcus accounts, as there is no ATM network whatsoever. This is more than simply having to pay for an out-of-network ATM fee. If you need cash from your savings account in a hurry, you must initiate an [ACH transaction](https://www.investopedia.com/terms/a/ach.asp) or wire funds to another bank. * **No branches:** [As an online-only bank](https://www.investopedia.com/articles/pf/11/benefits-and-drawbacks-of-internet-banks.asp), there are no physical branches you can visit. The lack of branches further limits your ability to access your Marcus account funds. * **No mobile check deposit:** Despite an easy-to-use mobile app for both iOS and Android, the only way to deposit a check into your Marcus account is to send it via U.S. mail. However, you can also set up fund transfers with a linked external bank account, make direct deposits into savings, and send a domestic wire transfer. ## Who Is Marcus by Goldman Sachs Best for? Marcus by Goldman Sachs will appeal to customers who are looking for excellent rates from a trusted name in banking. It will be an especially good fit for customers who: * Want higher-than-average savings and CD rates * Need a savings account with no minimum deposit * Are looking for flexibility in their CDs * Want a savings account that is difficult to access * Need a personal loan with no fees and a fixed rate * Do not need a bank to handle all of their account needs * Want to bank with an established institution with a long history ## What Does Marcus by Goldman Sachs Offer? Marcus by Goldman Sachs has a limited menu of product offerings, although it strives to make its small list of products stand out. These offerings include: * Savings account * CDs ### Savings Account The [high-yield savings account](https://www.investopedia.com/marcus-savings-account-interest-rates-7500585) is Marcus’ only traditional bank account offering. Still, no minimum deposit, no monthly maintenance fee, and a 4.40% APY mean this account is structured to give savers the biggest bang for their bucks. | Marcus by Goldman Sachs Savings Account | | | | | --- | --- | --- | --- | | Account Name | Min Opening Deposit | Monthly Fee | APY | | Online Savings Account | $0 | $0 | 4.40% | As of April 30, 2024 ### CDs Marcus offers three types of CD: High-Yield CD, No-Penalty CD, and Rate Bump CD (which includes the option to switch to a higher rate, if available, during the CD's term). The High-Yield version has more term options, ranging from six months to 72 months. All three CDs have a minimum deposit of $500. The High-Yield CD offers a 10-day CD rate guarantee. Open a CD and deposit at least $500 within 10 days, and even if the rate has gone up within that 10-day period, you’ll automatically get the highest rate available during it. In addition, High-Yield CD holders have 30 days following the day they opened the account to fully fund the CD. If you need to access the money in your High-Yield CD prior to its maturity date, you will pay an early withdrawal penalty. The penalty is 90 days of interest for CDs with terms of 12 months or less, 180 days of interest for CDs with terms between 12 months and five years, and 270 days of interest for CDs with terms greater than five years. No-Penalty CDs don’t have the same rates offered by the High-Yield CDs, but that is because you can withdraw the entire balance of your No-Penalty CD without giving up any of your interest, provided the CD has been fully funded for at least seven days. However, you cannot make a partial withdrawal from your No-Penalty CD. Pay close attention to your CD’s maturity date. If you do not take any action to withdraw your balance within 10 days of it, Marcus will automatically renew your CD for another term. | High-Yield CD Rates | | | --- | --- | | Terms | APY | | 6 Months | 5.10% | | 9 Months | 5.00% | | 12 Months | 5.00% | | 18 Months | 4.60% | | 24 Months | 4.20% | | 36 Months | 4.15% | | 48 Months | 4.05% | | 60 Months | 4.00% | | 72 Months | 3.90% | As of April 30, 2024 | No-Penalty CD Rates | | | --- | --- | | Terms | APY | | 7 Months | 4.70% | | 11 Months | 4.70% | | 13 Months | 4.70% | As of April 30, 2024 | Rate-Bump CD Rates | | | --- | --- | | Terms | APY | | 20 Months | 4.40% | As of April 30, 2024 ### Other Financial Products Offered by Marcus by Goldman Sachs Other than its single high-yield savings account and the High-Yield, No Penalty CDs, and Rate-Bump CDs, the only other product Marcus offers is a no-fee personal loan. However, as of 2023, Marcus is no longer accepting online applications for personal loans without an invitation code. In keeping with its apparent focus on doing a few things extremely well, [Marcus’ personal loans](https://www.investopedia.com/marcus-personal-loans-review-4800575) were ranked highest in customer satisfaction by J.D. Power in 2019. ## Marcus by Goldman Sachs Customer Service With no branches, Marcus customers must access their accounts online, via the mobile app, or even over the phone. However, even without brick-and-mortar branches, Marcus offers a number of methods for getting your questions answered. To start, the FAQ section on the Marcus by Goldman Sachs website provides detailed and easy-to-understand responses to a comprehensive list of potential questions. Customers can also access a live chat while logged onto their accounts on the Marcus website, as well as reach customer service representatives by phone seven days a week. As an online-only bank, Marcus also has a [robust mobile app](https://www.marcus.com/us/en/marcus-mobile-banking-app) that is available for both iOS and Android. The iOS version has a near-perfect 4.8-star rating on the App Store, while the Android version enjoys a 4.5-star rating. ## How to Bank With Marcus by Goldman Sachs Opening an account or applying for a loan with Marcus only takes a few minutes on its website. However, if you do not already have an external checking account, it will be more difficult for you to access Marcus’s offerings. Though the bank’s mobile app is otherwise robust and user-friendly, it does not allow for a mobile check deposit. If you need to make a deposit into your high-yield savings account, you will have to mail a paper check, make a transfer from a linked external bank account, set up a direct deposit, or effectuate a wire transfer. Verdict Marcus by Goldman Sachs may not offer much in the way of banking products, but it provides maximum value to its customers within the narrow confines of the few products on offer. Thanks to highly competitive APYs on its savings and CD accounts, as well as its no-fee personal loans, customers looking for these specific products will likely be satisfied with their options. That said, the limited number of products means that Marcus is not a bank that will work for anyone who is looking for a convenient institution to handle all of their banking needs. The fact that there is no checking account, no ATM access, and no mobile check deposit, makes this more of a niche banking option rather than one that will appeal to a large swath of customers. This means that Marcus customers are likely a self-selecting group that is specifically looking to maximize APY and minimize personal loan fees. ## Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of banks. We collected over 20 data points across more than 80 banks—including products available, interest rates, fees, and accessibility—to ensure that our content helps users make the right decision for their savings and banking needs. [Open Account](https://www.marcus.com/us/en) Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our [editorial policy.](https://www.investopedia.com/legal-4768893#EditorialPolicy) 1. Federal Deposit Insurance Corporation. "[National Rates and Rate Caps](https://www.fdic.gov/resources/bankers/national-rates/index.html)." 2. Marcus by Goldman Sachs. "[High-Yield Certificates of Deposit](https://www.marcus.com/us/en/savings/high-yield-cds)." 3. Marcus by Goldman Sachs. "[Frequently Asked Questions](https://www.marcus.com/us/en/faqs)," Click "Is There a Minimum Deposit Required to Open an Online Savings Account?" 4. Marcus by Goldman Sachs. "[Frequently Asked Questions](https://www.marcus.com/us/en/faqs)," Click "What Is the 10-Day CD Rate Guarantee?" 5. Marcus by Goldman Sachs. "[Compare Savings Products](https://www.marcus.com/us/en/savings)." 6. Marcus by Goldman Sachs. "[Frequently Asked Questions](https://www.marcus.com/us/en/faqs)," Click "How Can I Fund My Account or Make Deposits?" 7. Marcus by Goldman Sachs. "[High-Yield CD](https://www.marcus.com/us/en/savings/high-yield-cds)." 8. Marcus by Goldman Sachs. "[Frequently Asked Questions](https://www.marcus.com/us/en/faqs#CD)," Click "What Fees or Penalties Are Associated With My CD?" 9. Marcus by Goldman Sachs. "[Frequently Asked Questions](https://www.marcus.com/us/en/faqs)," Click "What Are My Options When My CD Matures?" 10. Marcus by Goldman Sachs. "[Personal Loans](https://www.marcus.com/us/en/personal-loans)." 11. J.D. Power. "[Alternative Lenders Satisfying Customers With Digital Platforms and Quick Approvals, but Still Not Viewed as Customer Driven, J.D. Power Finds: Study Rankings](https://www.jdpower.com/business/press-releases/2019-personal-loan-satisfaction-study)." 12. App Store. "[Marcus by Goldman Sachs](https://apps.apple.com/us/app/id1489511701)." 13. Google Play. "[Marcus by Goldman Sachs](https://play.google.com/store/apps/details?id=com.marcus.android&hl=en_US&shortlink=lpgoogleplaybadge&c=lp-androidbadge&pid=web&af_channel=applp&af_adset=gtm&source_caller=ui)." 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Open Account Marcus is a recent addition to the offerings from 154-year-old Wall Street investment bank Goldman Sachs, having launched in 2016. Officially known as “Marcus by Goldman Sachs,” it is an online-only bank offering high-yield savings accounts, high-yield and penalty-free certificates of deposit (CDs), and no-fee personal loans. This comprehensive review of Marcus will help you decide if it is the right financial institution for you. Pros & Cons Company Overview Pros & Cons Pros Higher-than-average savings and CD rates No monthly fees on savings accounts No minimum deposits on savings, low minimum deposits on CDs Penalty-free CDs Cons No checking accounts No ATM network No branches No mobile check deposits Company Overview Year Founded 2016 Official Website www.marcus.com Banking Products Offered Savings, CDs Customer Service Phone line: Monday–Friday, 8 a.m. to 10 p.m. (CST); Saturday and Sunday, 9 a.m. to 7 p.m. (CST): 1-855-730-7283 Open Account Table of Contents View All Marcus by Goldman Sachs Bank Review Pros Explained Cons Explained Best for Bank Offerings Customer Service How to Bank Methodology Pros Explained Higher-than-average savings and CD rates: Marcus by Goldman Sachs's 4.40% savings account annual percentage yield (APY) is nearly 10 times the national average of 0.46%. In addition, every term of Marcus CDs also boasts a higher APY than those offered at other banks. No monthly fees on savings accounts: Marcus does not charge a monthly maintenance fee for its savings accounts. No minimum deposits on savings, low minimum deposits on CDs: Customers can open a savings account with no deposit, although you must fund your account within 60 days of opening it. CDs only require a $500 minimum deposit, and you can take up to 10 days from opening the CD before depositing. Penalty-free CDs: In addition to its high-yield CD offerings, Marcus also has No-Penalty CDs, which allow customers to withdraw the entire balance before the maturity date without paying a penalty. Cons Explained No checking accounts: As Marcus does not offer any checking accounts, you will not be able to handle all of your banking needs with it. The lack of checking accounts also means you will need to connect your Marcus account to another institution for many banking options, such as deposits and withdrawals. No ATM network: You will not be able to easily access the money in your Marcus accounts, as there is no ATM network whatsoever. This is more than simply having to pay for an out-of-network ATM fee. If you need cash from your savings account in a hurry, you must initiate an ACH transaction or wire funds to another bank. No branches: As an online-only bank, there are no physical branches you can visit. The lack of branches further limits your ability to access your Marcus account funds. No mobile check deposit: Despite an easy-to-use mobile app for both iOS and Android, the only way to deposit a check into your Marcus account is to send it via U.S. mail. However, you can also set up fund transfers with a linked external bank account, make direct deposits into savings, and send a domestic wire transfer. Who Is Marcus by Goldman Sachs Best for? Marcus by Goldman Sachs will appeal to customers who are looking for excellent rates from a trusted name in banking. It will be an especially good fit for customers who: Want higher-than-average savings and CD ratesNeed a savings account with no minimum depositAre looking for flexibility in their CDsWant a savings account that is difficult to accessNeed a personal loan with no fees and a fixed rateDo not need a bank to handle all of their account needsWant to bank with an established institution with a long history What Does Marcus by Goldman Sachs Offer? Marcus by Goldman Sachs has a limited menu of product offerings, although it strives to make its small list of products stand out. These offerings include: Savings accountCDs Savings Account The high-yield savings account is Marcus’ only traditional bank account offering. Still, no minimum deposit, no monthly maintenance fee, and a 4.40% APY mean this account is structured to give savers the biggest bang for their bucks. Marcus by Goldman Sachs Savings Account Account Name Min Opening Deposit Monthly Fee APY Online Savings Account $0 $0 4.40% As of April 30, 2024 CDs Marcus offers three types of CD: High-Yield CD, No-Penalty CD, and Rate Bump CD (which includes the option to switch to a higher rate, if available, during the CD's term). The High-Yield version has more term options, ranging from six months to 72 months. All three CDs have a minimum deposit of $500. The High-Yield CD offers a 10-day CD rate guarantee. Open a CD and deposit at least $500 within 10 days, and even if the rate has gone up within that 10-day period, you’ll automatically get the highest rate available during it. In addition, High-Yield CD holders have 30 days following the day they opened the account to fully fund the CD. If you need to access the money in your High-Yield CD prior to its maturity date, you will pay an early withdrawal penalty. The penalty is 90 days of interest for CDs with terms of 12 months or less, 180 days of interest for CDs with terms between 12 months and five years, and 270 days of interest for CDs with terms greater than five years. No-Penalty CDs don’t have the same rates offered by the High-Yield CDs, but that is because you can withdraw the entire balance of your No-Penalty CD without giving up any of your interest, provided the CD has been fully funded for at least seven days. However, you cannot make a partial withdrawal from your No-Penalty CD. Pay close attention to your CD’s maturity date. If you do not take any action to withdraw your balance within 10 days of it, Marcus will automatically renew your CD for another term. High-Yield CD Rates Terms APY 6 Months 5.10% 9 Months 5.00% 12 Months 5.00% 18 Months 4.60% 24 Months 4.20% 36 Months 4.15% 48 Months 4.05% 60 Months 4.00% 72 Months 3.90% As of April 30, 2024 No-Penalty CD Rates Terms APY 7 Months 4.70% 11 Months 4.70% 13 Months 4.70% As of April 30, 2024 Rate-Bump CD Rates  Terms  APY 20 Months   4.40% As of April 30, 2024 Other Financial Products Offered by Marcus by Goldman Sachs Other than its single high-yield savings account and the High-Yield, No Penalty CDs, and Rate-Bump CDs, the only other product Marcus offers is a no-fee personal loan. However, as of 2023, Marcus is no longer accepting online applications for personal loans without an invitation code. In keeping with its apparent focus on doing a few things extremely well, Marcus’ personal loans were ranked highest in customer satisfaction by J.D. Power in 2019. Marcus by Goldman Sachs Customer Service With no branches, Marcus customers must access their accounts online, via the mobile app, or even over the phone. However, even without brick-and-mortar branches, Marcus offers a number of methods for getting your questions answered. To start, the FAQ section on the Marcus by Goldman Sachs website provides detailed and easy-to-understand responses to a comprehensive list of potential questions. Customers can also access a live chat while logged onto their accounts on the Marcus website, as well as reach customer service representatives by phone seven days a week. As an online-only bank, Marcus also has a robust mobile app that is available for both iOS and Android. The iOS version has a near-perfect 4.8-star rating on the App Store, while the Android version enjoys a 4.5-star rating. How to Bank With Marcus by Goldman Sachs Opening an account or applying for a loan with Marcus only takes a few minutes on its website. However, if you do not already have an external checking account, it will be more difficult for you to access Marcus’s offerings. Though the bank’s mobile app is otherwise robust and user-friendly, it does not allow for a mobile check deposit. If you need to make a deposit into your high-yield savings account, you will have to mail a paper check, make a transfer from a linked external bank account, set up a direct deposit, or effectuate a wire transfer. Verdict Marcus by Goldman Sachs may not offer much in the way of banking products, but it provides maximum value to its customers within the narrow confines of the few products on offer. Thanks to highly competitive APYs on its savings and CD accounts, as well as its no-fee personal loans, customers looking for these specific products will likely be satisfied with their options. That said, the limited number of products means that Marcus is not a bank that will work for anyone who is looking for a convenient institution to handle all of their banking needs. The fact that there is no checking account, no ATM access, and no mobile check deposit, makes this more of a niche banking option rather than one that will appeal to a large swath of customers. This means that Marcus customers are likely a self-selecting group that is specifically looking to maximize APY and minimize personal loan fees. Methodology Investopedia is dedicated to providing consumers with unbiased, comprehensive reviews of banks. We collected over 20 data points across more than 80 banks—including products available, interest rates, fees, and accessibility—to ensure that our content helps users make the right decision for their savings and banking needs. Open Account Article Sources Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy. Federal Deposit Insurance Corporation. "National Rates and Rate Caps." Marcus by Goldman Sachs. "High-Yield Certificates of Deposit." Marcus by Goldman Sachs. "Frequently Asked Questions," Click "Is There a Minimum Deposit Required to Open an Online Savings Account?" Marcus by Goldman Sachs. "Frequently Asked Questions," Click "What Is the 10-Day CD Rate Guarantee?" Marcus by Goldman Sachs. "Compare Savings Products." Marcus by Goldman Sachs. "Frequently Asked Questions," Click "How Can I Fund My Account or Make Deposits?" Marcus by Goldman Sachs. "High-Yield CD." Marcus by Goldman Sachs. "Frequently Asked Questions," Click "What Fees or Penalties Are Associated With My CD?" Marcus by Goldman Sachs. "Frequently Asked Questions," Click "What Are My Options When My CD Matures?" Marcus by Goldman Sachs. "Personal Loans." J.D. Power. "Alternative Lenders Satisfying Customers With Digital Platforms and Quick Approvals, but Still Not Viewed as Customer Driven, J.D. Power Finds: Study Rankings." App Store. "Marcus by Goldman Sachs." Google Play. "Marcus by Goldman Sachs." Related Articles Regions Bank Review 2024 KeyBank Review 2024 Ally Bank Review M&T Bank Review 2024 Popular Direct Bank Review Barclays Bank Review

https://www.investopedia.com/how-to-get-free-professional-financial-advice-7973720

How to Get Free Professional Financial Advice

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> Accessing free professional financial advice is easier than you might think. While there are fees associated with financial advisors, there are several resources to which you can turn for quality advice that won’t cost you anything. Here’s a look at several professional financial resources that will provide tips for managing your finances for free. </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-where-to-get-free-professional-financial-advice"></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"> Where to Get Free Professional Financial Advice  </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_4-0"> <span class="mntl-sc-block-subheading__text"> Your Bank or Credit Union  </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> If you have an account with a bank or credit union, you have access to the financial professionals, articles, tools, and other resources that the financial institution has to offer. Your local branch may have professionals or you may be able to access them by calling customer service. These experts can provide information and advice on a range of subjects, including financing an automobile, opening an IRA or savings account, and obtaining or refinancing a home loan. Many of these institutions have articles or finance tools on their websites as well. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_7-0"> <span class="mntl-sc-block-subheading__text"> Your Employer or 401(k) Provider </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> You don’t have to work at a financial institution to have access to a financial professional at work. Many companies have in-house benefits administrators who can help explain your choices when it comes to investing for retirement in a company-sponsored 401k plan. Even if your company doesn’t have someone on staff to answer those questions, you still have access to the 401k provider, who has financial professionals dedicated to your company’s 401k plan and can help you navigate the investment process.  <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_10-0"> <span class="mntl-sc-block-subheading__text"> Pro Bono Financial Planning Services </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Financial experts understand the need and the benefits of providing their services free to underserved communities. This is also a great option for older adults, who may be on a limited income to get financial advice.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_12-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_13-0"> If you fit the criteria, you may qualify for free professional advice from one of the following organizations: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://ffpprobono.org/">Foundation for Financial Planning</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://www.financialplanningassociation.org/advocacy/pro-bono-program">Financial Planning Association</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="externalLink" href="https://abacuswealth.com/pro-bono-financial-planning/" rel="nofollow">Abacus</a> </li> </ul> <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"> Consumer Financial Protection Bureau </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_18-0"> The Consumer Financial Protection Bureau (CFPB) is a U.S. government agency committed to ensuring you are treated fairly by banks, lenders, and other financial institutions.<span class="ql-inline-citation" data-cite="1"></span>Not only does the CFPB provide oversight of the financial industry, but it also provides the public with access to a counselor to discuss housing needs, for example. It also offers articles and other resources on an array of financial topics, such as: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_19-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> <li>Buying a house</li><li>Planning for retirement</li><li>Credit card debt</li><li>Collection accounts</li><li>Student loans and paying for college</li><li>Filing taxes </li><li>Bank accounts and services</li><li>Credit scores</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_21-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_22-0"> <span class="mntl-sc-block-subheading__text"> Your Online Brokerage or Robo-Advisor </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> The online brokerage and robo-advisor industries are incredibly competitive. In an effort to retain existing customers and attract new ones, top companies have built robust educational platforms. These platforms have a wealth of free educational content that comes in the form of blog posts, webinars, live events, videos, frequently asked questions (FAQ) sections, and how-to articles. </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"> As part of our extensive research into helping readers find the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-robo-advisors-4693125">best robo-advisors</a>, our comprehensive <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/robo-advisor-ranking-methodology-4693455">methodology</a> gave extra credit to companies that offer access to a licensed financial professional at no extra cost. </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-steps-needed-to-get-free-professional-advice"></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"> Steps Needed to Get Free Professional Advice </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_28-0"> <span class="mntl-sc-block-subheading__text"> Step 1: Conduct Research to Find Financial Experts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> When looking for free financial advice online, you are certain to find many sources of information; however, it may not all be from a financial professional. Make sure to use trusted websites and organizations and look specifically at individual credentials before implementing advice. </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"> Step 2: Create a List of Assets and Debt </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> When you meet with a financial professional, you want to have everything organized and readily available so they can properly assess your financial situation. Depending on the type of planning you are doing, in addition to a list of assets and debts, you may also want to have information regarding <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>, trusts, and your will or <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/powerofattorney.asp">power of attorney (POA)</a>. </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"> Step 3: Check Your Social Security Earnings Record </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> Make sure to log in to your Social Security account to verify that the records are updating properly each year. You can also keep track of earnings to know what your retirement benefit will be, and at which level it is most advantageous for you to start collecting Social Security income. </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"> Step 4: Check Your Credit Score and Credit Report </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> You will want to check your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/credit_score.asp">credit score</a> and report at least yearly to ensure that nothing fraudulent has been reported, make sure old or inactive accounts have been taken off, and see if there are any collection accounts or delinquent accounts. If so, get those paid up and up to date. </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"> Step 5: Make Sure Your Advisor is Qualified and Registered </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> When you are getting financial advice, it is important to make sure that the person advising you is qualified and has the proper education and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/01/101001.asp">financial certifications</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_42-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_43-0"> You want to look for one of the following designations: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_44-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> <li>Master of Business Administration (MBA)</li><li>Certified Financial Planner (CFP)</li><li>Certified Public Accountant (CPA)</li><li>Chartered Financial Consultant (ChFC)</li><li>Chartered Financial Analyst (CFA)</li><li>Chartered Investment Counselor (CIC)</li><li>Retirement Income Certified Professional (RICP)</li><li>Certified Management Accountant (CMA)</li><li>Accredited Investment Fiduciary (AIF)</li><li>Chartered Alternative Investment Analyst (CAIA)</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_46-0"></div> <span class="heading-toc" id="toc-how-a-financial-advisor-helps"></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"> How a Financial Advisor Helps  </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_48-0"> Financial advisors provide a plethora of knowledge when it comes to investing, saving, planning for retirement, managing an inheritance, buying real estate, managing finances during a divorce, paying for college, and more. Professional financial advisors have formal education in the areas of money management, finance, and investing and must take courses or pass a test to become certified. Their knowledge of the industry goes far beyond the beginner level of information that you will find for free.  </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-is-it-worth-paying-for-financial-advice"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is it Worth Paying for Financial Advice?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There are many complex situations that may necessitate that you pay for financial advice, such as estate planning, going through a divorce, or setting up a business contract, for example. Free resources are great for basic knowledge on a subject, and can really help you understand the process. However, when it comes to dealing with large amounts of money or legally binding contracts, you want to make sure that your financial interests are being covered, and a paid financial advisor can assist with that.</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-where-can-i-get-free-financial-advice-for-debt"></span> <h2 class="mntl-sc-block-questionandanswer__question">Where Can I Get Free Financial Advice for Debt?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you are feeling overwhelmed with your credit cards, mortgage, or other debt, a good place to start is with the lender. Often, the bank or credit card company can work with you to help you get back on track if you are behind on payments or had a situation arise, such as an accident or job loss, that puts you behind temporarily. Another option is to contact the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/n/national-foundation-for-consumer-credit.asp">National Foundation of Credit Counseling</a>, which offers free help for getting rid of debt and other financial situations. The <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="externalLink" href="https://consumer.ftc.gov/articles/how-get-out-debt">Federal Trade Commission</a> also has a very informative website to give you basic knowledge on how to deal with debt.</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-do-i-need-a-financial-advisor-if-i-dont-have-much-money"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do I Need a Financial Advisor If I Don't Have Much Money?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>It can be hard to know <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/managing-wealth/when-should-you-hire-financial-advisor/">if you need a financial advisor</a> or if you can handle your financial matters on your own, especially if you don’t have that much money to begin with. The need for professional financial advice truly depends upon your unique situation. If your situation involves complex tax, estate planning, or legal issues, you should consult with a professional. If you just need basic information on budgeting or starting to save, you may be able to get things started on your own.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_56-0"><span class="heading-toc" id="toc-what-is-the-difference-between-a-financial-planner-and-a-financial-advisor"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between a Financial Planner and a Financial Advisor?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>A financial planner is a specific type of financial advisor, as the term financial advisor is an all-encompassing term used to describe several types of financial professionals.</p><ul><li>A <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/financialplanner.asp">financial planner</a> is a professional who assists people and organizations in developing a plan to achieve long-term financial objectives.</li><li>A <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/050815/what-do-financial-advisers-do.asp">financial advisor</a> is a specialist who offers knowledge for clients' financial investments and personal decision-making and covers a wide range of professionals, such as brokers, money managers, insurance brokers, and bankers.</li></ul></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_58-0"><span class="heading-toc" id="toc-what-is-the-difference-between-an-accountant-and-a-financial-advisor"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Difference Between an Accountant and a Financial Advisor?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>An accountant is a very specific type of financial advisor, only focusing on the auditing, accounting analysis, and tax implications of a financial situation. In the more general sense of the term, a financial advisor will advise clients on investing and estate planning, or give a more comprehensive financial overview of a situation, while an accountant will focus on tax issues. So whether you need an accountant or a financial advisor depends on the type of financial situation that you need help with.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <div class="comp mntl-sc-block finance-sc-block-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_1-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>If you're focused on future-proofing your finances, there are more resources <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/strategies-for-wealth-preservation-8604652">here</a> to help protect your assets. </p></div></div></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_62-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> Consuming as much free financial advice as you can find is always a good idea to give yourself more knowledge on the subject matter. However, free financial information will only be able to take you so far. Complicated situations, such as estate planning, business filings, or tax issues, definitely merit advice from a paid professional. In fact, the financial benefits that you gain could far outweigh the costs associated with hiring a financial professional. </p></div>

Accessing free professional financial advice is easier than you might think. While there are fees associated with financial advisors, there are several resources to which you can turn for quality advice that won’t cost you anything. Here’s a look at several professional financial resources that will provide tips for managing your finances for free. ## Where to Get Free Professional Financial Advice ### Your Bank or Credit Union If you have an account with a bank or credit union, you have access to the financial professionals, articles, tools, and other resources that the financial institution has to offer. Your local branch may have professionals or you may be able to access them by calling customer service. These experts can provide information and advice on a range of subjects, including financing an automobile, opening an IRA or savings account, and obtaining or refinancing a home loan. Many of these institutions have articles or finance tools on their websites as well. ### Your Employer or 401(k) Provider You don’t have to work at a financial institution to have access to a financial professional at work. Many companies have in-house benefits administrators who can help explain your choices when it comes to investing for retirement in a company-sponsored 401k plan. Even if your company doesn’t have someone on staff to answer those questions, you still have access to the 401k provider, who has financial professionals dedicated to your company’s 401k plan and can help you navigate the investment process.   ### Pro Bono Financial Planning Services Financial experts understand the need and the benefits of providing their services free to underserved communities. This is also a great option for older adults, who may be on a limited income to get financial advice.  If you fit the criteria, you may qualify for free professional advice from one of the following organizations: * [Foundation for Financial Planning](https://ffpprobono.org/) * [Financial Planning Association](https://www.financialplanningassociation.org/advocacy/pro-bono-program) * [Abacus](https://abacuswealth.com/pro-bono-financial-planning/) ### Consumer Financial Protection Bureau The Consumer Financial Protection Bureau (CFPB) is a U.S. government agency committed to ensuring you are treated fairly by banks, lenders, and other financial institutions.Not only does the CFPB provide oversight of the financial industry, but it also provides the public with access to a counselor to discuss housing needs, for example. It also offers articles and other resources on an array of financial topics, such as: * Buying a house * Planning for retirement * Credit card debt * Collection accounts * Student loans and paying for college * Filing taxes * Bank accounts and services * Credit scores ### Your Online Brokerage or Robo-Advisor The online brokerage and robo-advisor industries are incredibly competitive. In an effort to retain existing customers and attract new ones, top companies have built robust educational platforms. These platforms have a wealth of free educational content that comes in the form of blog posts, webinars, live events, videos, frequently asked questions (FAQ) sections, and how-to articles. As part of our extensive research into helping readers find the [best robo-advisors](https://www.investopedia.com/best-robo-advisors-4693125), our comprehensive [methodology](https://www.investopedia.com/robo-advisor-ranking-methodology-4693455) gave extra credit to companies that offer access to a licensed financial professional at no extra cost. ## Steps Needed to Get Free Professional Advice ### Step 1: Conduct Research to Find Financial Experts When looking for free financial advice online, you are certain to find many sources of information; however, it may not all be from a financial professional. Make sure to use trusted websites and organizations and look specifically at individual credentials before implementing advice. ### Step 2: Create a List of Assets and Debt When you meet with a financial professional, you want to have everything organized and readily available so they can properly assess your financial situation. Depending on the type of planning you are doing, in addition to a list of assets and debts, you may also want to have information regarding [life insurance](https://www.investopedia.com/terms/l/lifeinsurance.asp), trusts, and your will or [power of attorney (POA)](https://www.investopedia.com/terms/p/powerofattorney.asp). ### Step 3: Check Your Social Security Earnings Record Make sure to log in to your Social Security account to verify that the records are updating properly each year. You can also keep track of earnings to know what your retirement benefit will be, and at which level it is most advantageous for you to start collecting Social Security income. ### Step 4: Check Your Credit Score and Credit Report You will want to check your [credit score](https://www.investopedia.com/terms/c/credit_score.asp) and report at least yearly to ensure that nothing fraudulent has been reported, make sure old or inactive accounts have been taken off, and see if there are any collection accounts or delinquent accounts. If so, get those paid up and up to date. ### Step 5: Make Sure Your Advisor is Qualified and Registered When you are getting financial advice, it is important to make sure that the person advising you is qualified and has the proper education and [financial certifications](https://www.investopedia.com/articles/01/101001.asp). You want to look for one of the following designations: * Master of Business Administration (MBA) * Certified Financial Planner (CFP) * Certified Public Accountant (CPA) * Chartered Financial Consultant (ChFC) * Chartered Financial Analyst (CFA) * Chartered Investment Counselor (CIC) * Retirement Income Certified Professional (RICP) * Certified Management Accountant (CMA) * Accredited Investment Fiduciary (AIF) * Chartered Alternative Investment Analyst (CAIA) ## How a Financial Advisor Helps Financial advisors provide a plethora of knowledge when it comes to investing, saving, planning for retirement, managing an inheritance, buying real estate, managing finances during a divorce, paying for college, and more. Professional financial advisors have formal education in the areas of money management, finance, and investing and must take courses or pass a test to become certified. Their knowledge of the industry goes far beyond the beginner level of information that you will find for free.  ## Is it Worth Paying for Financial Advice? There are many complex situations that may necessitate that you pay for financial advice, such as estate planning, going through a divorce, or setting up a business contract, for example. Free resources are great for basic knowledge on a subject, and can really help you understand the process. However, when it comes to dealing with large amounts of money or legally binding contracts, you want to make sure that your financial interests are being covered, and a paid financial advisor can assist with that. ## Where Can I Get Free Financial Advice for Debt? If you are feeling overwhelmed with your credit cards, mortgage, or other debt, a good place to start is with the lender. Often, the bank or credit card company can work with you to help you get back on track if you are behind on payments or had a situation arise, such as an accident or job loss, that puts you behind temporarily. Another option is to contact the [National Foundation of Credit Counseling](https://www.investopedia.com/terms/n/national-foundation-for-consumer-credit.asp), which offers free help for getting rid of debt and other financial situations. The [Federal Trade Commission](https://consumer.ftc.gov/articles/how-get-out-debt) also has a very informative website to give you basic knowledge on how to deal with debt. ## Do I Need a Financial Advisor If I Don't Have Much Money? It can be hard to know [if you need a financial advisor](https://www.investopedia.com/managing-wealth/when-should-you-hire-financial-advisor/) or if you can handle your financial matters on your own, especially if you don’t have that much money to begin with. The need for professional financial advice truly depends upon your unique situation. If your situation involves complex tax, estate planning, or legal issues, you should consult with a professional. If you just need basic information on budgeting or starting to save, you may be able to get things started on your own. ## What Is the Difference Between a Financial Planner and a Financial Advisor? A financial planner is a specific type of financial advisor, as the term financial advisor is an all-encompassing term used to describe several types of financial professionals. * A [financial planner](https://www.investopedia.com/terms/f/financialplanner.asp) is a professional who assists people and organizations in developing a plan to achieve long-term financial objectives. * A [financial advisor](https://www.investopedia.com/articles/personal-finance/050815/what-do-financial-advisers-do.asp) is a specialist who offers knowledge for clients' financial investments and personal decision-making and covers a wide range of professionals, such as brokers, money managers, insurance brokers, and bankers. ## What Is the Difference Between an Accountant and a Financial Advisor? An accountant is a very specific type of financial advisor, only focusing on the auditing, accounting analysis, and tax implications of a financial situation. In the more general sense of the term, a financial advisor will advise clients on investing and estate planning, or give a more comprehensive financial overview of a situation, while an accountant will focus on tax issues. So whether you need an accountant or a financial advisor depends on the type of financial situation that you need help with. ### If you're focused on future-proofing your finances, there are more resources [here](https://www.investopedia.com/strategies-for-wealth-preservation-8604652) to help protect your assets.  ## The Bottom Line Consuming as much free financial advice as you can find is always a good idea to give yourself more knowledge on the subject matter. However, free financial information will only be able to take you so far. Complicated situations, such as estate planning, business filings, or tax issues, definitely merit advice from a paid professional. In fact, the financial benefits that you gain could far outweigh the costs associated with hiring a financial professional.

Accessing free professional financial advice is easier than you might think. While there are fees associated with financial advisors, there are several resources to which you can turn for quality advice that won’t cost you anything. Here’s a look at several professional financial resources that will provide tips for managing your finances for free. Where to Get Free Professional Financial Advice  Your Bank or Credit Union  If you have an account with a bank or credit union, you have access to the financial professionals, articles, tools, and other resources that the financial institution has to offer. Your local branch may have professionals or you may be able to access them by calling customer service. These experts can provide information and advice on a range of subjects, including financing an automobile, opening an IRA or savings account, and obtaining or refinancing a home loan. Many of these institutions have articles or finance tools on their websites as well. Your Employer or 401(k) Provider You don’t have to work at a financial institution to have access to a financial professional at work. Many companies have in-house benefits administrators who can help explain your choices when it comes to investing for retirement in a company-sponsored 401k plan. Even if your company doesn’t have someone on staff to answer those questions, you still have access to the 401k provider, who has financial professionals dedicated to your company’s 401k plan and can help you navigate the investment process.   Pro Bono Financial Planning Services Financial experts understand the need and the benefits of providing their services free to underserved communities. This is also a great option for older adults, who may be on a limited income to get financial advice.  If you fit the criteria, you may qualify for free professional advice from one of the following organizations: Foundation for Financial Planning Financial Planning Association Abacus  Consumer Financial Protection Bureau The Consumer Financial Protection Bureau (CFPB) is a U.S. government agency committed to ensuring you are treated fairly by banks, lenders, and other financial institutions.Not only does the CFPB provide oversight of the financial industry, but it also provides the public with access to a counselor to discuss housing needs, for example. It also offers articles and other resources on an array of financial topics, such as: Buying a housePlanning for retirementCredit card debtCollection accountsStudent loans and paying for collegeFiling taxes Bank accounts and servicesCredit scores Your Online Brokerage or Robo-Advisor The online brokerage and robo-advisor industries are incredibly competitive. In an effort to retain existing customers and attract new ones, top companies have built robust educational platforms. These platforms have a wealth of free educational content that comes in the form of blog posts, webinars, live events, videos, frequently asked questions (FAQ) sections, and how-to articles. As part of our extensive research into helping readers find the best robo-advisors, our comprehensive methodology gave extra credit to companies that offer access to a licensed financial professional at no extra cost. Steps Needed to Get Free Professional Advice Step 1: Conduct Research to Find Financial Experts When looking for free financial advice online, you are certain to find many sources of information; however, it may not all be from a financial professional. Make sure to use trusted websites and organizations and look specifically at individual credentials before implementing advice. Step 2: Create a List of Assets and Debt When you meet with a financial professional, you want to have everything organized and readily available so they can properly assess your financial situation. Depending on the type of planning you are doing, in addition to a list of assets and debts, you may also want to have information regarding life insurance, trusts, and your will or power of attorney (POA). Step 3: Check Your Social Security Earnings Record Make sure to log in to your Social Security account to verify that the records are updating properly each year. You can also keep track of earnings to know what your retirement benefit will be, and at which level it is most advantageous for you to start collecting Social Security income. Step 4: Check Your Credit Score and Credit Report You will want to check your credit score and report at least yearly to ensure that nothing fraudulent has been reported, make sure old or inactive accounts have been taken off, and see if there are any collection accounts or delinquent accounts. If so, get those paid up and up to date. Step 5: Make Sure Your Advisor is Qualified and Registered When you are getting financial advice, it is important to make sure that the person advising you is qualified and has the proper education and financial certifications. You want to look for one of the following designations: Master of Business Administration (MBA)Certified Financial Planner (CFP)Certified Public Accountant (CPA)Chartered Financial Consultant (ChFC)Chartered Financial Analyst (CFA)Chartered Investment Counselor (CIC)Retirement Income Certified Professional (RICP)Certified Management Accountant (CMA)Accredited Investment Fiduciary (AIF)Chartered Alternative Investment Analyst (CAIA) How a Financial Advisor Helps  Financial advisors provide a plethora of knowledge when it comes to investing, saving, planning for retirement, managing an inheritance, buying real estate, managing finances during a divorce, paying for college, and more. Professional financial advisors have formal education in the areas of money management, finance, and investing and must take courses or pass a test to become certified. Their knowledge of the industry goes far beyond the beginner level of information that you will find for free.  Is it Worth Paying for Financial Advice? There are many complex situations that may necessitate that you pay for financial advice, such as estate planning, going through a divorce, or setting up a business contract, for example. Free resources are great for basic knowledge on a subject, and can really help you understand the process. However, when it comes to dealing with large amounts of money or legally binding contracts, you want to make sure that your financial interests are being covered, and a paid financial advisor can assist with that. Where Can I Get Free Financial Advice for Debt? If you are feeling overwhelmed with your credit cards, mortgage, or other debt, a good place to start is with the lender. Often, the bank or credit card company can work with you to help you get back on track if you are behind on payments or had a situation arise, such as an accident or job loss, that puts you behind temporarily. Another option is to contact the National Foundation of Credit Counseling, which offers free help for getting rid of debt and other financial situations. The Federal Trade Commission also has a very informative website to give you basic knowledge on how to deal with debt. Do I Need a Financial Advisor If I Don't Have Much Money? It can be hard to know if you need a financial advisor or if you can handle your financial matters on your own, especially if you don’t have that much money to begin with. The need for professional financial advice truly depends upon your unique situation. If your situation involves complex tax, estate planning, or legal issues, you should consult with a professional. If you just need basic information on budgeting or starting to save, you may be able to get things started on your own. What Is the Difference Between a Financial Planner and a Financial Advisor? A financial planner is a specific type of financial advisor, as the term financial advisor is an all-encompassing term used to describe several types of financial professionals.A financial planner is a professional who assists people and organizations in developing a plan to achieve long-term financial objectives.A financial advisor is a specialist who offers knowledge for clients' financial investments and personal decision-making and covers a wide range of professionals, such as brokers, money managers, insurance brokers, and bankers. What Is the Difference Between an Accountant and a Financial Advisor? An accountant is a very specific type of financial advisor, only focusing on the auditing, accounting analysis, and tax implications of a financial situation. In the more general sense of the term, a financial advisor will advise clients on investing and estate planning, or give a more comprehensive financial overview of a situation, while an accountant will focus on tax issues. So whether you need an accountant or a financial advisor depends on the type of financial situation that you need help with. If you're focused on future-proofing your finances, there are more resources here to help protect your assets.  The Bottom Line Consuming as much free financial advice as you can find is always a good idea to give yourself more knowledge on the subject matter. However, free financial information will only be able to take you so far. Complicated situations, such as estate planning, business filings, or tax issues, definitely merit advice from a paid professional. In fact, the financial benefits that you gain could far outweigh the costs associated with hiring a financial professional.

https://www.investopedia.com/intel-stock-plunges-amid-concerns-about-chipmakers-outlook-tough-competition-8639486

Intel's Stock Plunges Amid Concerns About Chipmaker's Outlook, Tough Competition

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_1-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_2-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul><li>Intel shares plunged as much as 13% Friday morning, a day after the company's weak guidance for the current quarter overshadowed its first-quarter earnings beat.</li><li>Goldman Sachs analysts cut their price target for Intel stock by $5 a share to $34 and reiterated a "sell" rating for the stock amid intense AI competition.</li><li>Bank of America analysts lowered their price target to $40 from $44 due to "higher costs, lower growth," and "tough competition."</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> Intel (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=intc">INTC</a>) shares tumbled Friday as analysts at Goldman Sachs and Bank of America lowered their price targets for the chipmaker, a day after the company's <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/intel-q1-2024-earnings-8639245">weak guidance overshadowed</a> better-than-expected first-quarter revenue and profit. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> The stock was down was down 8.6% at $32.08 at around noon ET, after falling as low as $30.64 earlier in the trading session, its lowest level since last June. </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-tough-time-competing-with-nvidia"></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"> Tough Time Competing With Nvidia </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> Goldman Sachs analysts cut their <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/p/pricetarget.asp#:~:text=Key%20Takeaways-,A%20price%20target%20is%20an%20analyst's%20projection%20of%20a%20security's,arrive%20at%20a%20price%20target.">price target</a> for the stock to $34 from $39 and reduced their adjusted earnings per share estimates for the 2024-2026 period by 18% on average. They also reiterated their "sell" rating for the stock that has been in place since July 2020.<span class="ql-inline-citation" data-cite="2"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> "We worry that the company will continue to cede wallet share within the overall Data Center Compute market to the likes of 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>) and Arm (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ARM">ARM</a>)," Goldman analysts led by Toshiya Hari said in a note Friday. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Bank of America lowered its price objective to $40 from $44 citing "higher costs, lower growth," and "tough competition."<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> <span class="heading-toc" id="toc-limited-ai-exposure-a-concern"></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"> Limited AI Exposure a Concern </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The BofA analysts said that while first-quarter sales were in line with expectations, the weak second-quarter guidance showcase that "topline growth remains lukewarm on limited AI exposure, while underutilized manufacturing and elevated costs." </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"> Bank of America added that Intel's "enterprise incumbency, US-based manufacturing assets and weak investor sentiment provide turnaround potential." </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 chipmaker has been working to keep up with Nvidia, Arm and Advanced Micro Devices (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=amd">AMD</a>) as the <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> boom has increased the demand for advanced computing chips capable of running AI workloads. </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"> Intel shares have lost about 35% since the start of the year, while Nvidia is up about 75%, Arm has risen 34% and AMD has gained 7% </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:57.3%;"> <img alt="INTC, NVDA, ARM, ADM stock price chart YTD" class="lazyload universal-image__image" data-click-tracked="true" data-expand="300" 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src="https://www.investopedia.com/thmb/ZrlpQE4T5Gvc_5ed8UXzD8wHA8A=/1500x0/filters:no_upscale():max_bytes(150000):strip_icc()/INTC_2024-04-26_12-22-55-f115c02498704b369cc6800b16220213.png" srcset="https://www.investopedia.com/thmb/FQIE5bmboiGL_yJls-MHCsqGcr8=/750x0/filters:no_upscale():max_bytes(150000):strip_icc()/INTC_2024-04-26_12-22-55-f115c02498704b369cc6800b16220213.png 750w" width="1331"/> </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 * Intel shares plunged as much as 13% Friday morning, a day after the company's weak guidance for the current quarter overshadowed its first-quarter earnings beat. * Goldman Sachs analysts cut their price target for Intel stock by $5 a share to $34 and reiterated a "sell" rating for the stock amid intense AI competition. * Bank of America analysts lowered their price target to $40 from $44 due to "higher costs, lower growth," and "tough competition." Intel ([INTC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=intc)) shares tumbled Friday as analysts at Goldman Sachs and Bank of America lowered their price targets for the chipmaker, a day after the company's [weak guidance overshadowed](https://www.investopedia.com/intel-q1-2024-earnings-8639245) better-than-expected first-quarter revenue and profit. The stock was down was down 8.6% at $32.08 at around noon ET, after falling as low as $30.64 earlier in the trading session, its lowest level since last June. ## Tough Time Competing With Nvidia Goldman Sachs analysts cut their [price target](https://www.investopedia.com/terms/p/pricetarget.asp#:~:text=Key%20Takeaways-,A%20price%20target%20is%20an%20analyst's%20projection%20of%20a%20security's,arrive%20at%20a%20price%20target.) for the stock to $34 from $39 and reduced their adjusted earnings per share estimates for the 2024-2026 period by 18% on average. They also reiterated their "sell" rating for the stock that has been in place since July 2020. "We worry that the company will continue to cede wallet share within the overall Data Center Compute market to the likes of Nvidia ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=nvda)) and Arm ([ARM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ARM))," Goldman analysts led by Toshiya Hari said in a note Friday. Bank of America lowered its price objective to $40 from $44 citing "higher costs, lower growth," and "tough competition." ## Limited AI Exposure a Concern The BofA analysts said that while first-quarter sales were in line with expectations, the weak second-quarter guidance showcase that "topline growth remains lukewarm on limited AI exposure, while underutilized manufacturing and elevated costs." Bank of America added that Intel's "enterprise incumbency, US-based manufacturing assets and weak investor sentiment provide turnaround potential." The chipmaker has been working to keep up with Nvidia, Arm and Advanced Micro Devices ([AMD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=amd)) as the [artificial intelligence (AI)](https://www.investopedia.com/terms/a/artificial-intelligence-ai.asp) boom has increased the demand for advanced computing chips capable of running AI workloads. Intel shares have lost about 35% since the start of the year, while Nvidia is up about 75%, Arm has risen 34% and AMD has gained 7% ![INTC, NVDA, ARM, ADM stock price chart YTD]() :max_bytes(150000):strip_icc()/INTC_2024-04-26_12-22-55-f115c02498704b369cc6800b16220213.png) TradingView Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Intel shares plunged as much as 13% Friday morning, a day after the company's weak guidance for the current quarter overshadowed its first-quarter earnings beat.Goldman Sachs analysts cut their price target for Intel stock by $5 a share to $34 and reiterated a "sell" rating for the stock amid intense AI competition.Bank of America analysts lowered their price target to $40 from $44 due to "higher costs, lower growth," and "tough competition." Intel (INTC) shares tumbled Friday as analysts at Goldman Sachs and Bank of America lowered their price targets for the chipmaker, a day after the company's weak guidance overshadowed better-than-expected first-quarter revenue and profit. The stock was down was down 8.6% at $32.08 at around noon ET, after falling as low as $30.64 earlier in the trading session, its lowest level since last June. Tough Time Competing With Nvidia Goldman Sachs analysts cut their price target for the stock to $34 from $39 and reduced their adjusted earnings per share estimates for the 2024-2026 period by 18% on average. They also reiterated their "sell" rating for the stock that has been in place since July 2020. "We worry that the company will continue to cede wallet share within the overall Data Center Compute market to the likes of Nvidia (NVDA) and Arm (ARM)," Goldman analysts led by Toshiya Hari said in a note Friday. Bank of America lowered its price objective to $40 from $44 citing "higher costs, lower growth," and "tough competition." Limited AI Exposure a Concern The BofA analysts said that while first-quarter sales were in line with expectations, the weak second-quarter guidance showcase that "topline growth remains lukewarm on limited AI exposure, while underutilized manufacturing and elevated costs." Bank of America added that Intel's "enterprise incumbency, US-based manufacturing assets and weak investor sentiment provide turnaround potential." The chipmaker has been working to keep up with Nvidia, Arm and Advanced Micro Devices (AMD) as the artificial intelligence (AI) boom has increased the demand for advanced computing chips capable of running AI workloads. Intel shares have lost about 35% since the start of the year, while Nvidia is up about 75%, Arm has risen 34% and AMD has gained 7% TradingView Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/td-bank-savings-account-interest-rates-7504983

TD Bank Savings Account Interest Rates: May 2024

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><span class="heading-toc" id="toc-td-bank-savings-account-interest-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_1-0"> <span class="mntl-sc-block-heading__text"> TD Bank Savings Account Interest Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> TD Bank allows you to open a new savings account online. And if you are an existing TD Bank customer and link an eligible checking or credit account, you can qualify for a relationship interest rate boost.  </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"> TD Bank’s savings accounts tend to be best for existing TD Bank customers with substantial savings who can qualify for the higher annual percentage yields (APYs). Otherwise, the rates are below average, so you can likely find an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">account with a higher APY elsewhere</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-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_7-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><p>TD Bank's savings account rates may vary by location, and the rates listed below may not be available in all ZIP codes. The APYs listed below use New York City as the region and are up to date as of the date of publication of this article. We review rates every two weeks and update the information below accordingly.</p></div></div></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_8-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th><b>Account Name</b></th> <th><b>Balance for Highest APY</b></th> <th><b>APY Range</b></th> <th><b>Monthly Fee</b></th> </tr> </thead> <tbody data-check="0"> <tr> <td><b>TD Simple Savings</b></td> <td>$0</td> <td>0.02%</td> <td>$5<span data-cite="13"></span></td> </tr> <tr> <td><b>TD Signature Savings</b></td> <td>$100,000</td> <td>0.01%–4.00%</td> <td>$15<span data-cite="12"></span></td> </tr> </tbody> </table> </div></figure> <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-tip" 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>See the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">best high-yield savings account rates</a> today before choosing the savings account that is best for you.</p></div></div></div> <span class="heading-toc" id="toc-td-bank-savings-accounts-key-features"></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"> TD Bank Savings Accounts: Key Features </span> </h2> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_13-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">TD Simple Savings Key Features</th> </tr> </thead> <tbody data-check="-1"> <tr> <th><b>APY Range</b></th> <td>0.02%</td> </tr> <tr> <th><b>Minimum Balance to Earn Highest APY</b></th> <td>$0.01</td> </tr> <tr> <th><b>Minimum Deposit</b></th> <td>$0</td> </tr> <tr> <th><b>Withdrawal Limit</b></th> <td>6 per month ($9 for each additional transaction)<span data-cite="4"></span></td> </tr> <tr> <th><b>Monthly Service Fee</b></th> <td>$5</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> As the name implies, the TD Simple Savings account is a basic, barebones savings account. There’s no minimum deposit to open an account, so it’s useful for those who are new to saving.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> There is a monthly maintenance fee, but there are several ways you can have that fee waived:  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> <li>You’re under 18 or over 62.</li><li>For the first year, the fee is waived if you have a recurring transfer of $25 or more from a linked TD Bank checking account.</li><li>You maintain a minimum balance of $300.<span class="ql-inline-citation" data-cite="13"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> The account does earn interest, and interest is compounded monthly. However, the APY on the TD Simple Savings account is quite low. In fact, it’s significantly lower than the national average (0.46%, as of October 16, 2023), so you can likely find a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">bank with a high-yield savings account</a> that offers APYs several times higher.<span class="ql-inline-citation" data-cite="6"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_22-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> You should also be aware that you are limited to six pre-authorized withdrawals or transfers per month. If you make additional transfers, TD Bank will charge you $9 per transaction.<span class="ql-inline-citation" data-cite="4"></span>  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_24-0"></div> <figure class="comp mntl-sc-block finance-sc-block-table mntl-sc-block-table js-table-scroll" id="mntl-sc-block_25-0"> <div class="mntl-sc-block-table__table-wrapper"> <table class="mntl-sc-block-table__table"> <colgroup span="1" style=""></colgroup> <colgroup span="1" style=""></colgroup> <thead> <tr> <th class="mntl-sc-block-table__title" colspan="2">TD Bank Signature Savings Key Features</th> </tr> </thead> <tbody data-check="-1"> <tr> <th><b>APY Range</b></th> <td>0.01%–4.00%</td> </tr> <tr> <th><b>Minimum Balance to Earn Highest APY</b></th> <td>$100,000</td> </tr> <tr> <th><b>Minimum Deposit</b></th> <td>$0</td> </tr> <tr> <th><b>Withdrawal Limit</b></th> <td>6 per month<span data-cite="4"></span></td> </tr> <tr> <th><b>Monthly Service Fee</b></th> <td>$15</td> </tr> </tbody> </table> </div></figure> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> The TD Signature Savings account is a high-yield savings account for those who have a substantial amount of money. Interest on the account is compounded monthly.  </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 Signature Savings account without a relationship rate has a lower-than-average APY until you have $250,000 or more in the account.  </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"> You can qualify for a relationship rate bump if you are a TD Bank customer with a connected <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> or credit card. The relationship rate bump offers a much higher APY on balances of $10,000 or more, but you’ll still need to save $100,000 before you’ll qualify for the best possible APY.  </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 TD Signature Savings account has a $15 monthly maintenance fee, which can be waived in the following ways:  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_34-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> <li>Maintain a minimum daily balance of $10,000 or more</li> <li>Link an eligible TD Bank checking account</li> <li>Open the account as an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ira.asp">individual retirement account (IRA)</a><span class="ql-inline-citation" data-cite="12"></span><br/></li> </ul> <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-pros-and-cons-of-td-bank-savings-accounts"></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"> Pros and Cons of TD Bank Savings Accounts </span> </h2> <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"> Pros </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> <li><strong>Easy to waive monthly fee for Simple Savings:</strong> TD Bank will waive the $5 monthly service fee for the Simple Savings account if you maintain a minimum balance of just $300, if you’re under 18 or over 62, or if you have a recurring transfer of $25 or more from a linked TD Bank checking account. </li><li><strong>No minimum deposit requirement to open:</strong> Each of TD Bank’s savings accounts, Simple Savings and Signature Savings, have no minimum deposit requirement to open, making them relatively accessible.</li><li><strong>Current TD Bank customers can qualify for relationship rate bump:</strong> If you link a TD checking account or credit card to your TD Signature Savings account, you could qualify for a higher APY.<span class="ql-inline-citation" data-cite="19"></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_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"> Cons </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> <li><strong>TD Bank savings account interest rates are not very competitive:</strong> The APY on the TD Simple Savings account is very low, usually much lower than the national savings account average.<span class="ql-inline-citation" data-cite="20"></span></li><li><strong>Large balance required to access highest APY with Signature Savings account:</strong> To get the highest APY on a TD Signature Savings account, you’ll need a balance of at least $100,000 in your account.</li><li><strong>Fees for going over six withdrawals per month: </strong>After you’ve hit your limit of six monthly withdrawals, TD Bank charges $3 for each additional withdrawal.<span class="ql-inline-citation" data-cite="22"></span><br/></li> </ul> <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-about-td-bank-other-savings-options"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_44-0"> <span class="mntl-sc-block-heading__text"> About TD Bank: Other Savings Options </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_45-0"> Despite only being available in a few states, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/td-bank-review-4799703">TD Bank</a> is the 10th largest bank in the country.<span class="ql-inline-citation" data-cite="8"></span> It offers a variety of financial products, including credit cards, personal loans, mortgages, and savings and checking accounts.  </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"> Only residents of certain states can open a TD Bank savings account. TD Bank only operates in Connecticut, Delaware, Florida, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, and Washington, D.C.<span class="ql-inline-citation" data-cite="11"></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"> Besides its savings accounts, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/td-bank-cd-rates-7482856">TD Bank also offers certificates of deposit (CDs)</a>. Existing TD Bank customers can qualify for a CD with a much higher-than-average APY, but the highest APYs are only available on some CD terms. TD Bank has other options in addition to standard CDs, including those that allow for a penalty-free withdrawal.  </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"> TD Bank occasionally has <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/td-bank-promotions-7100395">special offers for its deposit accounts</a>, including savings accounts and CDs, allowing you to earn a bonus for opening a new account and completing certain activities. <br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_53-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_54-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_3-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>TD Bank only operates brick-and-mortar branches in select states. You can find a branch near you with its <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="externalLink" href="https://www.tdbank.com/net/selectstate.aspx" rel="nofollow">store locator tool</a>.</p></div></div></div> <span class="heading-toc" id="toc-alternatives-to-td-bank-savings-accounts"></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"> Alternatives to TD Bank Savings Accounts </span> </h2> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_56-0"> <span class="mntl-sc-block-subheading__text"> Other High-Yield Savings Accounts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_57-0"> You can find much higher savings account rates from other institutions; in 2023 we saw many accounts with APYs above 5%, rivaling CDs. See the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">best high-yield savings accounts</a> to check your options and see how much you could earn. </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"> Certificates of Deposit (CD) </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_60-0"> You could invest your money in a CD for anywhere from a month to several years to get a guaranteed return on investment. Unlike savings accounts, CDs have a fixed APY for their entire term. Keep in mind, however, that you’ll be charged a penalty if you withdraw your cash before the CD matures. Check the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best CD rates available today</a> to see if one might fit better than a savings account. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_61-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_62-0"> <span class="mntl-sc-block-subheading__text"> Money Market Accounts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> Some <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-money-market-accounts-5096917">money market accounts</a> come with competitive interest rates, as well as the ability to write checks and take out cash at an ATM with a debit card. Some of these accounts, however, come with higher fees or minimum balance requirements than a regular savings or checking account, so check the terms carefully.<strong> </strong> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_64-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_65-0"> <span class="mntl-sc-block-subheading__text"> I Bonds </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> If you don’t need access to your savings for at least a year, consider investing in U.S. government I bonds to protect your cash from losing value due to inflation. But take the time to check rates against bank deposit accounts, especially CDs, which also require a commitment to keeping your money in one place. </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"> Checking Accounts </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_69-0"> For easy access to your cash, as well as check-writing abilities and a debit card, consider opening a checking account. Some institutions offer <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-checking-accounts-5070332">high-yield checking accounts</a> with competitive interest rates. Unlike some savings accounts, checking accounts don’t limit the number of withdrawals you can make per month, and allow you to make ATM withdrawals and deposits. </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-compare-savings-account-rates"></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"> Compare Savings Account Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> TD Bank’s rates are attractive for some balance ranges, but the best APYs will be out of reach for most people. Compare TD Bank to some other high-yield accounts below to find the right savings option for you. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <div class="comp mntl-sc-block mntl-sc-block-tool mntl-block mntl-sc-block--ma-rate-table--finance-mma" id="mntl-sc-block_74-0"><span class="comp prm-external-component-tools mntl-external-component" id="prm-external-component-tools_1-0"><div class="comp ma-rate-table--finance-mma mntl-block" id="ma-rate-table--finance-mma_1-0"></div><!-- end: comp ma-rate-table--finance-mma mntl-block --> </span></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_75-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_76-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_77-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p><strong>In the News: </strong>Savings account rates reached higher in 2023 than we’d seen in more than 20 years, pushed up by the Federal Reserve’s rate-hike campaign that began in March 2022 to tame decades-high inflation. The Fed <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fed-holds-interest-rate-steady-and-confirms-it-will-be-higher-for-longer-8641952">held rates steady</a> for a sixth consecutive time at its meeting that concluded May 1, 2024. The 5.25% to 5.50% range is the highest the federal funds rate has been since 2001, and Fed officials noted in their statement that there has been a lack of progress toward the committee’s goal of lowering inflation. With consumer prices showing a 3.5% inflation rate in March, Fed officials don’t foresee reducing their benchmark rate until they're confident inflation is moving toward 2%.<span class="ql-inline-citation" data-cite="17"></span><span class="ql-inline-citation" data-cite="16"></span></p> <p>Because savings account yields closely follow the fed funds rate, the Fed’s current holding pattern has caused savings rates to plateau, and declines should be expected once it appears the Fed is ready to make its first cut.</p></div></div></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-is-td-bank-good-for-savings-accounts"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is TD Bank Good for Savings Accounts?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you have a significant amount of money in savings, opening a TD Bank savings account could allow you to earn a higher-than-average APY. But if you have less than $250,000, you can likely find banks with much lower minimum thresholds, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">higher APYs</a>, and <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-free-savings-accounts-5191103">no monthly fees</a>.</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-are-td-savings-accounts-free"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are TD Savings Accounts Free?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>No, TD Bank’s savings accounts aren’t “free” because they have monthly fees: $5 for Simple Savings, $15 for Signature Savings. These fees can be waived in several ways, such as by maintaining a certain minimum daily balance or linking an eligible TD Checking account.<span class="ql-inline-citation" data-cite="23"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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-minimum-balance-for-a-td-bank-savings-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Minimum Balance for a TD Bank Savings Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There is no minimum balance to open a TD Bank <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>. However, you may need to deposit quite a lot of money to earn the highest possible APY.<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_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-do-you-open-a-td-bank-savings-account"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Open a TD Bank Savings Account?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>You can <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-open-a-high-yield-savings-account-4770631">open a TD Bank savings account</a> online, over the phone, or by visiting a branch. You’ll need to provide your Social Security number and address, and link an existing bank to transfer money. </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-how-do-you-avoid-td-bank-savings-account-fees"></span> <h2 class="mntl-sc-block-questionandanswer__question">How Do You Avoid TD Bank Savings Account Fees?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>TD Bank’s savings accounts have monthly maintenance fees. However, you can waive those fees if you meet minimum balance requirements or other requirements. For example, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-savings-accounts-for-kids-5179494">those under 18</a> and over 62 can qualify for a free TD Simple Savings account.<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_87-0"></div> <span class="heading-toc" id="toc-your-guide-to-savings-accounts"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_88-0"> <span class="mntl-sc-block-heading__text"> Your Guide to Savings Accounts </span> </h2> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_89-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/savingsaccount.asp">What Is a Savings Account and How Does It Work?</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp">What Is a High-Yield Savings Account?</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-open-a-high-yield-savings-account-4770631">How to Open a High-Yield Savings Account</a></li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-to-close-a-savings-account-7500880">How to Close a Savings Account</a></li> <li><a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/12/safest-place-for-money.asp">Besides a Savings Account, Where Is the Safest Place to Keep My Money?</a></li> <li><a data-component="link" data-ordinal="6" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-many-savings-accounts-should-i-have-7775519">How Many Savings Accounts Should I Have?</a></li> <li><a data-component="link" data-ordinal="7" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/043015/what-economic-factors-affect-savings-account-rates.asp">How Savings Account Interest Rates Are Determined</a></li> <li><a data-component="link" data-ordinal="8" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/062315/how-interest-rates-work-savings-accounts.asp">How Interest Works on Savings Accounts</a></li> <li><a data-component="link" data-ordinal="9" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/052515/how-savings-account-taxed.asp">How Is a Savings Account Taxed?</a></li> <li><a data-component="link" data-ordinal="10" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/mutualfund/07/money_market_savings.asp">Money Market Fund vs. MMA vs. Savings Account: What’s the Difference?</a></li> <li><a data-component="link" data-ordinal="11" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/cds-vs-savings-accounts-5270287">Certificates of Deposit (CDs) vs. Savings Accounts: Which Is Better for You?</a></li> <li><a data-component="link" data-ordinal="12" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/090314/4-savings-accounts-investors.asp">4 Savings Accounts for Investors</a></li> <li><a data-component="link" data-ordinal="13" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">Best High-Yield Savings Accounts</a></li> <li><a data-component="link" data-ordinal="14" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-free-savings-accounts-5191103">Best Free Savings Accounts</a></li> <li><a data-component="link" data-ordinal="15" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-savings-accounts-for-kids-5179494">Best Savings Accounts for Kids and Teens</a></li> </ul></div>

## TD Bank Savings Account Interest Rates TD Bank allows you to open a new savings account online. And if you are an existing TD Bank customer and link an eligible checking or credit account, you can qualify for a relationship interest rate boost.  TD Bank’s savings accounts tend to be best for existing TD Bank customers with substantial savings who can qualify for the higher annual percentage yields (APYs). Otherwise, the rates are below average, so you can likely find an [account with a higher APY elsewhere](https://www.investopedia.com/best-high-yield-savings-accounts-4770633).  ### TD Bank's savings account rates may vary by location, and the rates listed below may not be available in all ZIP codes. The APYs listed below use New York City as the region and are up to date as of the date of publication of this article. We review rates every two weeks and update the information below accordingly. | **Account Name** | **Balance for Highest APY** | **APY Range** | **Monthly Fee** | | --- | --- | --- | --- | | **TD Simple Savings** | $0 | 0.02% | $5 | | **TD Signature Savings** | $100,000 | 0.01%–4.00% | $15 | ### See the [best high-yield savings account rates](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) today before choosing the savings account that is best for you. ## TD Bank Savings Accounts: Key Features | TD Simple Savings Key Features | | | --- | --- | | **APY Range** | 0.02% | | **Minimum Balance to Earn Highest APY** | $0.01 | | **Minimum Deposit** | $0 | | **Withdrawal Limit** | 6 per month ($9 for each additional transaction) | | **Monthly Service Fee** | $5 | As the name implies, the TD Simple Savings account is a basic, barebones savings account. There’s no minimum deposit to open an account, so it’s useful for those who are new to saving.  There is a monthly maintenance fee, but there are several ways you can have that fee waived:  * You’re under 18 or over 62. * For the first year, the fee is waived if you have a recurring transfer of $25 or more from a linked TD Bank checking account. * You maintain a minimum balance of $300. The account does earn interest, and interest is compounded monthly. However, the APY on the TD Simple Savings account is quite low. In fact, it’s significantly lower than the national average (0.46%, as of October 16, 2023), so you can likely find a [bank with a high-yield savings account](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) that offers APYs several times higher.  You should also be aware that you are limited to six pre-authorized withdrawals or transfers per month. If you make additional transfers, TD Bank will charge you $9 per transaction.  | TD Bank Signature Savings Key Features | | | --- | --- | | **APY Range** | 0.01%–4.00% | | **Minimum Balance to Earn Highest APY** | $100,000 | | **Minimum Deposit** | $0 | | **Withdrawal Limit** | 6 per month | | **Monthly Service Fee** | $15 | The TD Signature Savings account is a high-yield savings account for those who have a substantial amount of money. Interest on the account is compounded monthly.  The Signature Savings account without a relationship rate has a lower-than-average APY until you have $250,000 or more in the account.  You can qualify for a relationship rate bump if you are a TD Bank customer with a connected [checking account](https://www.investopedia.com/terms/c/checkingaccount.asp) or credit card. The relationship rate bump offers a much higher APY on balances of $10,000 or more, but you’ll still need to save $100,000 before you’ll qualify for the best possible APY.  The TD Signature Savings account has a $15 monthly maintenance fee, which can be waived in the following ways:  * Maintain a minimum daily balance of $10,000 or more * Link an eligible TD Bank checking account * Open the account as an [individual retirement account (IRA)](https://www.investopedia.com/terms/i/ira.asp) ## Pros and Cons of TD Bank Savings Accounts ### Pros * **Easy to waive monthly fee for Simple Savings:** TD Bank will waive the $5 monthly service fee for the Simple Savings account if you maintain a minimum balance of just $300, if you’re under 18 or over 62, or if you have a recurring transfer of $25 or more from a linked TD Bank checking account. * **No minimum deposit requirement to open:** Each of TD Bank’s savings accounts, Simple Savings and Signature Savings, have no minimum deposit requirement to open, making them relatively accessible. * **Current TD Bank customers can qualify for relationship rate bump:** If you link a TD checking account or credit card to your TD Signature Savings account, you could qualify for a higher APY. ### Cons * **TD Bank savings account interest rates are not very competitive:** The APY on the TD Simple Savings account is very low, usually much lower than the national savings account average. * **Large balance required to access highest APY with Signature Savings account:** To get the highest APY on a TD Signature Savings account, you’ll need a balance of at least $100,000 in your account. * **Fees for going over six withdrawals per month:** After you’ve hit your limit of six monthly withdrawals, TD Bank charges $3 for each additional withdrawal. ## About TD Bank: Other Savings Options Despite only being available in a few states, [TD Bank](https://www.investopedia.com/td-bank-review-4799703) is the 10th largest bank in the country. It offers a variety of financial products, including credit cards, personal loans, mortgages, and savings and checking accounts.  Only residents of certain states can open a TD Bank savings account. TD Bank only operates in Connecticut, Delaware, Florida, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, and Washington, D.C.  Besides its savings accounts, [TD Bank also offers certificates of deposit (CDs)](https://www.investopedia.com/td-bank-cd-rates-7482856). Existing TD Bank customers can qualify for a CD with a much higher-than-average APY, but the highest APYs are only available on some CD terms. TD Bank has other options in addition to standard CDs, including those that allow for a penalty-free withdrawal.  TD Bank occasionally has [special offers for its deposit accounts](https://www.investopedia.com/td-bank-promotions-7100395), including savings accounts and CDs, allowing you to earn a bonus for opening a new account and completing certain activities.  ### TD Bank only operates brick-and-mortar branches in select states. You can find a branch near you with its [store locator tool](https://www.tdbank.com/net/selectstate.aspx). ## Alternatives to TD Bank Savings Accounts ### Other High-Yield Savings Accounts You can find much higher savings account rates from other institutions; in 2023 we saw many accounts with APYs above 5%, rivaling CDs. See the [best high-yield savings accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) to check your options and see how much you could earn. ### Certificates of Deposit (CD) You could invest your money in a CD for anywhere from a month to several years to get a guaranteed return on investment. Unlike savings accounts, CDs have a fixed APY for their entire term. Keep in mind, however, that you’ll be charged a penalty if you withdraw your cash before the CD matures. Check the [best CD rates available today](https://www.investopedia.com/best-cd-rates-4770214) to see if one might fit better than a savings account. ### Money Market Accounts Some [money market accounts](https://www.investopedia.com/best-money-market-accounts-5096917) come with competitive interest rates, as well as the ability to write checks and take out cash at an ATM with a debit card. Some of these accounts, however, come with higher fees or minimum balance requirements than a regular savings or checking account, so check the terms carefully. ### I Bonds If you don’t need access to your savings for at least a year, consider investing in U.S. government I bonds to protect your cash from losing value due to inflation. But take the time to check rates against bank deposit accounts, especially CDs, which also require a commitment to keeping your money in one place. ### Checking Accounts For easy access to your cash, as well as check-writing abilities and a debit card, consider opening a checking account. Some institutions offer [high-yield checking accounts](https://www.investopedia.com/best-high-yield-checking-accounts-5070332) with competitive interest rates. Unlike some savings accounts, checking accounts don’t limit the number of withdrawals you can make per month, and allow you to make ATM withdrawals and deposits. ## Compare Savings Account Rates TD Bank’s rates are attractive for some balance ranges, but the best APYs will be out of reach for most people. Compare TD Bank to some other high-yield accounts below to find the right savings option for you. ### **In the News:** Savings account rates reached higher in 2023 than we’d seen in more than 20 years, pushed up by the Federal Reserve’s rate-hike campaign that began in March 2022 to tame decades-high inflation. The Fed [held rates steady](https://www.investopedia.com/fed-holds-interest-rate-steady-and-confirms-it-will-be-higher-for-longer-8641952) for a sixth consecutive time at its meeting that concluded May 1, 2024. The 5.25% to 5.50% range is the highest the federal funds rate has been since 2001, and Fed officials noted in their statement that there has been a lack of progress toward the committee’s goal of lowering inflation. With consumer prices showing a 3.5% inflation rate in March, Fed officials don’t foresee reducing their benchmark rate until they're confident inflation is moving toward 2%. Because savings account yields closely follow the fed funds rate, the Fed’s current holding pattern has caused savings rates to plateau, and declines should be expected once it appears the Fed is ready to make its first cut. ## Is TD Bank Good for Savings Accounts? If you have a significant amount of money in savings, opening a TD Bank savings account could allow you to earn a higher-than-average APY. But if you have less than $250,000, you can likely find banks with much lower minimum thresholds, [higher APYs](https://www.investopedia.com/best-high-yield-savings-accounts-4770633), and [no monthly fees](https://www.investopedia.com/best-free-savings-accounts-5191103). ## Are TD Savings Accounts Free? No, TD Bank’s savings accounts aren’t “free” because they have monthly fees: $5 for Simple Savings, $15 for Signature Savings. These fees can be waived in several ways, such as by maintaining a certain minimum daily balance or linking an eligible TD Checking account. ## What Is the Minimum Balance for a TD Bank Savings Account? There is no minimum balance to open a TD Bank [savings account](https://www.investopedia.com/terms/s/savingsaccount.asp). However, you may need to deposit quite a lot of money to earn the highest possible APY. ## How Do You Open a TD Bank Savings Account? You can [open a TD Bank savings account](https://www.investopedia.com/how-to-open-a-high-yield-savings-account-4770631) online, over the phone, or by visiting a branch. You’ll need to provide your Social Security number and address, and link an existing bank to transfer money.  ## How Do You Avoid TD Bank Savings Account Fees? TD Bank’s savings accounts have monthly maintenance fees. However, you can waive those fees if you meet minimum balance requirements or other requirements. For example, [those under 18](https://www.investopedia.com/best-savings-accounts-for-kids-5179494) and over 62 can qualify for a free TD Simple Savings account. ## Your Guide to Savings Accounts * [What Is a Savings Account and How Does It Work?](https://www.investopedia.com/terms/s/savingsaccount.asp) * [What Is a High-Yield Savings Account?](https://www.investopedia.com/articles/pf/09/high-yield-savings-account.asp) * [How to Open a High-Yield Savings Account](https://www.investopedia.com/how-to-open-a-high-yield-savings-account-4770631) * [How to Close a Savings Account](https://www.investopedia.com/how-to-close-a-savings-account-7500880) * [Besides a Savings Account, Where Is the Safest Place to Keep My Money?](https://www.investopedia.com/ask/answers/12/safest-place-for-money.asp) * [How Many Savings Accounts Should I Have?](https://www.investopedia.com/how-many-savings-accounts-should-i-have-7775519) * [How Savings Account Interest Rates Are Determined](https://www.investopedia.com/ask/answers/043015/what-economic-factors-affect-savings-account-rates.asp) * [How Interest Works on Savings Accounts](https://www.investopedia.com/articles/personal-finance/062315/how-interest-rates-work-savings-accounts.asp) * [How Is a Savings Account Taxed?](https://www.investopedia.com/ask/answers/052515/how-savings-account-taxed.asp) * [Money Market Fund vs. MMA vs. Savings Account: What’s the Difference?](https://www.investopedia.com/articles/mutualfund/07/money_market_savings.asp) * [Certificates of Deposit (CDs) vs. Savings Accounts: Which Is Better for You?](https://www.investopedia.com/cds-vs-savings-accounts-5270287) * [4 Savings Accounts for Investors](https://www.investopedia.com/articles/personal-finance/090314/4-savings-accounts-investors.asp) * [Best High-Yield Savings Accounts](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) * [Best Free Savings Accounts](https://www.investopedia.com/best-free-savings-accounts-5191103) * [Best Savings Accounts for Kids and Teens](https://www.investopedia.com/best-savings-accounts-for-kids-5179494)

TD Bank Savings Account Interest Rates TD Bank allows you to open a new savings account online. And if you are an existing TD Bank customer and link an eligible checking or credit account, you can qualify for a relationship interest rate boost.  TD Bank’s savings accounts tend to be best for existing TD Bank customers with substantial savings who can qualify for the higher annual percentage yields (APYs). Otherwise, the rates are below average, so you can likely find an account with a higher APY elsewhere.  TD Bank's savings account rates may vary by location, and the rates listed below may not be available in all ZIP codes. The APYs listed below use New York City as the region and are up to date as of the date of publication of this article. We review rates every two weeks and update the information below accordingly. Account Name Balance for Highest APY APY Range Monthly Fee TD Simple Savings $0 0.02% $5 TD Signature Savings $100,000 0.01%–4.00% $15 See the best high-yield savings account rates today before choosing the savings account that is best for you. TD Bank Savings Accounts: Key Features TD Simple Savings Key Features APY Range 0.02% Minimum Balance to Earn Highest APY $0.01 Minimum Deposit $0 Withdrawal Limit 6 per month ($9 for each additional transaction) Monthly Service Fee $5 As the name implies, the TD Simple Savings account is a basic, barebones savings account. There’s no minimum deposit to open an account, so it’s useful for those who are new to saving.  There is a monthly maintenance fee, but there are several ways you can have that fee waived:  You’re under 18 or over 62.For the first year, the fee is waived if you have a recurring transfer of $25 or more from a linked TD Bank checking account.You maintain a minimum balance of $300. The account does earn interest, and interest is compounded monthly. However, the APY on the TD Simple Savings account is quite low. In fact, it’s significantly lower than the national average (0.46%, as of October 16, 2023), so you can likely find a bank with a high-yield savings account that offers APYs several times higher.  You should also be aware that you are limited to six pre-authorized withdrawals or transfers per month. If you make additional transfers, TD Bank will charge you $9 per transaction.  TD Bank Signature Savings Key Features APY Range 0.01%–4.00% Minimum Balance to Earn Highest APY $100,000 Minimum Deposit $0 Withdrawal Limit 6 per month Monthly Service Fee $15 The TD Signature Savings account is a high-yield savings account for those who have a substantial amount of money. Interest on the account is compounded monthly.  The Signature Savings account without a relationship rate has a lower-than-average APY until you have $250,000 or more in the account.  You can qualify for a relationship rate bump if you are a TD Bank customer with a connected checking account or credit card. The relationship rate bump offers a much higher APY on balances of $10,000 or more, but you’ll still need to save $100,000 before you’ll qualify for the best possible APY.  The TD Signature Savings account has a $15 monthly maintenance fee, which can be waived in the following ways:  Maintain a minimum daily balance of $10,000 or more Link an eligible TD Bank checking account Open the account as an individual retirement account (IRA) Pros and Cons of TD Bank Savings Accounts Pros Easy to waive monthly fee for Simple Savings: TD Bank will waive the $5 monthly service fee for the Simple Savings account if you maintain a minimum balance of just $300, if you’re under 18 or over 62, or if you have a recurring transfer of $25 or more from a linked TD Bank checking account. No minimum deposit requirement to open: Each of TD Bank’s savings accounts, Simple Savings and Signature Savings, have no minimum deposit requirement to open, making them relatively accessible.Current TD Bank customers can qualify for relationship rate bump: If you link a TD checking account or credit card to your TD Signature Savings account, you could qualify for a higher APY. Cons TD Bank savings account interest rates are not very competitive: The APY on the TD Simple Savings account is very low, usually much lower than the national savings account average.Large balance required to access highest APY with Signature Savings account: To get the highest APY on a TD Signature Savings account, you’ll need a balance of at least $100,000 in your account.Fees for going over six withdrawals per month: After you’ve hit your limit of six monthly withdrawals, TD Bank charges $3 for each additional withdrawal. About TD Bank: Other Savings Options Despite only being available in a few states, TD Bank is the 10th largest bank in the country. It offers a variety of financial products, including credit cards, personal loans, mortgages, and savings and checking accounts.  Only residents of certain states can open a TD Bank savings account. TD Bank only operates in Connecticut, Delaware, Florida, Maine, Maryland, Massachusetts, New Hampshire, New Jersey, New York, North Carolina, Pennsylvania, Rhode Island, South Carolina, Vermont, Virginia, and Washington, D.C.  Besides its savings accounts, TD Bank also offers certificates of deposit (CDs). Existing TD Bank customers can qualify for a CD with a much higher-than-average APY, but the highest APYs are only available on some CD terms. TD Bank has other options in addition to standard CDs, including those that allow for a penalty-free withdrawal.  TD Bank occasionally has special offers for its deposit accounts, including savings accounts and CDs, allowing you to earn a bonus for opening a new account and completing certain activities.  TD Bank only operates brick-and-mortar branches in select states. You can find a branch near you with its store locator tool. Alternatives to TD Bank Savings Accounts Other High-Yield Savings Accounts You can find much higher savings account rates from other institutions; in 2023 we saw many accounts with APYs above 5%, rivaling CDs. See the best high-yield savings accounts to check your options and see how much you could earn. Certificates of Deposit (CD) You could invest your money in a CD for anywhere from a month to several years to get a guaranteed return on investment. Unlike savings accounts, CDs have a fixed APY for their entire term. Keep in mind, however, that you’ll be charged a penalty if you withdraw your cash before the CD matures. Check the best CD rates available today to see if one might fit better than a savings account. Money Market Accounts Some money market accounts come with competitive interest rates, as well as the ability to write checks and take out cash at an ATM with a debit card. Some of these accounts, however, come with higher fees or minimum balance requirements than a regular savings or checking account, so check the terms carefully.  I Bonds If you don’t need access to your savings for at least a year, consider investing in U.S. government I bonds to protect your cash from losing value due to inflation. But take the time to check rates against bank deposit accounts, especially CDs, which also require a commitment to keeping your money in one place. Checking Accounts For easy access to your cash, as well as check-writing abilities and a debit card, consider opening a checking account. Some institutions offer high-yield checking accounts with competitive interest rates. Unlike some savings accounts, checking accounts don’t limit the number of withdrawals you can make per month, and allow you to make ATM withdrawals and deposits. Compare Savings Account Rates TD Bank’s rates are attractive for some balance ranges, but the best APYs will be out of reach for most people. Compare TD Bank to some other high-yield accounts below to find the right savings option for you. In the News: Savings account rates reached higher in 2023 than we’d seen in more than 20 years, pushed up by the Federal Reserve’s rate-hike campaign that began in March 2022 to tame decades-high inflation. The Fed held rates steady for a sixth consecutive time at its meeting that concluded May 1, 2024. The 5.25% to 5.50% range is the highest the federal funds rate has been since 2001, and Fed officials noted in their statement that there has been a lack of progress toward the committee’s goal of lowering inflation. With consumer prices showing a 3.5% inflation rate in March, Fed officials don’t foresee reducing their benchmark rate until they're confident inflation is moving toward 2%. Because savings account yields closely follow the fed funds rate, the Fed’s current holding pattern has caused savings rates to plateau, and declines should be expected once it appears the Fed is ready to make its first cut. Is TD Bank Good for Savings Accounts? If you have a significant amount of money in savings, opening a TD Bank savings account could allow you to earn a higher-than-average APY. But if you have less than $250,000, you can likely find banks with much lower minimum thresholds, higher APYs, and no monthly fees. Are TD Savings Accounts Free? No, TD Bank’s savings accounts aren’t “free” because they have monthly fees: $5 for Simple Savings, $15 for Signature Savings. These fees can be waived in several ways, such as by maintaining a certain minimum daily balance or linking an eligible TD Checking account. What Is the Minimum Balance for a TD Bank Savings Account? There is no minimum balance to open a TD Bank savings account. However, you may need to deposit quite a lot of money to earn the highest possible APY. How Do You Open a TD Bank Savings Account? You can open a TD Bank savings account online, over the phone, or by visiting a branch. You’ll need to provide your Social Security number and address, and link an existing bank to transfer money.  How Do You Avoid TD Bank Savings Account Fees? TD Bank’s savings accounts have monthly maintenance fees. However, you can waive those fees if you meet minimum balance requirements or other requirements. For example, those under 18 and over 62 can qualify for a free TD Simple Savings account. Your Guide to Savings Accounts What Is a Savings Account and How Does It Work? What Is a High-Yield Savings Account? How to Open a High-Yield Savings Account How to Close a Savings Account Besides a Savings Account, Where Is the Safest Place to Keep My Money? How Many Savings Accounts Should I Have? How Savings Account Interest Rates Are Determined How Interest Works on Savings Accounts How Is a Savings Account Taxed? Money Market Fund vs. MMA vs. Savings Account: What’s the Difference? Certificates of Deposit (CDs) vs. Savings Accounts: Which Is Better for You? 4 Savings Accounts for Investors Best High-Yield Savings Accounts Best Free Savings Accounts Best Savings Accounts for Kids and Teens

https://www.investopedia.com/cd-automatic-rollover-5295870

Can You Automatically Roll Over a CD When the Term Expires?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 may be able to automatically roll over a certificate of deposit (CD) when the term expires, but that may not always be the best choice. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> When the end of your certificate of deposit term approaches, your CD provider will contact you with options. The money in your CD may automatically roll over into a new CD, or you may have to select that option before the end of the term. You can also withdraw the money, along with the interest you earned, when your CD reaches maturity. </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"> Before your CD matures, learn the rules that apply and check the interest rate on the new CD because it could be lower than the previous rate. It's often better to shop around for the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best CD rates</a> as your CD matures than to allow automatic rollovers.<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>When your CD term comes to an end, your money may be automatically rolled over or released back to you along with the interest accrued.</li><li>As the end of the CD term approaches, your CD provider will inform you of your options (usually, to roll the money over or release the funds).</li><li>Check the rate for the new CD before choosing a rollover because it might be lower than the previous rate.</li><li>Shopping around for the best rate available—which could be a new promotional offer—is often preferable to taking an automatic rollover.</li></ul></div></div></div> <span class="heading-toc" id="toc-how-to-roll-over-a-cd"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_9-0"> <span class="mntl-sc-block-heading__text"> How to Roll Over a CD </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> For most CDs, you don’t need to do anything to have the money roll over into a new CD of a similar length—most CDs held with most banks and building societies will automatically roll over if you do nothing.  </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_11-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_12-0"> Each bank, <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">credit union</a>, and other CD provider has its own rules when it comes to CD maturities. When your CD is close to maturing, your provider should contact you and explain your options. Typically, they will offer you three options: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_13-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> <li><strong>Roll over the CD</strong> <strong>into a new CD at that bank</strong>:<strong> </strong>Generally, this would be into a CD that most closely matches the term of your maturing CD. For example, if you have a one-year CD concluding, the provider would likely roll your balance into a new one-year CD.</li> <li><strong>Withdraw the proceeds</strong>:<strong> </strong>They can be transferred to an external bank account or mailed to you via paper check. </li> <li><strong>Transfer the funds</strong> <strong>into another account at that bank</strong>:<strong> </strong>Options include savings, checking, and <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/042116/money-market-vs-cds-which-better-investment.asp">money market accounts</a>.<br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_16-0"> For most CDs, the first option is the default: If you do nothing, your CD will roll over into a new one that matches the existing term. You should check with your provider to learn its rules, however, because each provider sets its own.<span class="ql-inline-citation" data-cite="1"></span><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-finding-the-best-cd-rates"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_18-0"> <span class="mntl-sc-block-heading__text"> Finding the Best CD Rates </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> Generally, when a CD expires it will automatically roll over unless you take prior action. When a CD rolls over, however, <em>the new interest rate might be different than the rate you were receiving</em>. The new CD will have the same or a similar term, e.g. a 12-month CD will be rolled over into a new 12-month CD. The interest rate, however, could be different depending on the current <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/09/how-interest-rates-affect-markets.asp">interest rate environment</a> or presence (or lack) of promotional offers. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_21-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_22-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>If you want to maximize the return on your CDs, pay attention to when your CDs reach maturity and try to find the best possible rate for a new one. See the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">best CD rates available</a> to find a good home for your money.<br/></p></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_23-0"> CD interest rates depend on a host of factors and generally follow 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>, which is influenced by the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/federalfunds.asp">fed funds rate</a>. If a nation's central bank is trying to slow down the economy, interest rates may be higher, which makes CDs more attractive. Conversely, if they're trying to stimulate the economy, interest rates may be low, making CDs less attractive. </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 may purchase a CD in a high interest rate environment but when it matures, you could be in a low interest rate environment. If you roll the money over, you'd earn significantly less on your new CD than your prior one. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_26-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_27-0"> If want to continue investing in CDs, take the time to evaluate the rates offered by different providers before your CD reaches maturity. And if you haven't found a provider you like, instruct your bank to move your CD funds into a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-high-yield-savings-accounts-4770633">high-yield savings account</a> upon maturity. That way, you'll have the option and time to find the right CD rather than being locked up in one that no longer serves your investment purposes.<br/> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_28-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> Consider a variety of CDs and term lengths. We rank the top 15 APYs in every major CD term and category to help you find a CD that meets your needs, including:<br> </br></p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_30-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> <li><a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-3-month-cd-rates-5272288">Best 3-Month CD Rates</a></li> <li><a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-6-month-cd-rates-4783267">Best 6-Month CD Rates</a></li> <li><a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-1-year-cd-rates-4796650">Best 1-Year CD Rates</a></li> <li><a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-jumbo-cd-rates-4797766">Best Jumbo CD Rates</a><br/></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-frequently-asked-questions-faqs"></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"> Frequently Asked Questions (FAQs) </span> </h2> <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-happens-when-a-cd-matures"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Happens When a CD Matures?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>When a CD reaches <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/maturity.asp">maturity</a>, your bank or credit union will inform you of your options. You can usually withdraw your funds from the CD, transfer the money to another account, or allow it to roll over into a new CD. If you do nothing, most providers will automatically roll your CD over into a new one.</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-will-my-cd-interest-rate-change-if-i-roll-over"></span> <h2 class="mntl-sc-block-questionandanswer__question">Will My CD Interest Rate Change If I Roll Over?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Your CD's interest rate may change if you roll the money over. Your bank will likely roll over your CD into one with a similar term, but the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/apy.asp">APY</a> will be the same APY that's available to new CD customers. This might be higher or lower than your previous rate.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_38-0"><span class="heading-toc" id="toc-what-happens-if-i-do-nothing-when-a-cd-matures"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Happens If I Do Nothing When a CD Matures?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If you do nothing when a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/how-cd-maturities-work-5268105">CD matures</a>, the result depends on where you hold the CD. Most financial institutions will roll over your CD into a new CD with a similar term. Others may transfer your funds to another type of account. You should check with your provider to be certain about the rules that apply to your accounts.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_40-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_41-0"> When a CD reaches maturity, your bank or credit union should outline your options. Typically, you will be given a short window in which to withdraw your funds. If you do nothing, your CD will likely roll over into a new CD.  </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 term length of your new CD will usually be similar to your previous one, but the interest rate may be different. Your bank or credit union will pay you the same interest rate as new CD customers and this rate might be lower or higher than your previous rate. If you want to earn as much as possible on CD investments, you should <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-cd-rates-4770214">shop around for the best CD rates</a> each time your CDs mature.<br/> </p></div>

You may be able to automatically roll over a certificate of deposit (CD) when the term expires, but that may not always be the best choice. When the end of your certificate of deposit term approaches, your CD provider will contact you with options. The money in your CD may automatically roll over into a new CD, or you may have to select that option before the end of the term. You can also withdraw the money, along with the interest you earned, when your CD reaches maturity. Before your CD matures, learn the rules that apply and check the interest rate on the new CD because it could be lower than the previous rate. It's often better to shop around for the [best CD rates](https://www.investopedia.com/best-cd-rates-4770214) as your CD matures than to allow automatic rollovers. ### Key Takeaways * When your CD term comes to an end, your money may be automatically rolled over or released back to you along with the interest accrued. * As the end of the CD term approaches, your CD provider will inform you of your options (usually, to roll the money over or release the funds). * Check the rate for the new CD before choosing a rollover because it might be lower than the previous rate. * Shopping around for the best rate available—which could be a new promotional offer—is often preferable to taking an automatic rollover. ## How to Roll Over a CD For most CDs, you don’t need to do anything to have the money roll over into a new CD of a similar length—most CDs held with most banks and building societies will automatically roll over if you do nothing.  Each bank, [credit union](https://www.investopedia.com/how-to-join-a-credit-union-7495339), and other CD provider has its own rules when it comes to CD maturities. When your CD is close to maturing, your provider should contact you and explain your options. Typically, they will offer you three options: * **Roll over the CD** **into a new CD at that bank**:Generally, this would be into a CD that most closely matches the term of your maturing CD. For example, if you have a one-year CD concluding, the provider would likely roll your balance into a new one-year CD. * **Withdraw the proceeds**:They can be transferred to an external bank account or mailed to you via paper check. * **Transfer the funds** **into another account at that bank**:Options include savings, checking, and [money market accounts](https://www.investopedia.com/articles/personal-finance/042116/money-market-vs-cds-which-better-investment.asp). For most CDs, the first option is the default: If you do nothing, your CD will roll over into a new one that matches the existing term. You should check with your provider to learn its rules, however, because each provider sets its own. ## Finding the Best CD Rates Generally, when a CD expires it will automatically roll over unless you take prior action. When a CD rolls over, however, *the new interest rate might be different than the rate you were receiving*. The new CD will have the same or a similar term, e.g. a 12-month CD will be rolled over into a new 12-month CD. The interest rate, however, could be different depending on the current [interest rate environment](https://www.investopedia.com/articles/stocks/09/how-interest-rates-affect-markets.asp) or presence (or lack) of promotional offers. ### If you want to maximize the return on your CDs, pay attention to when your CDs reach maturity and try to find the best possible rate for a new one. See the [best CD rates available](https://www.investopedia.com/best-cd-rates-4770214) to find a good home for your money. CD interest rates depend on a host of factors and generally follow the [prime rate](https://www.investopedia.com/terms/p/primerate.asp), which is influenced by the [fed funds rate](https://www.investopedia.com/terms/f/federalfunds.asp). If a nation's central bank is trying to slow down the economy, interest rates may be higher, which makes CDs more attractive. Conversely, if they're trying to stimulate the economy, interest rates may be low, making CDs less attractive. You may purchase a CD in a high interest rate environment but when it matures, you could be in a low interest rate environment. If you roll the money over, you'd earn significantly less on your new CD than your prior one. If want to continue investing in CDs, take the time to evaluate the rates offered by different providers before your CD reaches maturity. And if you haven't found a provider you like, instruct your bank to move your CD funds into a [high-yield savings account](https://www.investopedia.com/best-high-yield-savings-accounts-4770633) upon maturity. That way, you'll have the option and time to find the right CD rather than being locked up in one that no longer serves your investment purposes. Consider a variety of CDs and term lengths. We rank the top 15 APYs in every major CD term and category to help you find a CD that meets your needs, including: * [Best 3-Month CD Rates](https://www.investopedia.com/best-3-month-cd-rates-5272288) * [Best 6-Month CD Rates](https://www.investopedia.com/best-6-month-cd-rates-4783267) * [Best 1-Year CD Rates](https://www.investopedia.com/best-1-year-cd-rates-4796650) * [Best Jumbo CD Rates](https://www.investopedia.com/best-jumbo-cd-rates-4797766) ## Frequently Asked Questions (FAQs) ## What Happens When a CD Matures? When a CD reaches [maturity](https://www.investopedia.com/terms/m/maturity.asp), your bank or credit union will inform you of your options. You can usually withdraw your funds from the CD, transfer the money to another account, or allow it to roll over into a new CD. If you do nothing, most providers will automatically roll your CD over into a new one. ## Will My CD Interest Rate Change If I Roll Over? Your CD's interest rate may change if you roll the money over. Your bank will likely roll over your CD into one with a similar term, but the [APY](https://www.investopedia.com/terms/a/apy.asp) will be the same APY that's available to new CD customers. This might be higher or lower than your previous rate. ## What Happens If I Do Nothing When a CD Matures? If you do nothing when a [CD matures](https://www.investopedia.com/how-cd-maturities-work-5268105), the result depends on where you hold the CD. Most financial institutions will roll over your CD into a new CD with a similar term. Others may transfer your funds to another type of account. You should check with your provider to be certain about the rules that apply to your accounts. ## The Bottom Line When a CD reaches maturity, your bank or credit union should outline your options. Typically, you will be given a short window in which to withdraw your funds. If you do nothing, your CD will likely roll over into a new CD.  The term length of your new CD will usually be similar to your previous one, but the interest rate may be different. Your bank or credit union will pay you the same interest rate as new CD customers and this rate might be lower or higher than your previous rate. If you want to earn as much as possible on CD investments, you should [shop around for the best CD rates](https://www.investopedia.com/best-cd-rates-4770214) each time your CDs mature.

You may be able to automatically roll over a certificate of deposit (CD) when the term expires, but that may not always be the best choice. When the end of your certificate of deposit term approaches, your CD provider will contact you with options. The money in your CD may automatically roll over into a new CD, or you may have to select that option before the end of the term. You can also withdraw the money, along with the interest you earned, when your CD reaches maturity. Before your CD matures, learn the rules that apply and check the interest rate on the new CD because it could be lower than the previous rate. It's often better to shop around for the best CD rates as your CD matures than to allow automatic rollovers. Key Takeaways When your CD term comes to an end, your money may be automatically rolled over or released back to you along with the interest accrued.As the end of the CD term approaches, your CD provider will inform you of your options (usually, to roll the money over or release the funds).Check the rate for the new CD before choosing a rollover because it might be lower than the previous rate.Shopping around for the best rate available—which could be a new promotional offer—is often preferable to taking an automatic rollover. How to Roll Over a CD For most CDs, you don’t need to do anything to have the money roll over into a new CD of a similar length—most CDs held with most banks and building societies will automatically roll over if you do nothing.  Each bank, credit union, and other CD provider has its own rules when it comes to CD maturities. When your CD is close to maturing, your provider should contact you and explain your options. Typically, they will offer you three options: Roll over the CD into a new CD at that bank: Generally, this would be into a CD that most closely matches the term of your maturing CD. For example, if you have a one-year CD concluding, the provider would likely roll your balance into a new one-year CD. Withdraw the proceeds: They can be transferred to an external bank account or mailed to you via paper check.  Transfer the funds into another account at that bank: Options include savings, checking, and money market accounts. For most CDs, the first option is the default: If you do nothing, your CD will roll over into a new one that matches the existing term. You should check with your provider to learn its rules, however, because each provider sets its own. Finding the Best CD Rates Generally, when a CD expires it will automatically roll over unless you take prior action. When a CD rolls over, however, the new interest rate might be different than the rate you were receiving. The new CD will have the same or a similar term, e.g. a 12-month CD will be rolled over into a new 12-month CD. The interest rate, however, could be different depending on the current interest rate environment or presence (or lack) of promotional offers. If you want to maximize the return on your CDs, pay attention to when your CDs reach maturity and try to find the best possible rate for a new one. See the best CD rates available to find a good home for your money. CD interest rates depend on a host of factors and generally follow the prime rate, which is influenced by the fed funds rate. If a nation's central bank is trying to slow down the economy, interest rates may be higher, which makes CDs more attractive. Conversely, if they're trying to stimulate the economy, interest rates may be low, making CDs less attractive. You may purchase a CD in a high interest rate environment but when it matures, you could be in a low interest rate environment. If you roll the money over, you'd earn significantly less on your new CD than your prior one. If want to continue investing in CDs, take the time to evaluate the rates offered by different providers before your CD reaches maturity. And if you haven't found a provider you like, instruct your bank to move your CD funds into a high-yield savings account upon maturity. That way, you'll have the option and time to find the right CD rather than being locked up in one that no longer serves your investment purposes. Consider a variety of CDs and term lengths. We rank the top 15 APYs in every major CD term and category to help you find a CD that meets your needs, including: Best 3-Month CD Rates Best 6-Month CD Rates Best 1-Year CD Rates Best Jumbo CD Rates Frequently Asked Questions (FAQs) What Happens When a CD Matures? When a CD reaches maturity, your bank or credit union will inform you of your options. You can usually withdraw your funds from the CD, transfer the money to another account, or allow it to roll over into a new CD. If you do nothing, most providers will automatically roll your CD over into a new one. Will My CD Interest Rate Change If I Roll Over? Your CD's interest rate may change if you roll the money over. Your bank will likely roll over your CD into one with a similar term, but the APY will be the same APY that's available to new CD customers. This might be higher or lower than your previous rate. What Happens If I Do Nothing When a CD Matures? If you do nothing when a CD matures, the result depends on where you hold the CD. Most financial institutions will roll over your CD into a new CD with a similar term. Others may transfer your funds to another type of account. You should check with your provider to be certain about the rules that apply to your accounts. The Bottom Line When a CD reaches maturity, your bank or credit union should outline your options. Typically, you will be given a short window in which to withdraw your funds. If you do nothing, your CD will likely roll over into a new CD.  The term length of your new CD will usually be similar to your previous one, but the interest rate may be different. Your bank or credit union will pay you the same interest rate as new CD customers and this rate might be lower or higher than your previous rate. If you want to earn as much as possible on CD investments, you should shop around for the best CD rates each time your CDs mature.

https://www.investopedia.com/does-crypto-pass-the-howey-test-8385183

Does Crypto Pass the Howey Test?

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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 Howey test derives its name from a landmark U.S. Supreme Court case in 1946, SEC v. W.J. Howey Co., that established a blueprint for whether a transaction qualifies as an investment contract. If an asset meets the test criteria—including a cryptocurrency—it qualifies, and the Securities and Exchange Commission is obligated to analyze it further to see if it actually is an investment contract.<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"> The decentralized, borderless, and often pseudonymous nature of cryptocurrencies and other crypto assets challenge traditional legal classifications, leading to a compelling question: Do cryptocurrencies and other crypto assets pass the Howey test? Alternatively, do they require a change in legal analysis? </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_4-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> These questions are not merely academic. The answers to them have significant implications for both the burgeoning crypto industry and regulatory bodies striving to adapt to the fast-evolving digital asset landscape. The questions also touch on how adaptable existing legal frameworks can be for crypto and other novel and rapidly evolving financial innovations.<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_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 Howey test is a legal framework outlined by the U.S. Supreme Court to determine whether a transaction qualifies as an investment contract and should be regulated.</li><li>The Howey test consists of four criteria: an investment of money, expectation of profits, common enterprise, and reliance on the efforts of others.</li><li>Applying the Howey test to cryptocurrencies is a topic of debate, with arguments both for and against crypto passing the test.</li><li>Because the crypto space is so broad and dynamic, applying the Howey test to crypto assets is conducted on a case-by-case basis.</li></ul></div></div></div> <span class="heading-toc" id="toc-an-overview-of-the-howey-test"></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"> An Overview of the Howey Test </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The Howey test provided by the Supreme Court has four criteria for determining whether an asset constitutes an investment contract and security. Satisfying each means that an asset qualifies as an investment contract, while failure to meet one or more criteria suggests it likely falls outside the scope of securities 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"> Here are the criteria that the court laid out:<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_13-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_14-0"> <li><strong>Money is invested</strong>:<strong> </strong>There must be monetary investment involved in the transaction, or at least some consideration passes from one party to another.</li> <li class="ql-indent-1"><em>Meets the criterion</em>: Purchasing corporate bonds with funds from your brokerage account</li> <li class="ql-indent-1"><em>Does not meet the criterion</em>: Earning shares in a startup by contributing only time and expertise without putting any money into the business</li> <li><strong>There is an expectation of profits</strong>: The investor anticipates financial gains from the investment, typically through the enterprise’s success.</li> <li class="ql-indent-1"><em>Meets the criterion</em>: Investing in a real estate venture with the expectation that the property will <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/appreciation.asp">appreciate</a> in value</li> <li class="ql-indent-1"><em>Does not meet the criterion</em>: Buying a home for personal use as a primary residence without planning to sell it for a profit</li> <li><strong>There is a common enterprise</strong>: The investors and the enterprise behind the transaction, asset, or product are bound by a financial relationship, and the fortunes of the investors are tied to the enterprise’s success.</li> <li class="ql-indent-1"><em>Meets the criterion</em>: Pooling funds with other investors in a mutual fund managed by a fund manager</li><span class="mntl-sc-block-adslot mntl-sc-block-adslot-inline"></span> <li class="ql-indent-1"><em>Does not meet the criterion</em>: A stand-alone contract in which the financial return does not depend on the efforts or success of a wider enterprise, e.g., a lease agreement between a landlord and a tenant</li> <li><strong>Success relies on the efforts of others</strong>: The success of the investment depends predominantly on the efforts of individuals other than the investor.</li> <li class="ql-indent-1"><em>Meets the criterion</em>: Investing in a startup where the financial return depends on the managerial expertise and efforts of the founding team</li> <li class="ql-indent-1"><em>Does not meet the criterion</em>: Buying a piece of art where any potential appreciation in value is not tied to the efforts of others</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_15-0"></div> <span class="heading-toc" id="toc-interpreting-the-howey-test-criteria"></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"> Interpreting the Howey Test Criteria </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Since the original case, courts have had different interpretations and ways of applying the Howey test, leading to variations in how the criteria are read and applied. Here are some examples: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_18-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_19-0"> <li><strong>What is a common enterprise?</strong> Most courts have applied a “horizontal commonality” view, where a common enterprise exists if investors pool funds in an investment and the profits of each investor correlate with those of the other investors. Other courts have defined a common enterprise in terms of “vertical commonality,” which focuses on the relationship between the efforts of the one promoting the investment opportunity and the investor’s expectation of a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/return.asp">return</a>. Essentially, this form of commonality looks at the link between the profits of the promoter and those of the investor.</li> <li><strong>How strong should the expectation be for profits?</strong> What constitutes an “expectation of profits” has been a point of contention. Some courts require a promise of dividends or increased value, while others might consider other forms of return or even the avoidance of loss.</li> <li><strong>How much effort is to be involved from the other party?</strong> The court’s discussion of the profits coming from the efforts of others has also been a point of contention. Most courts have focused on the promoter of the opportunity providing managerial control, while others have asked how essential the promoter’s efforts have been to realizing the returns.<span class="ql-inline-citation" data-cite="15"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_20-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Thus, while the Howey test remains crucial in discerning the line between securities and non-investments, its application has varied based on jurisdiction, the specifics of the case, and changes in the types of financial products being offered. </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-examples-of-what-has-and-hasnt-passed-the-howey-test"></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"> Examples of What Has and Hasn’t Passed the Howey Test </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_24-0"> The original Howey case involved an arrangement where individuals bought plots of an orange grove and then leased them back to a service company for care and harvesting. The Supreme Court ruled that this arrangement constituted an investment contract, thus creating the Howey test.<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_25-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_26-0"> Here are other examples of assets or transactions that meet the criteria: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_27-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> <li><strong>Shares of common stock</strong>: Traditional shares of <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> in a company pass the Howey test, as they represent an investment in a common enterprise with expectations of profit predominantly from the efforts of others.</li> <li><strong>Real estate limited partnerships</strong>: <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/realestatelimitedpartnership.asp">Real estate limited partnerships</a> often pass the Howey test since they involve an investment of money, a common enterprise, and an expectation of profits produced by the efforts of others, such as the managing partner.</li> <li><strong>Multilevel marketing schemes</strong>: In certain <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/m/multi-level-marketing.asp">multilevel marketing schemes</a>, participants earn money primarily by recruiting others to purchase products or services. The Supreme Court has applied the Howey test and deemed that these schemes constitute an investment contract and hence are a security since individuals were investing money with the expectation of profits, mostly from the recruitment efforts of others.<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_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 same time, courts have ruled that other types of financial products or transactions do not meet the criteria: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> <li><strong>Condominium units</strong>: Courts have found that the sale of condominium units, where buyers intend to occupy the unit or have control over its operation, do not pass the Howey test since they don’t entail an expectation of profits from the efforts of others.<span class="ql-inline-citation" data-cite="2"></span></li><li><strong>Whiskey warehouse receipts:</strong> Historically, whiskey warehouse receipts were used as a form of collateral and were even traded, but their status as securities had been a matter of legal debate. The Supreme Court found that these did not pass the Howey test, as there wasn’t a common enterprise, and the profits were not to be derived solely from the efforts of others.<span class="ql-inline-citation" data-cite="3"></span></li><li><strong>Merchandise accounts</strong>: In cases where individuals bought merchandise accounts that allowed them to buy goods at a discount, courts have found that these arrangements did not pass the Howey test, as they lacked the expectation of profits from the effort of others.<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_33-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_34-0"> Each of these cases illustrates the application of the Howey test in different contexts and how the courts have interpreted the criteria of the test in determining whether a particular arrangement qualifies as a security. </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-different-interpretations-of-the-howey-test-for-cryptocurrencies"></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"> Different Interpretations of the Howey Test for Cryptocurrencies </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_37-0"> The applicability of the Howey test to cryptocurrencies has sparked extensive legal analysis and debate. While <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/b/bitcoin.asp">bitcoin</a> and some other decentralized cryptocurrencies might fail to meet the “common enterprise” and “reliance on the efforts of others” criteria, the case becomes less clear for crypto assets with more centralized administration. </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/s/stablecoin.asp">Stablecoins</a>, for instance, arguably depend on the ongoing efforts of their issuing organization to maintain their pegged value. Similarly, the profits for some <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/non-fungible-tokens-nft-5115211">non-fungible tokens (NFTs)</a> and <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/s/smart-contracts.asp">smart contracts</a> could be seen as relying on the work of the developers or promoters. </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"> Given the diversity of crypto assets, more decentralized cryptocurrencies may avoid classification as securities, while more centralized and profit-driven digital assets are more likely to meet the Howey criteria. Legal experts continue working to guide regulators on how to apply existing securities law to these novel and varied digital financial instruments. </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"> Let’s see how the four criteria of the Howey test might apply in several examples: </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"> Bitcoin </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_46-0"> <li><strong>Investment of money</strong>:<strong> </strong>Individuals purchase Bitcoin with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/f/fiatmoney.asp">fiat currency</a> or exchange it with other cryptocurrencies.</li> <li><strong>Expectation of profits</strong>:<strong> </strong>Many investors buy Bitcoin while anticipating that its value will increase over time.</li> <li><strong>Common enterprise</strong>:<strong> </strong>Bitcoin operates on a decentralized network and thus might not be a common enterprise. Each investor’s gain or loss is independent of the others.</li> <li><strong>Reliance on the efforts of others</strong>: The value of Bitcoin is market-driven and not controlled by a central authority or group.</li> </ul> <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"> Bitcoin may not pass the Howey test since it seems to lack a common enterprise and doesn’t rely on the efforts of others. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_49-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_50-0"> <span class="mntl-sc-block-subheading__text"> USD Tether </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> <li><strong>Investment of money</strong>:<strong> </strong>Individuals can purchase <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tether-usdt.asp">USD Tether (USDT)</a> with fiat currency or other cryptocurrencies.</li> <li><strong>Expectation of profits</strong>:<strong> </strong>USDT is a stablecoin pegged to the <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/forex/u/usd-united-states-dollar.asp">U.S. dollar</a>, so there’s no expectation of profit as its value remains stable.</li> <li><strong>Common enterprise</strong>:<strong> </strong>The backing and stability of USDT could be seen as a common enterprise with the issuing organization, Tether Ltd.</li> <li><strong>Reliance on the efforts of others</strong>:<strong> </strong>The stability of USDT is maintained by Tether Ltd., which could be interpreted as reliance on the efforts of others.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_53-0"> There might be a stronger case that USDT passes the Howey test due to the reliance on the issuing organization to maintain its value in line with the U.S. dollar. </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"> Non-Fungible Tokens (NFTs) </span> </h3> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> <li><strong>Investment of money</strong>:<strong> </strong>Individuals purchase non-fungible tokens (NFTs) with cryptocurrency.</li><li><strong>Expectation of profits</strong>:<strong> </strong>Many buyers purchase NFTs, hoping to resell them at a higher price.</li><li><strong>Common enterprise</strong>:<strong> </strong>NFT transactions are typically independent and not tied to a common enterprise, although some NFTs are created, marketed, and sold through syndicates.</li><li><strong>Reliance on the efforts of others</strong>:<strong> </strong>The value of NFTs is market-driven but can also be influenced by the creator’s efforts in promoting their work.</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> Certain NFTs might pass the Howey test if derived from a common enterprise. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_60-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-important" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_61-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_2-0"></h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>If an asset passes the Howey test, it still might not be labeled an investment contract by the SEC. A substance-over-form analysis is generally performed before a determination is made, where intent and circumstances are investigated.<br/></p></div></div></div> <span class="heading-toc" id="toc-recent-developments-and-regulatory-actions"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_62-0"> <span class="mntl-sc-block-heading__text"> Recent Developments and Regulatory Actions </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> The SEC and the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/cftc.asp">Commodity Futures Trading Commission (CFTC)</a> have been at the forefront of the regulatory discussions surrounding cryptocurrencies and the application of the Howey test. The CFTC initiated cases as early as 2015, asserting that virtual currencies should be defined as commodities.<span class="ql-inline-citation" data-cite="17"></span> Meanwhile, the SEC, under Chairman Gary Gensler, has leaned toward classifying many crypto assets as unregistered securities based on the Howey test, especially when people acquire them with the expectation of profits from the issuer's efforts to boost the asset's value by managing, promoting, or improving it.<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_64-0"></div> <div class="comp mntl-sc-block mntl-sc-block-featuredlink mntl-block download-link" data-tracking-container="true" id="mntl-sc-block_66-0"><a class="mntl-sc-block-featuredlink__link mntl-text-link" data-tracking-container="true" data-tracking-id="featured-link" href="https://files.investopedia.com/Financial+Advisor+Discussion+Guides/Financial+Advisor+Discussion+Guide_+Should+I+Invest+in+Crypto.pdf" id="mntl-sc-block-featuredlink__link_1-0" rel="nocaes"><span class="link__wrapper">Interested in crypto? Use this guide to discuss with an advisor.</span></a></div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_67-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_68-0"> For instance, in 2023, the SEC's lawsuit against <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/tech/whats-difference-between-bitcoin-and-ripple/#:~:text=The%20cryptocurrency%20runs%20on%20a,efficiently%20than%20existing%20payment%20systems.">Ripple Labs</a> ended with the determination that when the company sold XRP to institutional investors, the token was a security, but it wasn't when it was purchased on an exchange by retail investors. This decision added more clarity for investors, developers, and regulators regarding the fact that a sale might not be an investment contract under specific circumstances.<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_69-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> The SEC has published its framework for analyzing digital assets to help developers and companies determine whether their tokens might be considered securities. The framework discusses all Howey test elements but adds a critical section, "Other Relevant Considerations," that further discusses elements that reduce a project's chances of regulatory action. Some of the factors that might decrease an asset's likelihood of being considered a security are: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_71-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_72-0"> <li>The distributed ledger, network, and token are fully operational</li><li>The token can be used immediately for its intended purpose</li><li>The token and network are not created and marketed in a way that creates speculation on prices or value</li><li>There is no reasonable expectation of appreciation in value</li><li>Any economic benefits are incidental<span class="ql-inline-citation" data-cite="9"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_73-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_74-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/independent-community-bankers-of-america.asp">Independent Community Bankers of America</a> argued in 2023 that most crypto assets likely qualify under the Howey test as securities and should be subject to the relevant securities laws and regulations.<span class="ql-inline-citation" data-cite="10"></span> This indicates a broad acknowledgment within the financial community that the Howey test does apply to at least some cryptocurrencies.<br/> </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-would-an-initial-coin-offering-ico-pass-the-howey-test"></span> <h2 class="mntl-sc-block-questionandanswer__question">Would an Initial Coin Offering (ICO) Pass the Howey Test?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Many <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/initial-coin-offering-ico.asp">initial coin offerings (ICOs)</a> pass the Howey test and are viewed as securities by the SEC.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_77-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_78-0"><span class="heading-toc" id="toc-what-implications-does-the-howey-test-have-for-crypto-exchanges"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Implications Does the Howey Test Have for Crypto Exchanges?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>If a crypto-asset passes the Howey test and is declared an investment contract, a U.S.-registered exchange might face regulatory actions for facilitating the sale of an unregistered security. It might continue to list it or delist it based on the circumstances.</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-are-there-alternatives-to-the-howey-test-for-evaluating-cryptocurrencies"></span> <h2 class="mntl-sc-block-questionandanswer__question">Are There Alternatives to the Howey Test for Evaluating Cryptocurrencies?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>There have been proposals for alternative frameworks to evaluate cryptocurrencies. For instance, some stakeholders advocate having a more nuanced or updated framework that considers the unique attributes of blockchain technology and digital assets, which they say would provide a more accurate classification.<span class="ql-inline-citation" data-cite="12"></span><span class="ql-inline-citation" data-cite="11"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_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"> The Howey test, established in 1946, has long been a key means for classifying securities. But cryptocurrencies like bitcoin, which are decentralized, are a complex case for regulatory bodies. The crypto realm, with its blend of clear-cut and borderline cases, tests the adaptability of the Howey test. </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"> Recent cases and ongoing regulatory deliberations highlight the effort to align existing legal frameworks with the evolving landscape of digital assets. These broader discussions reflect not only a legal or regulatory debate but also a broader examination of how traditional legal frameworks can adapt to rapid technological advances. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_86-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_87-0"> <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=1706111471298539&amp;usg=AOvVaw0uGoQZXxVrzT9c1uORA8o2">warranty and liability disclaimer</a> for more info. As of the date this article was written, the author does not own cryptocurrency.</em> </p></div>

The Howey test derives its name from a landmark U.S. Supreme Court case in 1946, SEC v. W.J. Howey Co., that established a blueprint for whether a transaction qualifies as an investment contract. If an asset meets the test criteria—including a cryptocurrency—it qualifies, and the Securities and Exchange Commission is obligated to analyze it further to see if it actually is an investment contract. The decentralized, borderless, and often pseudonymous nature of cryptocurrencies and other crypto assets challenge traditional legal classifications, leading to a compelling question: Do cryptocurrencies and other crypto assets pass the Howey test? Alternatively, do they require a change in legal analysis? These questions are not merely academic. The answers to them have significant implications for both the burgeoning crypto industry and regulatory bodies striving to adapt to the fast-evolving digital asset landscape. The questions also touch on how adaptable existing legal frameworks can be for crypto and other novel and rapidly evolving financial innovations. ### Key Takeaways * The Howey test is a legal framework outlined by the U.S. Supreme Court to determine whether a transaction qualifies as an investment contract and should be regulated. * The Howey test consists of four criteria: an investment of money, expectation of profits, common enterprise, and reliance on the efforts of others. * Applying the Howey test to cryptocurrencies is a topic of debate, with arguments both for and against crypto passing the test. * Because the crypto space is so broad and dynamic, applying the Howey test to crypto assets is conducted on a case-by-case basis. ## An Overview of the Howey Test The Howey test provided by the Supreme Court has four criteria for determining whether an asset constitutes an investment contract and security. Satisfying each means that an asset qualifies as an investment contract, while failure to meet one or more criteria suggests it likely falls outside the scope of securities law. Here are the criteria that the court laid out: * **Money is invested**:There must be monetary investment involved in the transaction, or at least some consideration passes from one party to another. * *Meets the criterion*: Purchasing corporate bonds with funds from your brokerage account * *Does not meet the criterion*: Earning shares in a startup by contributing only time and expertise without putting any money into the business * **There is an expectation of profits**: The investor anticipates financial gains from the investment, typically through the enterprise’s success. * *Meets the criterion*: Investing in a real estate venture with the expectation that the property will [appreciate](https://www.investopedia.com/terms/a/appreciation.asp) in value * *Does not meet the criterion*: Buying a home for personal use as a primary residence without planning to sell it for a profit * **There is a common enterprise**: The investors and the enterprise behind the transaction, asset, or product are bound by a financial relationship, and the fortunes of the investors are tied to the enterprise’s success. * *Meets the criterion*: Pooling funds with other investors in a mutual fund managed by a fund manager * *Does not meet the criterion*: A stand-alone contract in which the financial return does not depend on the efforts or success of a wider enterprise, e.g., a lease agreement between a landlord and a tenant * **Success relies on the efforts of others**: The success of the investment depends predominantly on the efforts of individuals other than the investor. * *Meets the criterion*: Investing in a startup where the financial return depends on the managerial expertise and efforts of the founding team * *Does not meet the criterion*: Buying a piece of art where any potential appreciation in value is not tied to the efforts of others ## Interpreting the Howey Test Criteria Since the original case, courts have had different interpretations and ways of applying the Howey test, leading to variations in how the criteria are read and applied. Here are some examples: * **What is a common enterprise?** Most courts have applied a “horizontal commonality” view, where a common enterprise exists if investors pool funds in an investment and the profits of each investor correlate with those of the other investors. Other courts have defined a common enterprise in terms of “vertical commonality,” which focuses on the relationship between the efforts of the one promoting the investment opportunity and the investor’s expectation of a [return](https://www.investopedia.com/terms/r/return.asp). Essentially, this form of commonality looks at the link between the profits of the promoter and those of the investor. * **How strong should the expectation be for profits?** What constitutes an “expectation of profits” has been a point of contention. Some courts require a promise of dividends or increased value, while others might consider other forms of return or even the avoidance of loss. * **How much effort is to be involved from the other party?** The court’s discussion of the profits coming from the efforts of others has also been a point of contention. Most courts have focused on the promoter of the opportunity providing managerial control, while others have asked how essential the promoter’s efforts have been to realizing the returns. Thus, while the Howey test remains crucial in discerning the line between securities and non-investments, its application has varied based on jurisdiction, the specifics of the case, and changes in the types of financial products being offered. ## Examples of What Has and Hasn’t Passed the Howey Test The original Howey case involved an arrangement where individuals bought plots of an orange grove and then leased them back to a service company for care and harvesting. The Supreme Court ruled that this arrangement constituted an investment contract, thus creating the Howey test. Here are other examples of assets or transactions that meet the criteria: * **Shares of common stock**: Traditional shares of [common stock](https://www.investopedia.com/terms/c/commonstock.asp) in a company pass the Howey test, as they represent an investment in a common enterprise with expectations of profit predominantly from the efforts of others. * **Real estate limited partnerships**: [Real estate limited partnerships](https://www.investopedia.com/terms/r/realestatelimitedpartnership.asp) often pass the Howey test since they involve an investment of money, a common enterprise, and an expectation of profits produced by the efforts of others, such as the managing partner. * **Multilevel marketing schemes**: In certain [multilevel marketing schemes](https://www.investopedia.com/terms/m/multi-level-marketing.asp), participants earn money primarily by recruiting others to purchase products or services. The Supreme Court has applied the Howey test and deemed that these schemes constitute an investment contract and hence are a security since individuals were investing money with the expectation of profits, mostly from the recruitment efforts of others. At the same time, courts have ruled that other types of financial products or transactions do not meet the criteria: * **Condominium units**: Courts have found that the sale of condominium units, where buyers intend to occupy the unit or have control over its operation, do not pass the Howey test since they don’t entail an expectation of profits from the efforts of others. * **Whiskey warehouse receipts:** Historically, whiskey warehouse receipts were used as a form of collateral and were even traded, but their status as securities had been a matter of legal debate. The Supreme Court found that these did not pass the Howey test, as there wasn’t a common enterprise, and the profits were not to be derived solely from the efforts of others. * **Merchandise accounts**: In cases where individuals bought merchandise accounts that allowed them to buy goods at a discount, courts have found that these arrangements did not pass the Howey test, as they lacked the expectation of profits from the effort of others. Each of these cases illustrates the application of the Howey test in different contexts and how the courts have interpreted the criteria of the test in determining whether a particular arrangement qualifies as a security. ## Different Interpretations of the Howey Test for Cryptocurrencies The applicability of the Howey test to cryptocurrencies has sparked extensive legal analysis and debate. While [bitcoin](https://www.investopedia.com/terms/b/bitcoin.asp) and some other decentralized cryptocurrencies might fail to meet the “common enterprise” and “reliance on the efforts of others” criteria, the case becomes less clear for crypto assets with more centralized administration. [Stablecoins](https://www.investopedia.com/terms/s/stablecoin.asp), for instance, arguably depend on the ongoing efforts of their issuing organization to maintain their pegged value. Similarly, the profits for some [non-fungible tokens (NFTs)](https://www.investopedia.com/non-fungible-tokens-nft-5115211) and [smart contracts](https://www.investopedia.com/terms/s/smart-contracts.asp) could be seen as relying on the work of the developers or promoters. Given the diversity of crypto assets, more decentralized cryptocurrencies may avoid classification as securities, while more centralized and profit-driven digital assets are more likely to meet the Howey criteria. Legal experts continue working to guide regulators on how to apply existing securities law to these novel and varied digital financial instruments. Let’s see how the four criteria of the Howey test might apply in several examples: ### Bitcoin * **Investment of money**:Individuals purchase Bitcoin with [fiat currency](https://www.investopedia.com/terms/f/fiatmoney.asp) or exchange it with other cryptocurrencies. * **Expectation of profits**:Many investors buy Bitcoin while anticipating that its value will increase over time. * **Common enterprise**:Bitcoin operates on a decentralized network and thus might not be a common enterprise. Each investor’s gain or loss is independent of the others. * **Reliance on the efforts of others**: The value of Bitcoin is market-driven and not controlled by a central authority or group. Bitcoin may not pass the Howey test since it seems to lack a common enterprise and doesn’t rely on the efforts of others. ### USD Tether * **Investment of money**:Individuals can purchase [USD Tether (USDT)](https://www.investopedia.com/terms/t/tether-usdt.asp) with fiat currency or other cryptocurrencies. * **Expectation of profits**:USDT is a stablecoin pegged to the [U.S. dollar](https://www.investopedia.com/terms/forex/u/usd-united-states-dollar.asp), so there’s no expectation of profit as its value remains stable. * **Common enterprise**:The backing and stability of USDT could be seen as a common enterprise with the issuing organization, Tether Ltd. * **Reliance on the efforts of others**:The stability of USDT is maintained by Tether Ltd., which could be interpreted as reliance on the efforts of others. There might be a stronger case that USDT passes the Howey test due to the reliance on the issuing organization to maintain its value in line with the U.S. dollar. ### Non-Fungible Tokens (NFTs) * **Investment of money**:Individuals purchase non-fungible tokens (NFTs) with cryptocurrency. * **Expectation of profits**:Many buyers purchase NFTs, hoping to resell them at a higher price. * **Common enterprise**:NFT transactions are typically independent and not tied to a common enterprise, although some NFTs are created, marketed, and sold through syndicates. * **Reliance on the efforts of others**:The value of NFTs is market-driven but can also be influenced by the creator’s efforts in promoting their work. Certain NFTs might pass the Howey test if derived from a common enterprise. ### If an asset passes the Howey test, it still might not be labeled an investment contract by the SEC. A substance-over-form analysis is generally performed before a determination is made, where intent and circumstances are investigated. ## Recent Developments and Regulatory Actions The SEC and the [Commodity Futures Trading Commission (CFTC)](https://www.investopedia.com/terms/c/cftc.asp) have been at the forefront of the regulatory discussions surrounding cryptocurrencies and the application of the Howey test. The CFTC initiated cases as early as 2015, asserting that virtual currencies should be defined as commodities. Meanwhile, the SEC, under Chairman Gary Gensler, has leaned toward classifying many crypto assets as unregistered securities based on the Howey test, especially when people acquire them with the expectation of profits from the issuer's efforts to boost the asset's value by managing, promoting, or improving it. [Interested in crypto? Use this guide to discuss with an advisor.](https://files.investopedia.com/Financial+Advisor+Discussion+Guides/Financial+Advisor+Discussion+Guide_+Should+I+Invest+in+Crypto.pdf) For instance, in 2023, the SEC's lawsuit against [Ripple Labs](https://www.investopedia.com/tech/whats-difference-between-bitcoin-and-ripple/#:~:text=The%20cryptocurrency%20runs%20on%20a,efficiently%20than%20existing%20payment%20systems.) ended with the determination that when the company sold XRP to institutional investors, the token was a security, but it wasn't when it was purchased on an exchange by retail investors. This decision added more clarity for investors, developers, and regulators regarding the fact that a sale might not be an investment contract under specific circumstances. The SEC has published its framework for analyzing digital assets to help developers and companies determine whether their tokens might be considered securities. The framework discusses all Howey test elements but adds a critical section, "Other Relevant Considerations," that further discusses elements that reduce a project's chances of regulatory action. Some of the factors that might decrease an asset's likelihood of being considered a security are: * The distributed ledger, network, and token are fully operational * The token can be used immediately for its intended purpose * The token and network are not created and marketed in a way that creates speculation on prices or value * There is no reasonable expectation of appreciation in value * Any economic benefits are incidental The [Independent Community Bankers of America](https://www.investopedia.com/terms/i/independent-community-bankers-of-america.asp) argued in 2023 that most crypto assets likely qualify under the Howey test as securities and should be subject to the relevant securities laws and regulations. This indicates a broad acknowledgment within the financial community that the Howey test does apply to at least some cryptocurrencies. ## Would an Initial Coin Offering (ICO) Pass the Howey Test? Many [initial coin offerings (ICOs)](https://www.investopedia.com/terms/i/initial-coin-offering-ico.asp) pass the Howey test and are viewed as securities by the SEC. ## What Implications Does the Howey Test Have for Crypto Exchanges? If a crypto-asset passes the Howey test and is declared an investment contract, a U.S.-registered exchange might face regulatory actions for facilitating the sale of an unregistered security. It might continue to list it or delist it based on the circumstances. ## Are There Alternatives to the Howey Test for Evaluating Cryptocurrencies? There have been proposals for alternative frameworks to evaluate cryptocurrencies. For instance, some stakeholders advocate having a more nuanced or updated framework that considers the unique attributes of blockchain technology and digital assets, which they say would provide a more accurate classification. ## The Bottom Line The Howey test, established in 1946, has long been a key means for classifying securities. But cryptocurrencies like bitcoin, which are decentralized, are a complex case for regulatory bodies. The crypto realm, with its blend of clear-cut and borderline cases, tests the adaptability of the Howey test. Recent cases and ongoing regulatory deliberations highlight the effort to align existing legal frameworks with the evolving landscape of digital assets. These broader discussions reflect not only a legal or regulatory debate but also a broader examination of how traditional legal frameworks can adapt to rapid technological advances. *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=1706111471298539&usg=AOvVaw0uGoQZXxVrzT9c1uORA8o2) for more info. As of the date this article was written, the author does not own cryptocurrency.*

The Howey test derives its name from a landmark U.S. Supreme Court case in 1946, SEC v. W.J. Howey Co., that established a blueprint for whether a transaction qualifies as an investment contract. If an asset meets the test criteria—including a cryptocurrency—it qualifies, and the Securities and Exchange Commission is obligated to analyze it further to see if it actually is an investment contract. The decentralized, borderless, and often pseudonymous nature of cryptocurrencies and other crypto assets challenge traditional legal classifications, leading to a compelling question: Do cryptocurrencies and other crypto assets pass the Howey test? Alternatively, do they require a change in legal analysis? These questions are not merely academic. The answers to them have significant implications for both the burgeoning crypto industry and regulatory bodies striving to adapt to the fast-evolving digital asset landscape. The questions also touch on how adaptable existing legal frameworks can be for crypto and other novel and rapidly evolving financial innovations. Key Takeaways The Howey test is a legal framework outlined by the U.S. Supreme Court to determine whether a transaction qualifies as an investment contract and should be regulated.The Howey test consists of four criteria: an investment of money, expectation of profits, common enterprise, and reliance on the efforts of others.Applying the Howey test to cryptocurrencies is a topic of debate, with arguments both for and against crypto passing the test.Because the crypto space is so broad and dynamic, applying the Howey test to crypto assets is conducted on a case-by-case basis. An Overview of the Howey Test The Howey test provided by the Supreme Court has four criteria for determining whether an asset constitutes an investment contract and security. Satisfying each means that an asset qualifies as an investment contract, while failure to meet one or more criteria suggests it likely falls outside the scope of securities law. Here are the criteria that the court laid out: Money is invested: There must be monetary investment involved in the transaction, or at least some consideration passes from one party to another. Meets the criterion: Purchasing corporate bonds with funds from your brokerage account Does not meet the criterion: Earning shares in a startup by contributing only time and expertise without putting any money into the business There is an expectation of profits: The investor anticipates financial gains from the investment, typically through the enterprise’s success. Meets the criterion: Investing in a real estate venture with the expectation that the property will appreciate in value Does not meet the criterion: Buying a home for personal use as a primary residence without planning to sell it for a profit There is a common enterprise: The investors and the enterprise behind the transaction, asset, or product are bound by a financial relationship, and the fortunes of the investors are tied to the enterprise’s success. Meets the criterion: Pooling funds with other investors in a mutual fund managed by a fund manager Does not meet the criterion: A stand-alone contract in which the financial return does not depend on the efforts or success of a wider enterprise, e.g., a lease agreement between a landlord and a tenant Success relies on the efforts of others: The success of the investment depends predominantly on the efforts of individuals other than the investor. Meets the criterion: Investing in a startup where the financial return depends on the managerial expertise and efforts of the founding team Does not meet the criterion: Buying a piece of art where any potential appreciation in value is not tied to the efforts of others Interpreting the Howey Test Criteria Since the original case, courts have had different interpretations and ways of applying the Howey test, leading to variations in how the criteria are read and applied. Here are some examples: What is a common enterprise? Most courts have applied a “horizontal commonality” view, where a common enterprise exists if investors pool funds in an investment and the profits of each investor correlate with those of the other investors. Other courts have defined a common enterprise in terms of “vertical commonality,” which focuses on the relationship between the efforts of the one promoting the investment opportunity and the investor’s expectation of a return. Essentially, this form of commonality looks at the link between the profits of the promoter and those of the investor. How strong should the expectation be for profits? What constitutes an “expectation of profits” has been a point of contention. Some courts require a promise of dividends or increased value, while others might consider other forms of return or even the avoidance of loss. How much effort is to be involved from the other party? The court’s discussion of the profits coming from the efforts of others has also been a point of contention. Most courts have focused on the promoter of the opportunity providing managerial control, while others have asked how essential the promoter’s efforts have been to realizing the returns. Thus, while the Howey test remains crucial in discerning the line between securities and non-investments, its application has varied based on jurisdiction, the specifics of the case, and changes in the types of financial products being offered. Examples of What Has and Hasn’t Passed the Howey Test The original Howey case involved an arrangement where individuals bought plots of an orange grove and then leased them back to a service company for care and harvesting. The Supreme Court ruled that this arrangement constituted an investment contract, thus creating the Howey test. Here are other examples of assets or transactions that meet the criteria: Shares of common stock: Traditional shares of common stock in a company pass the Howey test, as they represent an investment in a common enterprise with expectations of profit predominantly from the efforts of others. Real estate limited partnerships: Real estate limited partnerships often pass the Howey test since they involve an investment of money, a common enterprise, and an expectation of profits produced by the efforts of others, such as the managing partner. Multilevel marketing schemes: In certain multilevel marketing schemes, participants earn money primarily by recruiting others to purchase products or services. The Supreme Court has applied the Howey test and deemed that these schemes constitute an investment contract and hence are a security since individuals were investing money with the expectation of profits, mostly from the recruitment efforts of others. At the same time, courts have ruled that other types of financial products or transactions do not meet the criteria: Condominium units: Courts have found that the sale of condominium units, where buyers intend to occupy the unit or have control over its operation, do not pass the Howey test since they don’t entail an expectation of profits from the efforts of others.Whiskey warehouse receipts: Historically, whiskey warehouse receipts were used as a form of collateral and were even traded, but their status as securities had been a matter of legal debate. The Supreme Court found that these did not pass the Howey test, as there wasn’t a common enterprise, and the profits were not to be derived solely from the efforts of others.Merchandise accounts: In cases where individuals bought merchandise accounts that allowed them to buy goods at a discount, courts have found that these arrangements did not pass the Howey test, as they lacked the expectation of profits from the effort of others. Each of these cases illustrates the application of the Howey test in different contexts and how the courts have interpreted the criteria of the test in determining whether a particular arrangement qualifies as a security. Different Interpretations of the Howey Test for Cryptocurrencies The applicability of the Howey test to cryptocurrencies has sparked extensive legal analysis and debate. While bitcoin and some other decentralized cryptocurrencies might fail to meet the “common enterprise” and “reliance on the efforts of others” criteria, the case becomes less clear for crypto assets with more centralized administration. Stablecoins, for instance, arguably depend on the ongoing efforts of their issuing organization to maintain their pegged value. Similarly, the profits for some non-fungible tokens (NFTs) and smart contracts could be seen as relying on the work of the developers or promoters. Given the diversity of crypto assets, more decentralized cryptocurrencies may avoid classification as securities, while more centralized and profit-driven digital assets are more likely to meet the Howey criteria. Legal experts continue working to guide regulators on how to apply existing securities law to these novel and varied digital financial instruments. Let’s see how the four criteria of the Howey test might apply in several examples: Bitcoin Investment of money: Individuals purchase Bitcoin with fiat currency or exchange it with other cryptocurrencies. Expectation of profits: Many investors buy Bitcoin while anticipating that its value will increase over time. Common enterprise: Bitcoin operates on a decentralized network and thus might not be a common enterprise. Each investor’s gain or loss is independent of the others. Reliance on the efforts of others: The value of Bitcoin is market-driven and not controlled by a central authority or group. Bitcoin may not pass the Howey test since it seems to lack a common enterprise and doesn’t rely on the efforts of others. USD Tether Investment of money: Individuals can purchase USD Tether (USDT) with fiat currency or other cryptocurrencies. Expectation of profits: USDT is a stablecoin pegged to the U.S. dollar, so there’s no expectation of profit as its value remains stable. Common enterprise: The backing and stability of USDT could be seen as a common enterprise with the issuing organization, Tether Ltd. Reliance on the efforts of others: The stability of USDT is maintained by Tether Ltd., which could be interpreted as reliance on the efforts of others. There might be a stronger case that USDT passes the Howey test due to the reliance on the issuing organization to maintain its value in line with the U.S. dollar. Non-Fungible Tokens (NFTs) Investment of money: Individuals purchase non-fungible tokens (NFTs) with cryptocurrency.Expectation of profits: Many buyers purchase NFTs, hoping to resell them at a higher price.Common enterprise: NFT transactions are typically independent and not tied to a common enterprise, although some NFTs are created, marketed, and sold through syndicates.Reliance on the efforts of others: The value of NFTs is market-driven but can also be influenced by the creator’s efforts in promoting their work. Certain NFTs might pass the Howey test if derived from a common enterprise. If an asset passes the Howey test, it still might not be labeled an investment contract by the SEC. A substance-over-form analysis is generally performed before a determination is made, where intent and circumstances are investigated. Recent Developments and Regulatory Actions The SEC and the Commodity Futures Trading Commission (CFTC) have been at the forefront of the regulatory discussions surrounding cryptocurrencies and the application of the Howey test. The CFTC initiated cases as early as 2015, asserting that virtual currencies should be defined as commodities. Meanwhile, the SEC, under Chairman Gary Gensler, has leaned toward classifying many crypto assets as unregistered securities based on the Howey test, especially when people acquire them with the expectation of profits from the issuer's efforts to boost the asset's value by managing, promoting, or improving it. Interested in crypto? Use this guide to discuss with an advisor. For instance, in 2023, the SEC's lawsuit against Ripple Labs ended with the determination that when the company sold XRP to institutional investors, the token was a security, but it wasn't when it was purchased on an exchange by retail investors. This decision added more clarity for investors, developers, and regulators regarding the fact that a sale might not be an investment contract under specific circumstances. The SEC has published its framework for analyzing digital assets to help developers and companies determine whether their tokens might be considered securities. The framework discusses all Howey test elements but adds a critical section, "Other Relevant Considerations," that further discusses elements that reduce a project's chances of regulatory action. Some of the factors that might decrease an asset's likelihood of being considered a security are: The distributed ledger, network, and token are fully operationalThe token can be used immediately for its intended purposeThe token and network are not created and marketed in a way that creates speculation on prices or valueThere is no reasonable expectation of appreciation in valueAny economic benefits are incidental The Independent Community Bankers of America argued in 2023 that most crypto assets likely qualify under the Howey test as securities and should be subject to the relevant securities laws and regulations. This indicates a broad acknowledgment within the financial community that the Howey test does apply to at least some cryptocurrencies. Would an Initial Coin Offering (ICO) Pass the Howey Test? Many initial coin offerings (ICOs) pass the Howey test and are viewed as securities by the SEC. What Implications Does the Howey Test Have for Crypto Exchanges? If a crypto-asset passes the Howey test and is declared an investment contract, a U.S.-registered exchange might face regulatory actions for facilitating the sale of an unregistered security. It might continue to list it or delist it based on the circumstances. Are There Alternatives to the Howey Test for Evaluating Cryptocurrencies? There have been proposals for alternative frameworks to evaluate cryptocurrencies. For instance, some stakeholders advocate having a more nuanced or updated framework that considers the unique attributes of blockchain technology and digital assets, which they say would provide a more accurate classification. The Bottom Line The Howey test, established in 1946, has long been a key means for classifying securities. But cryptocurrencies like bitcoin, which are decentralized, are a complex case for regulatory bodies. The crypto realm, with its blend of clear-cut and borderline cases, tests the adaptability of the Howey test. Recent cases and ongoing regulatory deliberations highlight the effort to align existing legal frameworks with the evolving landscape of digital assets. These broader discussions reflect not only a legal or regulatory debate but also a broader examination of how traditional legal frameworks can adapt to rapid technological advances. 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/sony-unveils-plan-for-financial-unit-ipo-amid-sluggish-ps5-sales-8580472

Sony Unveils Plan for Financial Unit IPO Amid Sluggish PlayStation 5 Sales

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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>Sales of Sony's PlayStation 5 missed the company's fiscal third-quarter sales target, leading Sony to cut its full-year sales projection.</li><li>Sony's Financial Services segment delivered a strong performance, and the entertainment giant said it plans to list the unit with an initial public offering in October 2025.</li><li>American depositary receipts of Sony fell in intraday trading Wednesday following the news.</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"> Sony Group Corp.'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> (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SONY">SONY</a>) tumbled over 4% in intraday trading Wednesday after the Japanese entertainment giant lowered sales projections for its PlayStation 5 console and said it would list its Financial Services unit next 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"> Sony reported fiscal 2023 third-quarter PlayStation 5 hardware sales of 8.2 million units Wednesday.<span class="ql-inline-citation" data-cite="2"></span> Although the number marked a record high for quarterly unit sales of the console, it still fell short of the company's target. Sony also revised its full-year sales projection down to 21 million from 25 million units. </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 company said it won't release "any new major existing franchise titles" for the console in the coming fiscal year. Reports that Microsoft Corp. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT">MSFT</a>) could bring Xbox-exclusive titles to the PlayStation 5 and the Nintendo (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NTDOY">NTDOY</a>) Switch might help Sony's software revenue from PlayStation 5 owners, but may do little to encourage new customers to purchase a Sony console.<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"> That's bad news for Sony, as the profitability of the PlayStation 5 declines. Sales in Sony's Game &amp; Network Services segment in the third quarter rose 16% from a year ago, boosted by third-party software sales, but operating income declined 26% as promotions for PlayStation 5 hardware ate into profits. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_10-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> A bright spot in Sony's earnings was the strength of its Financial Services unit, with projected full-year revenue increasing 90 billion yen (about $600 million) to 1.3 trillion yen, a 7% upward revision. Having obtained government approval for a partial spinoff, the Japanese company is aiming for an <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/ipo.asp">initial public offering (IPO)</a> for the unit in October 2025. </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"> Music segment sales increased by 16% compared with the year-ago quarter, with solid growth in <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/120314/spotify-makes-internet-music-make-money.asp">streaming revenue</a> supported by the company's holiday music catalog, including the 29-year-old <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/mariah-carey-net-worth-8417475">Mariah Carey Christmas album</a>. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> The company's film segment grew sales by 10%, although <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/sony-adrs-slide-as-strikes-by-actors-and-writers-drag-on-revenue-7574676">the impact of last year's writers' strikes</a> continues to delay some productions, Sony reported. It estimates a cost of roughly 20 billion yen ($133 million) on the current fiscal year's balance sheet as a result. </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"> However, anime streaming platform Crunchyroll continued to drive growth, with more than 13 million paying subscribers and plans for international expansions into Brazil, India, and Southeast Asia. </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 ADRs were 4.7% lower at $90.93 as of 3 p.m. ET Wednesday. They've gained about 3.4% over the last year. </p> <div class="comp news-tip mntl-block" id="news-tip_1-0"><div class="comp news-tip__text mntl-text-block" id="news-tip__text_1-0">Do you have a news tip for Investopedia reporters? Please email us at</div> <a class="news-tip__email mntl-text-link" data-tracking-container="true" href="mailto:[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 * Sales of Sony's PlayStation 5 missed the company's fiscal third-quarter sales target, leading Sony to cut its full-year sales projection. * Sony's Financial Services segment delivered a strong performance, and the entertainment giant said it plans to list the unit with an initial public offering in October 2025. * American depositary receipts of Sony fell in intraday trading Wednesday following the news. Sony Group Corp.'s [American depositary receipts (ADRs)](https://www.investopedia.com/terms/a/adr.asp) ([SONY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SONY)) tumbled over 4% in intraday trading Wednesday after the Japanese entertainment giant lowered sales projections for its PlayStation 5 console and said it would list its Financial Services unit next year. Sony reported fiscal 2023 third-quarter PlayStation 5 hardware sales of 8.2 million units Wednesday. Although the number marked a record high for quarterly unit sales of the console, it still fell short of the company's target. Sony also revised its full-year sales projection down to 21 million from 25 million units. The company said it won't release "any new major existing franchise titles" for the console in the coming fiscal year. Reports that Microsoft Corp. ([MSFT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=MSFT)) could bring Xbox-exclusive titles to the PlayStation 5 and the Nintendo ([NTDOY](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NTDOY)) Switch might help Sony's software revenue from PlayStation 5 owners, but may do little to encourage new customers to purchase a Sony console. That's bad news for Sony, as the profitability of the PlayStation 5 declines. Sales in Sony's Game & Network Services segment in the third quarter rose 16% from a year ago, boosted by third-party software sales, but operating income declined 26% as promotions for PlayStation 5 hardware ate into profits. A bright spot in Sony's earnings was the strength of its Financial Services unit, with projected full-year revenue increasing 90 billion yen (about $600 million) to 1.3 trillion yen, a 7% upward revision. Having obtained government approval for a partial spinoff, the Japanese company is aiming for an [initial public offering (IPO)](https://www.investopedia.com/terms/i/ipo.asp) for the unit in October 2025. Music segment sales increased by 16% compared with the year-ago quarter, with solid growth in [streaming revenue](https://www.investopedia.com/articles/investing/120314/spotify-makes-internet-music-make-money.asp) supported by the company's holiday music catalog, including the 29-year-old [Mariah Carey Christmas album](https://www.investopedia.com/mariah-carey-net-worth-8417475). The company's film segment grew sales by 10%, although [the impact of last year's writers' strikes](https://www.investopedia.com/sony-adrs-slide-as-strikes-by-actors-and-writers-drag-on-revenue-7574676) continues to delay some productions, Sony reported. It estimates a cost of roughly 20 billion yen ($133 million) on the current fiscal year's balance sheet as a result. However, anime streaming platform Crunchyroll continued to drive growth, with more than 13 million paying subscribers and plans for international expansions into Brazil, India, and Southeast Asia. Sony ADRs were 4.7% lower at $90.93 as of 3 p.m. ET Wednesday. They've gained about 3.4% over the last year. Do you have a news tip for Investopedia reporters? Please email us at [[email protected]](mailto:[email protected])

Key Takeaways Sales of Sony's PlayStation 5 missed the company's fiscal third-quarter sales target, leading Sony to cut its full-year sales projection.Sony's Financial Services segment delivered a strong performance, and the entertainment giant said it plans to list the unit with an initial public offering in October 2025.American depositary receipts of Sony fell in intraday trading Wednesday following the news. Sony Group Corp.'s American depositary receipts (ADRs) (SONY) tumbled over 4% in intraday trading Wednesday after the Japanese entertainment giant lowered sales projections for its PlayStation 5 console and said it would list its Financial Services unit next year. Sony reported fiscal 2023 third-quarter PlayStation 5 hardware sales of 8.2 million units Wednesday. Although the number marked a record high for quarterly unit sales of the console, it still fell short of the company's target. Sony also revised its full-year sales projection down to 21 million from 25 million units. The company said it won't release "any new major existing franchise titles" for the console in the coming fiscal year. Reports that Microsoft Corp. (MSFT) could bring Xbox-exclusive titles to the PlayStation 5 and the Nintendo (NTDOY) Switch might help Sony's software revenue from PlayStation 5 owners, but may do little to encourage new customers to purchase a Sony console. That's bad news for Sony, as the profitability of the PlayStation 5 declines. Sales in Sony's Game & Network Services segment in the third quarter rose 16% from a year ago, boosted by third-party software sales, but operating income declined 26% as promotions for PlayStation 5 hardware ate into profits. A bright spot in Sony's earnings was the strength of its Financial Services unit, with projected full-year revenue increasing 90 billion yen (about $600 million) to 1.3 trillion yen, a 7% upward revision. Having obtained government approval for a partial spinoff, the Japanese company is aiming for an initial public offering (IPO) for the unit in October 2025. Music segment sales increased by 16% compared with the year-ago quarter, with solid growth in streaming revenue supported by the company's holiday music catalog, including the 29-year-old Mariah Carey Christmas album. The company's film segment grew sales by 10%, although the impact of last year's writers' strikes continues to delay some productions, Sony reported. It estimates a cost of roughly 20 billion yen ($133 million) on the current fiscal year's balance sheet as a result. However, anime streaming platform Crunchyroll continued to drive growth, with more than 13 million paying subscribers and plans for international expansions into Brazil, India, and Southeast Asia. Sony ADRs were 4.7% lower at $90.93 as of 3 p.m. ET Wednesday. They've gained about 3.4% over the last year. Do you have a news tip for Investopedia reporters? Please email us at [email protected]

https://www.investopedia.com/warner-bros-discovery-earnings-q1-fy-2024-miss-8645775

Warner Bros. Discovery Reports Wider-Than-Expected Loss as Revenue Falls Short

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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"> <em>UPDATE—May 9, 2024: This article has been updated to reflect more recent share price information.</em> </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>Warner Bros. Discovery's revenue fell more than estimated in the first quarter and the entertainment conglomerate reported a wider-than-expected net loss.</li><li>Shares seesawed in early trading Thursday following the release. </li><li>Ongoing negotiations with the NBA over the league's next broadcasting deal, along with a streaming bundle partnership with Disney the companies announced Wednesday, could substantially impact WBD's future earnings.</li></ul></div></div></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_5-0"> Warner Bros. Discovery's (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=WBD">WBD</a>) revenue fell more than estimated in the first quarter and the entertainment conglomerate reported a wider-than-expected net loss. Shares seesawed in early trading Thursday following the release. </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-revenue-misses-estimates-larger-net-loss-than-expected"></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"> Revenue Misses Estimates, Larger Net Loss Than Expected </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_8-0"> WBD's revenue fell 7% year-over-year to $9.96 billion from the $10.7 billion the company reported in the year-ago period, falling short of the $10.25 billion consensus estimate compiled by Visible Alpha.<span class="ql-inline-citation" data-cite="5"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_9-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> The movie and television producer also reported a larger net loss than expected at $966 million, nearly double the $501.7 million analysts had expected, but narrowed from the $1.07 billion loss registered a year ago. On a per-share basis, WBD posted a loss of 40 cents, slightly smaller than last year's 44 cents but nearly double analyst estimates of 21 cents. </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"> Revenue decreased 12% in WBD's studios segment, which is made up of movie and video games studios, and fell 8% its networks division, which comprises its TV holdings, including CNN and the Turner family of networks like TNT and TBS. Revenue was nearly flat in the company's direct-to-consumer segment, which consists of HBO and the Max and Discovery+ streaming services. </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-nba-rights-disney-streaming-partnership-could-make-big-impact-on-future-reports"></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"> NBA Rights, Disney Streaming Partnership Could Make Big Impact on Future Reports </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> WBD's TV division could see both its revenue and costs impacted over the next several years if the company loses out on a portion of the next broadcasting rights deal for the National Basketball Association (NBA). WBD's TNT has broadcast select NBA regular-season and playoff games for decades.<span class="ql-inline-citation" data-cite="6"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> WBD <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/ceo.asp">Chief Executive Officer (CEO</a>) David Zaslav reportedly said at a recent event that the network remains "in constructive negotiations with the NBA," after saying in 2022 that the company and network did not necessarily "have to have the NBA," according to <em>Front Office Sports.</em><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"> A day ahead of the company's earnings report, WBD and Disney (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=DIS">DIS</a>) announced plans to offer bundle packages of Max along with Disney-owned Hulu and Disney+, both in ad-supported and ad-free bundles, starting this summer.<span class="ql-inline-citation" data-cite="3"></span> Pricing information was not included in the initial release. </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"> WBD shares wavered between gains and losses in early trading Thursday, up 1.5% at $7.92 as of 10:50 a.m. ET. They've lost about 30% of their value since the start of the year. </p></div>

*UPDATE—May 9, 2024: This article has been updated to reflect more recent share price information.* ### Key Takeaways * Warner Bros. Discovery's revenue fell more than estimated in the first quarter and the entertainment conglomerate reported a wider-than-expected net loss. * Shares seesawed in early trading Thursday following the release. * Ongoing negotiations with the NBA over the league's next broadcasting deal, along with a streaming bundle partnership with Disney the companies announced Wednesday, could substantially impact WBD's future earnings. Warner Bros. Discovery's ([WBD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=WBD)) revenue fell more than estimated in the first quarter and the entertainment conglomerate reported a wider-than-expected net loss. Shares seesawed in early trading Thursday following the release. ## Revenue Misses Estimates, Larger Net Loss Than Expected WBD's revenue fell 7% year-over-year to $9.96 billion from the $10.7 billion the company reported in the year-ago period, falling short of the $10.25 billion consensus estimate compiled by Visible Alpha. The movie and television producer also reported a larger net loss than expected at $966 million, nearly double the $501.7 million analysts had expected, but narrowed from the $1.07 billion loss registered a year ago. On a per-share basis, WBD posted a loss of 40 cents, slightly smaller than last year's 44 cents but nearly double analyst estimates of 21 cents. Revenue decreased 12% in WBD's studios segment, which is made up of movie and video games studios, and fell 8% its networks division, which comprises its TV holdings, including CNN and the Turner family of networks like TNT and TBS. Revenue was nearly flat in the company's direct-to-consumer segment, which consists of HBO and the Max and Discovery+ streaming services. ## NBA Rights, Disney Streaming Partnership Could Make Big Impact on Future Reports WBD's TV division could see both its revenue and costs impacted over the next several years if the company loses out on a portion of the next broadcasting rights deal for the National Basketball Association (NBA). WBD's TNT has broadcast select NBA regular-season and playoff games for decades. WBD [Chief Executive Officer (CEO](https://www.investopedia.com/terms/c/ceo.asp)) David Zaslav reportedly said at a recent event that the network remains "in constructive negotiations with the NBA," after saying in 2022 that the company and network did not necessarily "have to have the NBA," according to *Front Office Sports.* A day ahead of the company's earnings report, WBD and Disney ([DIS](https://www.investopedia.com/markets/quote?tvwidgetsymbol=DIS)) announced plans to offer bundle packages of Max along with Disney-owned Hulu and Disney+, both in ad-supported and ad-free bundles, starting this summer. Pricing information was not included in the initial release. WBD shares wavered between gains and losses in early trading Thursday, up 1.5% at $7.92 as of 10:50 a.m. ET. They've lost about 30% of their value since the start of the year.

UPDATE—May 9, 2024: This article has been updated to reflect more recent share price information. Key Takeaways Warner Bros. Discovery's revenue fell more than estimated in the first quarter and the entertainment conglomerate reported a wider-than-expected net loss.Shares seesawed in early trading Thursday following the release. Ongoing negotiations with the NBA over the league's next broadcasting deal, along with a streaming bundle partnership with Disney the companies announced Wednesday, could substantially impact WBD's future earnings. Warner Bros. Discovery's (WBD) revenue fell more than estimated in the first quarter and the entertainment conglomerate reported a wider-than-expected net loss. Shares seesawed in early trading Thursday following the release. Revenue Misses Estimates, Larger Net Loss Than Expected WBD's revenue fell 7% year-over-year to $9.96 billion from the $10.7 billion the company reported in the year-ago period, falling short of the $10.25 billion consensus estimate compiled by Visible Alpha. The movie and television producer also reported a larger net loss than expected at $966 million, nearly double the $501.7 million analysts had expected, but narrowed from the $1.07 billion loss registered a year ago. On a per-share basis, WBD posted a loss of 40 cents, slightly smaller than last year's 44 cents but nearly double analyst estimates of 21 cents. Revenue decreased 12% in WBD's studios segment, which is made up of movie and video games studios, and fell 8% its networks division, which comprises its TV holdings, including CNN and the Turner family of networks like TNT and TBS. Revenue was nearly flat in the company's direct-to-consumer segment, which consists of HBO and the Max and Discovery+ streaming services. NBA Rights, Disney Streaming Partnership Could Make Big Impact on Future Reports WBD's TV division could see both its revenue and costs impacted over the next several years if the company loses out on a portion of the next broadcasting rights deal for the National Basketball Association (NBA). WBD's TNT has broadcast select NBA regular-season and playoff games for decades. WBD Chief Executive Officer (CEO) David Zaslav reportedly said at a recent event that the network remains "in constructive negotiations with the NBA," after saying in 2022 that the company and network did not necessarily "have to have the NBA," according to Front Office Sports. A day ahead of the company's earnings report, WBD and Disney (DIS) announced plans to offer bundle packages of Max along with Disney-owned Hulu and Disney+, both in ad-supported and ad-free bundles, starting this summer. Pricing information was not included in the initial release. WBD shares wavered between gains and losses in early trading Thursday, up 1.5% at $7.92 as of 10:50 a.m. ET. They've lost about 30% of their value since the start of the year.

https://www.investopedia.com/articles/personal-finance/061715/private-jet-charter-vs-first-class-whats-best.asp

Private Jet Charter vs. First-Class: 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-private-jet-charter-vs-first-class-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"> Private Jet Charter vs. First-Class: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Private jet charters and first class are two different modes of air travel. Both require the traveler to pay a great deal of money for the privilege of boarding. While they may seem similar, these two types of air travel are distinctly different. <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/081015/can-i-afford-private-jet.asp">Chartering a private jet</a> allows you to maximize your time at your destination and minimize the number of hours you spend traveling while flying <a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/052815/how-fly-first-class-cheap.asp">first-class</a> means you are still at the mercy of taking the route of a <a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/102115/five-most-luxurious-airlines.asp">commercial airline</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"> Private jets give you the luxury of flying on your own or with a group. However, going first-class means you still have to put up with crowds at airport security and other discomforts of commercial flights. </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"> Some people may give you flack for asking the question, but if you have the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/disposableincome.asp">disposable income</a> to spend on air travel, it's worth considering either option. Keep reading to learn more about the differences between taking a private jet and flying first class. </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>Flying on a private jet or first class can be expensive, but both offer luxuries unavailable in the economy cabin of a commercial flight.</li><li>Private planes offer more individualized amenities to passengers than first-class flights.</li><li>First-class may be much more affordable than a private jet if you fly overseas.</li><li>Flying first-class is generally less expensive than buying a seat on a charter jet if you fly alone.</li></ul></div></div></div> <span class="heading-toc" id="toc-private-jet-charter"></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"> Private Jet Charter </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> Private jets are for customers in the high-end travel industry. As the name implies, it involves hiring a private jet to travel to your destination. This allows the party making the reservation to control who boards the flight, whether that's friends, families, or colleagues in the case of corporate travel. Chartering a jet <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/063015/economics-private-jet-charters.asp">can be costly</a>, but certain perks go along with it. </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"> First, chartered flights offer passengers a great deal of luxury and convenience. This allows individuals to avoid the hassles of dealing with the crowds and security at the airport that people who fly <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/financial-edge/0510/4-reasons-why-airlines-are-always-struggling.aspx">commercial airlines</a> must go through. It's also a time saver because travelers who charter flights can set up their own flight timetable, which means they set the departure time.<span class="ql-inline-citation" data-cite="4"></span> These individuals also don't have to deal with layovers and flight changes. </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 onboard experience on a chartered flight is also tailored to give flyers a more personal experience. This also includes the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/a/amenity.asp">amenities</a> that are on board. For instance, travelers can choose their own flight crew, may be given catered meals, and have access to technology and entertainment systems. And since there are far fewer passengers, travelers have more room to move freely throughout the flight.<span class="ql-inline-citation" data-cite="4"></span><span class="ql-inline-citation" data-cite="3"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_16-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_17-0"> Charters are fairly common for <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/ask/answers/041315/how-much-revenue-airline-industry-comes-business-travelers-compared-leisure-travelers.asp">corporate and other business travelers</a>, which allows them to conduct business while in the air or to accommodate their busy schedules. In some cases, private jets allow goods and services to be transported between companies and their customers. Other people who frequently charter private jets include celebrities and athletes. </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>Joining a loyalty program and using a cash back or travel credit card can help lower travel costs, whether that's on a private jet or for a first-class ticket on a commercial airline.</p></div></div></div> <span class="heading-toc" id="toc-first-class"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_21-0"> <span class="mntl-sc-block-heading__text"> First-Class </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_22-0"> Just like charter flights, flying first-class costs more money than purchasing a flight in the economy section. But unlike private jets, first-class travelers have to go by the airline's schedule. This means they have to go through airport security and deal with crowds, layovers, delays, and long lines at the terminal. </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"> True, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/wealth-management/041316/best-time-buy-first-class-airline-tickets.asp">first-class flying</a> on a commercial aircraft comes with amenities. They benefit from priority boarding, which means they skip the line to get on board. They are seated in a reserved section at the front of the plane and are given certain perks, including free beverages and meals, larger seats, more legroom, and other benefits. In many cases, airlines customize their seating to provide passengers with the most comfort, including sleeper seats. The services that come with first-class flying, though, are generally not at the level or personalization of flying privately. </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"> Long trips require a larger, more expensive plane with a bigger range. Although it is an expensive form of travel, it is considerably cheaper than hiring your own plane unless you took a very large group with you on the charter and would have otherwise bought everyone first-class seats. </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"> Commercial aircraft only have access to the largest airports.<span class="ql-inline-citation" data-cite="13"></span> If the traveler is flying to attend a meeting well outside the nearest metropolitan area, they need to add significant round-trip driving time to get from the metro airport to the meeting location. </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-tip" 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">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_3-0"><p>When weighing fare options, consider business class as well, which can offer luxury perks and amenities while costing less than first-class.</p></div></div></div> <span class="heading-toc" id="toc-key-differences"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_32-0"> <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_33-0"> While we've laid out some of the most obvious differences between flying on a private jet and flying first class on a commercial airline, there are very obvious distinctions between them. Here are some of the most obvious ones. </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"> Cost </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> One of the main differences between these two forms of travel is the cost. Chartering a private jet can cost anywhere between $1,300 and $13,000 per hour.<span class="ql-inline-citation" data-cite="11"></span> The cost can be higher, though, depending on a certain number of factors, including: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_37-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> <li>The destination</li><li>The amenities required</li><li>Whether the plane and crew need to wait for the traveler</li><li>The size of the plane, where smaller planes cost less to hire</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_39-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_40-0"> For example, a light jet might cost $9,000 to $11,000 for a three-hour trip. However, popular destinations can sometimes cost more. A three-hour flight to Palm Beach, Florida, from New York City might cost as much as $20,000 for a light jet and up to $30,000 via a mid-size jet. The cost can vary, depending on the number of seats on the plane, the amenities, and how much staff is required.<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_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> First-class reservations on commercial flights can cost anywhere from $500 to more than $1,500 for domestic flights and higher for international destinations. The cost also depends on the airline itself—some charge more because they have more amenities available to those who are willing to shell out more money for air travel. </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"> When traveling, consider <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/best-travel-insurance-4842641">travel insurance</a>, particularly if the trip is expensive. On a commercial aircraft, you rent a seat. If you want to bring somebody with you, you rent two seats and pay double the cost. With charters, on the other hand, you rent the plane. </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"> Accommodations </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> Customers who fly privately also have the luxury of bringing a lot more with them to their destination. This includes pets, sporting equipment, and other bulky items that don’t easily fit on commercial aircraft. They also avoid the risk of losing these items in checked baggage.<span class="ql-inline-citation" data-cite="3"></span> First-class flyers, on the other hand, are limited in how many bags they can bring on board. But they may be given a more flexible weight allowance than those in other cabins. And while other passengers may have to pay to check in their bags, first-class passengers are normally exempt from paying. </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"> Accommodations don't just mean the bag allowance. While commercial airlines do as much as they can to be more accessible, private planes may provide easier access for elderly, handicapped, or injured travelers, as well as better accommodating wheelchairs and other equipment. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_50-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_51-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-tip" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_52-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_4-0">Tip</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_4-0"><p>If you prefer flying privately, you may consider investing in a private jet membership that offers guaranteed access to a private plan in exchange for an annual or monthly membership fee.</p></div></div></div> <span class="heading-toc" id="toc-special-considerations"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_53-0"> <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_54-0"> To the average onlooker, it’s easy to see private jet flying as excessive. What makes it more economical is when you factor in the value of a person’s time. Private jets are able to fly into smaller airports, often getting their clients to their location faster. In addition, flyers don't have to wait in long security lines at large airports, which can be time-consuming even for those with <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/t/tsa-pre.asp">Trusted Traveler</a> status. </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"> Because companies don’t want to fly their jets without passengers, they are often happy to wait for passengers flying back the same day. This gives flyers more flexibility in their schedules and allows executives to conduct business meetings and work more easily, so flight time isn't wasted. This often makes them more economical than commercial aircraft. </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"> There’s also the reliability factor. Not making it to an important meeting because a flight was canceled is a risk some people cannot and won't take. It's likely that most people who charter flights do so because they just don’t want the hassle of flying commercially, and money is no object. </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-is-a-private-jet-more-expensive-than-flying-first-class"></span> <h2 class="mntl-sc-block-questionandanswer__question">Is a Private Jet More Expensive than Flying First Class?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Chartering a private jet can cost between $1,300 and $13,000 per hour. The cost varies depending on the size of the plane, the number of seats, the staff needed, and the amenities. For example, a three-hour trip in a light jet might cost up to $11,000, while the cost jumps to $20,000 for a mid-size jet.</p><p>First-class reservations on commercial flights can range from $500 to more than $1,500 for domestic flights, with international flights costing more. Also, first-class costs can add up, depending on the airline and the amenities.</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-benefits-of-chartering-a-private-jet"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Are the Benefits of Chartering a Private Jet?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The onboard experience on a chartered flight is tailored and includes more amenities, such as catered meals and access to technology and entertainment systems. You may also choose your own flight crew and make your own flight timetable and departure time. Also, there are no airport crowds, layovers, or flight changes when flying via a private jet.</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-do-you-have-to-go-through-tsa-security-for-a-chartered-flight"></span> <h2 class="mntl-sc-block-questionandanswer__question">Do You Have to Go Through TSA Security for a Chartered Flight?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Privately chartered flights do not have to go through the Transportation Security Administration's security checkpoints if the plane has fewer than 61 passengers.<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_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"> Whether it makes sense to charter a private jet or fly commercial in first- or business class can depend on your <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/080615/buying-vs-leasing-private-jet.asp">individual needs and travel budget</a>. While a chartered flight may cost more, it offers more benefits than typical commercial flights. If you do decide to fly first-class or business class, take time to compare the best airline rewards credit cards that can help you earn points or miles toward future flights. </p></div>

## Private Jet Charter vs. First-Class: An Overview Private jet charters and first class are two different modes of air travel. Both require the traveler to pay a great deal of money for the privilege of boarding. While they may seem similar, these two types of air travel are distinctly different. [Chartering a private jet](https://www.investopedia.com/articles/investing/081015/can-i-afford-private-jet.asp) allows you to maximize your time at your destination and minimize the number of hours you spend traveling while flying [first-class](https://www.investopedia.com/articles/personal-finance/052815/how-fly-first-class-cheap.asp) means you are still at the mercy of taking the route of a [commercial airline](https://www.investopedia.com/articles/personal-finance/102115/five-most-luxurious-airlines.asp). Private jets give you the luxury of flying on your own or with a group. However, going first-class means you still have to put up with crowds at airport security and other discomforts of commercial flights. Some people may give you flack for asking the question, but if you have the [disposable income](https://www.investopedia.com/terms/d/disposableincome.asp) to spend on air travel, it's worth considering either option. Keep reading to learn more about the differences between taking a private jet and flying first class. ### Key Takeaways * Flying on a private jet or first class can be expensive, but both offer luxuries unavailable in the economy cabin of a commercial flight. * Private planes offer more individualized amenities to passengers than first-class flights. * First-class may be much more affordable than a private jet if you fly overseas. * Flying first-class is generally less expensive than buying a seat on a charter jet if you fly alone. ## Private Jet Charter Private jets are for customers in the high-end travel industry. As the name implies, it involves hiring a private jet to travel to your destination. This allows the party making the reservation to control who boards the flight, whether that's friends, families, or colleagues in the case of corporate travel. Chartering a jet [can be costly](https://www.investopedia.com/articles/personal-finance/063015/economics-private-jet-charters.asp), but certain perks go along with it. First, chartered flights offer passengers a great deal of luxury and convenience. This allows individuals to avoid the hassles of dealing with the crowds and security at the airport that people who fly [commercial airlines](https://www.investopedia.com/financial-edge/0510/4-reasons-why-airlines-are-always-struggling.aspx) must go through. It's also a time saver because travelers who charter flights can set up their own flight timetable, which means they set the departure time. These individuals also don't have to deal with layovers and flight changes. The onboard experience on a chartered flight is also tailored to give flyers a more personal experience. This also includes the [amenities](https://www.investopedia.com/terms/a/amenity.asp) that are on board. For instance, travelers can choose their own flight crew, may be given catered meals, and have access to technology and entertainment systems. And since there are far fewer passengers, travelers have more room to move freely throughout the flight. Charters are fairly common for [corporate and other business travelers](https://www.investopedia.com/ask/answers/041315/how-much-revenue-airline-industry-comes-business-travelers-compared-leisure-travelers.asp), which allows them to conduct business while in the air or to accommodate their busy schedules. In some cases, private jets allow goods and services to be transported between companies and their customers. Other people who frequently charter private jets include celebrities and athletes. ### Joining a loyalty program and using a cash back or travel credit card can help lower travel costs, whether that's on a private jet or for a first-class ticket on a commercial airline. ## First-Class Just like charter flights, flying first-class costs more money than purchasing a flight in the economy section. But unlike private jets, first-class travelers have to go by the airline's schedule. This means they have to go through airport security and deal with crowds, layovers, delays, and long lines at the terminal. True, [first-class flying](https://www.investopedia.com/articles/wealth-management/041316/best-time-buy-first-class-airline-tickets.asp) on a commercial aircraft comes with amenities. They benefit from priority boarding, which means they skip the line to get on board. They are seated in a reserved section at the front of the plane and are given certain perks, including free beverages and meals, larger seats, more legroom, and other benefits. In many cases, airlines customize their seating to provide passengers with the most comfort, including sleeper seats. The services that come with first-class flying, though, are generally not at the level or personalization of flying privately. Long trips require a larger, more expensive plane with a bigger range. Although it is an expensive form of travel, it is considerably cheaper than hiring your own plane unless you took a very large group with you on the charter and would have otherwise bought everyone first-class seats. Commercial aircraft only have access to the largest airports. If the traveler is flying to attend a meeting well outside the nearest metropolitan area, they need to add significant round-trip driving time to get from the metro airport to the meeting location. ### Tip When weighing fare options, consider business class as well, which can offer luxury perks and amenities while costing less than first-class. ## Key Differences While we've laid out some of the most obvious differences between flying on a private jet and flying first class on a commercial airline, there are very obvious distinctions between them. Here are some of the most obvious ones. ### Cost One of the main differences between these two forms of travel is the cost. Chartering a private jet can cost anywhere between $1,300 and $13,000 per hour. The cost can be higher, though, depending on a certain number of factors, including: * The destination * The amenities required * Whether the plane and crew need to wait for the traveler * The size of the plane, where smaller planes cost less to hire For example, a light jet might cost $9,000 to $11,000 for a three-hour trip. However, popular destinations can sometimes cost more. A three-hour flight to Palm Beach, Florida, from New York City might cost as much as $20,000 for a light jet and up to $30,000 via a mid-size jet. The cost can vary, depending on the number of seats on the plane, the amenities, and how much staff is required. First-class reservations on commercial flights can cost anywhere from $500 to more than $1,500 for domestic flights and higher for international destinations. The cost also depends on the airline itself—some charge more because they have more amenities available to those who are willing to shell out more money for air travel. When traveling, consider [travel insurance](https://www.investopedia.com/best-travel-insurance-4842641), particularly if the trip is expensive. On a commercial aircraft, you rent a seat. If you want to bring somebody with you, you rent two seats and pay double the cost. With charters, on the other hand, you rent the plane. ### Accommodations Customers who fly privately also have the luxury of bringing a lot more with them to their destination. This includes pets, sporting equipment, and other bulky items that don’t easily fit on commercial aircraft. They also avoid the risk of losing these items in checked baggage. First-class flyers, on the other hand, are limited in how many bags they can bring on board. But they may be given a more flexible weight allowance than those in other cabins. And while other passengers may have to pay to check in their bags, first-class passengers are normally exempt from paying. Accommodations don't just mean the bag allowance. While commercial airlines do as much as they can to be more accessible, private planes may provide easier access for elderly, handicapped, or injured travelers, as well as better accommodating wheelchairs and other equipment. ### Tip If you prefer flying privately, you may consider investing in a private jet membership that offers guaranteed access to a private plan in exchange for an annual or monthly membership fee. ## Special Considerations To the average onlooker, it’s easy to see private jet flying as excessive. What makes it more economical is when you factor in the value of a person’s time. Private jets are able to fly into smaller airports, often getting their clients to their location faster. In addition, flyers don't have to wait in long security lines at large airports, which can be time-consuming even for those with [Trusted Traveler](https://www.investopedia.com/terms/t/tsa-pre.asp) status. Because companies don’t want to fly their jets without passengers, they are often happy to wait for passengers flying back the same day. This gives flyers more flexibility in their schedules and allows executives to conduct business meetings and work more easily, so flight time isn't wasted. This often makes them more economical than commercial aircraft. There’s also the reliability factor. Not making it to an important meeting because a flight was canceled is a risk some people cannot and won't take. It's likely that most people who charter flights do so because they just don’t want the hassle of flying commercially, and money is no object. ## Is a Private Jet More Expensive than Flying First Class? Chartering a private jet can cost between $1,300 and $13,000 per hour. The cost varies depending on the size of the plane, the number of seats, the staff needed, and the amenities. For example, a three-hour trip in a light jet might cost up to $11,000, while the cost jumps to $20,000 for a mid-size jet. First-class reservations on commercial flights can range from $500 to more than $1,500 for domestic flights, with international flights costing more. Also, first-class costs can add up, depending on the airline and the amenities. ## What Are the Benefits of Chartering a Private Jet? The onboard experience on a chartered flight is tailored and includes more amenities, such as catered meals and access to technology and entertainment systems. You may also choose your own flight crew and make your own flight timetable and departure time. Also, there are no airport crowds, layovers, or flight changes when flying via a private jet. ## Do You Have to Go Through TSA Security for a Chartered Flight? Privately chartered flights do not have to go through the Transportation Security Administration's security checkpoints if the plane has fewer than 61 passengers. ## The Bottom Line Whether it makes sense to charter a private jet or fly commercial in first- or business class can depend on your [individual needs and travel budget](https://www.investopedia.com/articles/investing/080615/buying-vs-leasing-private-jet.asp). While a chartered flight may cost more, it offers more benefits than typical commercial flights. If you do decide to fly first-class or business class, take time to compare the best airline rewards credit cards that can help you earn points or miles toward future flights.

Private Jet Charter vs. First-Class: An Overview Private jet charters and first class are two different modes of air travel. Both require the traveler to pay a great deal of money for the privilege of boarding. While they may seem similar, these two types of air travel are distinctly different. Chartering a private jet allows you to maximize your time at your destination and minimize the number of hours you spend traveling while flying first-class means you are still at the mercy of taking the route of a commercial airline. Private jets give you the luxury of flying on your own or with a group. However, going first-class means you still have to put up with crowds at airport security and other discomforts of commercial flights. Some people may give you flack for asking the question, but if you have the disposable income to spend on air travel, it's worth considering either option. Keep reading to learn more about the differences between taking a private jet and flying first class. Key Takeaways Flying on a private jet or first class can be expensive, but both offer luxuries unavailable in the economy cabin of a commercial flight.Private planes offer more individualized amenities to passengers than first-class flights.First-class may be much more affordable than a private jet if you fly overseas.Flying first-class is generally less expensive than buying a seat on a charter jet if you fly alone. Private Jet Charter Private jets are for customers in the high-end travel industry. As the name implies, it involves hiring a private jet to travel to your destination. This allows the party making the reservation to control who boards the flight, whether that's friends, families, or colleagues in the case of corporate travel. Chartering a jet can be costly, but certain perks go along with it. First, chartered flights offer passengers a great deal of luxury and convenience. This allows individuals to avoid the hassles of dealing with the crowds and security at the airport that people who fly commercial airlines must go through. It's also a time saver because travelers who charter flights can set up their own flight timetable, which means they set the departure time. These individuals also don't have to deal with layovers and flight changes. The onboard experience on a chartered flight is also tailored to give flyers a more personal experience. This also includes the amenities that are on board. For instance, travelers can choose their own flight crew, may be given catered meals, and have access to technology and entertainment systems. And since there are far fewer passengers, travelers have more room to move freely throughout the flight. Charters are fairly common for corporate and other business travelers, which allows them to conduct business while in the air or to accommodate their busy schedules. In some cases, private jets allow goods and services to be transported between companies and their customers. Other people who frequently charter private jets include celebrities and athletes. Joining a loyalty program and using a cash back or travel credit card can help lower travel costs, whether that's on a private jet or for a first-class ticket on a commercial airline. First-Class Just like charter flights, flying first-class costs more money than purchasing a flight in the economy section. But unlike private jets, first-class travelers have to go by the airline's schedule. This means they have to go through airport security and deal with crowds, layovers, delays, and long lines at the terminal. True, first-class flying on a commercial aircraft comes with amenities. They benefit from priority boarding, which means they skip the line to get on board. They are seated in a reserved section at the front of the plane and are given certain perks, including free beverages and meals, larger seats, more legroom, and other benefits. In many cases, airlines customize their seating to provide passengers with the most comfort, including sleeper seats. The services that come with first-class flying, though, are generally not at the level or personalization of flying privately. Long trips require a larger, more expensive plane with a bigger range. Although it is an expensive form of travel, it is considerably cheaper than hiring your own plane unless you took a very large group with you on the charter and would have otherwise bought everyone first-class seats. Commercial aircraft only have access to the largest airports. If the traveler is flying to attend a meeting well outside the nearest metropolitan area, they need to add significant round-trip driving time to get from the metro airport to the meeting location. Tip When weighing fare options, consider business class as well, which can offer luxury perks and amenities while costing less than first-class. Key Differences While we've laid out some of the most obvious differences between flying on a private jet and flying first class on a commercial airline, there are very obvious distinctions between them. Here are some of the most obvious ones. Cost One of the main differences between these two forms of travel is the cost. Chartering a private jet can cost anywhere between $1,300 and $13,000 per hour. The cost can be higher, though, depending on a certain number of factors, including: The destinationThe amenities requiredWhether the plane and crew need to wait for the travelerThe size of the plane, where smaller planes cost less to hire For example, a light jet might cost $9,000 to $11,000 for a three-hour trip. However, popular destinations can sometimes cost more. A three-hour flight to Palm Beach, Florida, from New York City might cost as much as $20,000 for a light jet and up to $30,000 via a mid-size jet. The cost can vary, depending on the number of seats on the plane, the amenities, and how much staff is required. First-class reservations on commercial flights can cost anywhere from $500 to more than $1,500 for domestic flights and higher for international destinations. The cost also depends on the airline itself—some charge more because they have more amenities available to those who are willing to shell out more money for air travel. When traveling, consider travel insurance, particularly if the trip is expensive. On a commercial aircraft, you rent a seat. If you want to bring somebody with you, you rent two seats and pay double the cost. With charters, on the other hand, you rent the plane. Accommodations Customers who fly privately also have the luxury of bringing a lot more with them to their destination. This includes pets, sporting equipment, and other bulky items that don’t easily fit on commercial aircraft. They also avoid the risk of losing these items in checked baggage. First-class flyers, on the other hand, are limited in how many bags they can bring on board. But they may be given a more flexible weight allowance than those in other cabins. And while other passengers may have to pay to check in their bags, first-class passengers are normally exempt from paying. Accommodations don't just mean the bag allowance. While commercial airlines do as much as they can to be more accessible, private planes may provide easier access for elderly, handicapped, or injured travelers, as well as better accommodating wheelchairs and other equipment. Tip If you prefer flying privately, you may consider investing in a private jet membership that offers guaranteed access to a private plan in exchange for an annual or monthly membership fee. Special Considerations To the average onlooker, it’s easy to see private jet flying as excessive. What makes it more economical is when you factor in the value of a person’s time. Private jets are able to fly into smaller airports, often getting their clients to their location faster. In addition, flyers don't have to wait in long security lines at large airports, which can be time-consuming even for those with Trusted Traveler status. Because companies don’t want to fly their jets without passengers, they are often happy to wait for passengers flying back the same day. This gives flyers more flexibility in their schedules and allows executives to conduct business meetings and work more easily, so flight time isn't wasted. This often makes them more economical than commercial aircraft. There’s also the reliability factor. Not making it to an important meeting because a flight was canceled is a risk some people cannot and won't take. It's likely that most people who charter flights do so because they just don’t want the hassle of flying commercially, and money is no object. Is a Private Jet More Expensive than Flying First Class? Chartering a private jet can cost between $1,300 and $13,000 per hour. The cost varies depending on the size of the plane, the number of seats, the staff needed, and the amenities. For example, a three-hour trip in a light jet might cost up to $11,000, while the cost jumps to $20,000 for a mid-size jet.First-class reservations on commercial flights can range from $500 to more than $1,500 for domestic flights, with international flights costing more. Also, first-class costs can add up, depending on the airline and the amenities. What Are the Benefits of Chartering a Private Jet? The onboard experience on a chartered flight is tailored and includes more amenities, such as catered meals and access to technology and entertainment systems. You may also choose your own flight crew and make your own flight timetable and departure time. Also, there are no airport crowds, layovers, or flight changes when flying via a private jet. Do You Have to Go Through TSA Security for a Chartered Flight? Privately chartered flights do not have to go through the Transportation Security Administration's security checkpoints if the plane has fewer than 61 passengers. The Bottom Line Whether it makes sense to charter a private jet or fly commercial in first- or business class can depend on your individual needs and travel budget. While a chartered flight may cost more, it offers more benefits than typical commercial flights. If you do decide to fly first-class or business class, take time to compare the best airline rewards credit cards that can help you earn points or miles toward future flights.

https://www.investopedia.com/articles/investing/040316/5-best-dividendpaying-us-equity-mutual-funds-vdigx-feqtx.asp

4 Top Dividend-Paying Stock Funds

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="2" data-sc-max-track-height="600" data-sc-min-track-height="250" data-sc-sticky-offset="80" id="mntl-sc-page_1-0"><p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_1-0"> There was a time when dividend-paying stocks went out of fashion. The hottest companies, it was argued, were rising so fast in price that they didn't need to pay them. Dividends were for stodgy old established companies. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_2-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_3-0"> That time was the tech stock <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/stocks/10/5-steps-of-a-bubble.asp">bubble</a>, and we all know how it ended. </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"> Times have changed. Apple pays a $0.23 per share dividend. Microsoft pays a $0.62 per share dividend.<span class="ql-inline-citation" data-cite="1"></span><span class="ql-inline-citation" data-cite="2"></span> Amazon doesn't pay a dividend, but it's feeling the pressure to fork over. Dividend-paying companies are, by definition, companies that are making a profit, have piled up a lot of cash, and are sharing it with their investors. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_6-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_7-0"> For those investors, dividends are an income stream or, even better, a reinvestment that turbocharges a portfolio's returns over the long term. </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-best-dividend-funds"></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 Best Dividend Funds </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_10-0"> For investors who don't like to fly solo, <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/investing/102615/best-8-funds-regular-dividend-income.asp">dividend funds</a> offer a way to invest in dividend-paying stocks in companies that have the potential for long-term growth. </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"> How do you pick the best from the rest? Look at the fund's performance, long-term and recent. Check how that performance stacks up against its benchmark, and against wider market indexes. Look at the fund's costs to make sure your profit isn't getting nibbled away. </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"> Below are four funds that focus on investing in solid companies that yield good dividends. All of them show excellent <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/08/annualized-returns.asp">average annual returns</a> over a 10-year period. All have low costs. All performed well compared to their benchmarks. </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"> <em>And all of them look plug-ugly for the 12-month period ending Feb. 27, 2019, the time period used below for year-over-year performance comparison.</em> </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"> During the same 12-month period, the S&amp;P 500 Index was down 4.38%. The Dow Jones Industrial Index was up 5.27%. Long-term investing is not for the faint of heart. </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-vanguard-dividend-appreciation-etf-vig"></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"> Vanguard Dividend Appreciation ETF (VIG) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_21-0"> Many investors like exchange-traded funds (ETFs) because they offer exposure to a wide range of securities while keeping costs to a minimum. By definition, ETFs track a specific market index with the aim of matching its performance. They're easy to follow since they're traded like stocks. And they have low costs because they are not actively managed. </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 Vanguard Dividend Appreciation ETF uses the Spliced S&amp;P U.S. Dividend Growers Index TR as its benchmark. The holdings in this <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/mutualfund/07/etf_downside.asp">ETF</a> are wide-ranging with the biggest concentrations in information technology, health care, financials, consumer staples, and industrials. Its biggest holdings are in UnitedHealth Group, Microsoft, and Johnson &amp; Johnson 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_24-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_25-0"> VIG has an expense ratio of 0.06%.<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> <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"> Average Annual Returns </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_28-0"> Below are the index's returns compared to its benchmark, as of Aug. 31, 2022. (<em>Benchmark index returns are in italics.</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"> Vanguard Dividend Appreciation ETF (<em>Spliced S&amp;P U.S. Dividend Growers Index TR</em>) </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_31-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_32-0"> <li>One-year: -7.24% (<em>-7.18%</em>)</li><li>10-year: 11.89% (<em>11.97%</em>)<span class="ql-inline-citation" data-cite="6"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_33-0"></div> <span class="heading-toc" id="toc-fidelity-equity-dividend-income-fund-feqtx"></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"> Fidelity Equity Dividend Income Fund (FEQTX) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_35-0"> The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/fidelity-review-4587897">Fidelity</a> Equity Dividend Income Fund is an actively managed mutual fund that aims to exceed the yield of the S&amp;P 500 Index. It uses the Russell 3000, a broad stock market index, as its benchmark.<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"> FEQTX invests typically 80% of its assets in stocks that offer dividends and have the potential for long-term capital appreciation.<span class="ql-inline-citation" data-cite="5"></span> 81.56% of its holdings are in American stocks, led by Wells Fargo, Verizon, and Johnson &amp; Johnson.<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_38-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_39-0"> FEQTX has an annual gross expense ratio of 0.58%.<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_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"> Average Annual Returns </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> Below are the index's returns compared to its benchmark, as of Aug. 31, 2022. (<em>Benchmark index returns are in italics.</em>) </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_44-0"> Fidelity Equity Dividend Income Fund (<em>Russell 3000</em>) </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>One year: -1.83% (<em>-6.49%</em>)</li><li>10-year: 9.95% (<em>10.44%</em>)<span class="ql-inline-citation" data-cite="11"></span></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_47-0"></div> <span class="heading-toc" id="toc-vanguard-equity-income-fund-investor-shares-veipx"></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"> Vanguard Equity Income Fund Investor Shares (VEIPX) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> The Vanguard Equity Income Fund invests primarily in undervalued mid- and large-cap stocks that <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/personal-finance/012116/6-funds-maximize-your-income-while-youre-retired.asp">pay above-average levels of dividend income</a> compared to their competitors. It primarily invests in U.S. equity securities and allocates only 5.5% of its portfolio to foreign securities. The current mix is heavy on healthcare, financials, and consumer staples. Its biggest holdings are in the stocks of Johnson &amp; Johnson, Pfizer, and JPMorgan Chase.<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_50-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_51-0"> VEIPX charges an annual net expense ratio of 0.28%.<span class="ql-inline-citation" data-cite="7"></span> </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_52-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_53-0"> <span class="mntl-sc-block-subheading__text"> Average Annual Returns </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_54-0"> Below are the index's returns compared to its benchmark, as of Aug. 31, 2022. (<em>Benchmark index returns are in italics.</em>) </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_55-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_56-0"> Vanguard Equity Income Fund (<em>Spliced Equity Income Index</em>) </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_57-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_58-0"> <li>One year: -0.43% (<em>-0.52%</em>)</li><li>10-year: 11.37% (<em>11.17%</em>)</li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_59-0"></div> <span class="heading-toc" id="toc-fidelity-strategic-dividend--income-fund-fsdix"></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"> Fidelity Strategic Dividend &amp; Income Fund (FSDIX) </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_61-0"> The Fidelity Strategic Dividend &amp; Income Fund is an actively managed fund that seeks solid dividend-paying companies but adds a dose of bonds to its mix. About 50% of its total assets are in common stocks, but it allocates as much as 12.22% to corporate bonds. As of now, its biggest stock holdings are in the real estate, health care, and financials sectors.<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_62-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_63-0"> FSDIX charges an expense ratio of 0.68%.<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_64-0"></div> <h3 class="comp mntl-sc-block finance-sc-block-subheading mntl-sc-block-subheading" id="mntl-sc-block_65-0"> <span class="mntl-sc-block-subheading__text"> Average Annual Returns </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_66-0"> Below are the index's returns compared to its benchmark, as of Aug. 31, 2022. (<em>Benchmark index returns are in italics.</em>) </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"> Fidelity Strategic Dividend &amp; Income Fund (<em>Fidelity Strategic Dividend &amp; Income Composite Index</em>) </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_69-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_70-0"> <li>One year: -7.19% (<em>-8.33%</em>)</li><li>10-year: 9.02% (<em>9.22%</em>)<span class="ql-inline-citation" data-cite="12"></span></li> </ul></div>

There was a time when dividend-paying stocks went out of fashion. The hottest companies, it was argued, were rising so fast in price that they didn't need to pay them. Dividends were for stodgy old established companies. That time was the tech stock [bubble](https://www.investopedia.com/articles/stocks/10/5-steps-of-a-bubble.asp), and we all know how it ended. Times have changed. Apple pays a $0.23 per share dividend. Microsoft pays a $0.62 per share dividend. Amazon doesn't pay a dividend, but it's feeling the pressure to fork over. Dividend-paying companies are, by definition, companies that are making a profit, have piled up a lot of cash, and are sharing it with their investors. For those investors, dividends are an income stream or, even better, a reinvestment that turbocharges a portfolio's returns over the long term. ## The Best Dividend Funds For investors who don't like to fly solo, [dividend funds](https://www.investopedia.com/articles/investing/102615/best-8-funds-regular-dividend-income.asp) offer a way to invest in dividend-paying stocks in companies that have the potential for long-term growth. How do you pick the best from the rest? Look at the fund's performance, long-term and recent. Check how that performance stacks up against its benchmark, and against wider market indexes. Look at the fund's costs to make sure your profit isn't getting nibbled away. Below are four funds that focus on investing in solid companies that yield good dividends. All of them show excellent [average annual returns](https://www.investopedia.com/articles/08/annualized-returns.asp) over a 10-year period. All have low costs. All performed well compared to their benchmarks. *And all of them look plug-ugly for the 12-month period ending Feb. 27, 2019, the time period used below for year-over-year performance comparison.* During the same 12-month period, the S&P 500 Index was down 4.38%. The Dow Jones Industrial Index was up 5.27%. Long-term investing is not for the faint of heart. ## Vanguard Dividend Appreciation ETF (VIG) Many investors like exchange-traded funds (ETFs) because they offer exposure to a wide range of securities while keeping costs to a minimum. By definition, ETFs track a specific market index with the aim of matching its performance. They're easy to follow since they're traded like stocks. And they have low costs because they are not actively managed. The Vanguard Dividend Appreciation ETF uses the Spliced S&P U.S. Dividend Growers Index TR as its benchmark. The holdings in this [ETF](https://www.investopedia.com/articles/mutualfund/07/etf_downside.asp) are wide-ranging with the biggest concentrations in information technology, health care, financials, consumer staples, and industrials. Its biggest holdings are in UnitedHealth Group, Microsoft, and Johnson & Johnson stocks. VIG has an expense ratio of 0.06%. ### Average Annual Returns Below are the index's returns compared to its benchmark, as of Aug. 31, 2022. (*Benchmark index returns are in italics.*) Vanguard Dividend Appreciation ETF (*Spliced S&P U.S. Dividend Growers Index TR*) * One-year: -7.24% (*-7.18%*) * 10-year: 11.89% (*11.97%*) ## Fidelity Equity Dividend Income Fund (FEQTX) The [Fidelity](https://www.investopedia.com/fidelity-review-4587897) Equity Dividend Income Fund is an actively managed mutual fund that aims to exceed the yield of the S&P 500 Index. It uses the Russell 3000, a broad stock market index, as its benchmark. FEQTX invests typically 80% of its assets in stocks that offer dividends and have the potential for long-term capital appreciation. 81.56% of its holdings are in American stocks, led by Wells Fargo, Verizon, and Johnson & Johnson. FEQTX has an annual gross expense ratio of 0.58%. ### Average Annual Returns Below are the index's returns compared to its benchmark, as of Aug. 31, 2022. (*Benchmark index returns are in italics.*) Fidelity Equity Dividend Income Fund (*Russell 3000*) * One year: -1.83% (*-6.49%*) * 10-year: 9.95% (*10.44%*) ## Vanguard Equity Income Fund Investor Shares (VEIPX) The Vanguard Equity Income Fund invests primarily in undervalued mid- and large-cap stocks that [pay above-average levels of dividend income](https://www.investopedia.com/articles/personal-finance/012116/6-funds-maximize-your-income-while-youre-retired.asp) compared to their competitors. It primarily invests in U.S. equity securities and allocates only 5.5% of its portfolio to foreign securities. The current mix is heavy on healthcare, financials, and consumer staples. Its biggest holdings are in the stocks of Johnson & Johnson, Pfizer, and JPMorgan Chase. VEIPX charges an annual net expense ratio of 0.28%. ### Average Annual Returns Below are the index's returns compared to its benchmark, as of Aug. 31, 2022. (*Benchmark index returns are in italics.*) Vanguard Equity Income Fund (*Spliced Equity Income Index*) * One year: -0.43% (*-0.52%*) * 10-year: 11.37% (*11.17%*) ## Fidelity Strategic Dividend & Income Fund (FSDIX) The Fidelity Strategic Dividend & Income Fund is an actively managed fund that seeks solid dividend-paying companies but adds a dose of bonds to its mix. About 50% of its total assets are in common stocks, but it allocates as much as 12.22% to corporate bonds. As of now, its biggest stock holdings are in the real estate, health care, and financials sectors. FSDIX charges an expense ratio of 0.68%. ### Average Annual Returns Below are the index's returns compared to its benchmark, as of Aug. 31, 2022. (*Benchmark index returns are in italics.*) Fidelity Strategic Dividend & Income Fund (*Fidelity Strategic Dividend & Income Composite Index*) * One year: -7.19% (*-8.33%*) * 10-year: 9.02% (*9.22%*)

There was a time when dividend-paying stocks went out of fashion. The hottest companies, it was argued, were rising so fast in price that they didn't need to pay them. Dividends were for stodgy old established companies. That time was the tech stock bubble, and we all know how it ended. Times have changed. Apple pays a $0.23 per share dividend. Microsoft pays a $0.62 per share dividend. Amazon doesn't pay a dividend, but it's feeling the pressure to fork over. Dividend-paying companies are, by definition, companies that are making a profit, have piled up a lot of cash, and are sharing it with their investors. For those investors, dividends are an income stream or, even better, a reinvestment that turbocharges a portfolio's returns over the long term. The Best Dividend Funds For investors who don't like to fly solo, dividend funds offer a way to invest in dividend-paying stocks in companies that have the potential for long-term growth. How do you pick the best from the rest? Look at the fund's performance, long-term and recent. Check how that performance stacks up against its benchmark, and against wider market indexes. Look at the fund's costs to make sure your profit isn't getting nibbled away. Below are four funds that focus on investing in solid companies that yield good dividends. All of them show excellent average annual returns over a 10-year period. All have low costs. All performed well compared to their benchmarks. And all of them look plug-ugly for the 12-month period ending Feb. 27, 2019, the time period used below for year-over-year performance comparison. During the same 12-month period, the S&P 500 Index was down 4.38%. The Dow Jones Industrial Index was up 5.27%. Long-term investing is not for the faint of heart. Vanguard Dividend Appreciation ETF (VIG) Many investors like exchange-traded funds (ETFs) because they offer exposure to a wide range of securities while keeping costs to a minimum. By definition, ETFs track a specific market index with the aim of matching its performance. They're easy to follow since they're traded like stocks. And they have low costs because they are not actively managed. The Vanguard Dividend Appreciation ETF uses the Spliced S&P U.S. Dividend Growers Index TR as its benchmark. The holdings in this ETF are wide-ranging with the biggest concentrations in information technology, health care, financials, consumer staples, and industrials. Its biggest holdings are in UnitedHealth Group, Microsoft, and Johnson & Johnson stocks. VIG has an expense ratio of 0.06%. Average Annual Returns Below are the index's returns compared to its benchmark, as of Aug. 31, 2022. (Benchmark index returns are in italics.) Vanguard Dividend Appreciation ETF (Spliced S&P U.S. Dividend Growers Index TR) One-year: -7.24% (-7.18%)10-year: 11.89% (11.97%) Fidelity Equity Dividend Income Fund (FEQTX) The Fidelity Equity Dividend Income Fund is an actively managed mutual fund that aims to exceed the yield of the S&P 500 Index. It uses the Russell 3000, a broad stock market index, as its benchmark. FEQTX invests typically 80% of its assets in stocks that offer dividends and have the potential for long-term capital appreciation. 81.56% of its holdings are in American stocks, led by Wells Fargo, Verizon, and Johnson & Johnson. FEQTX has an annual gross expense ratio of 0.58%. Average Annual Returns Below are the index's returns compared to its benchmark, as of Aug. 31, 2022. (Benchmark index returns are in italics.) Fidelity Equity Dividend Income Fund (Russell 3000) One year: -1.83% (-6.49%)10-year: 9.95% (10.44%) Vanguard Equity Income Fund Investor Shares (VEIPX) The Vanguard Equity Income Fund invests primarily in undervalued mid- and large-cap stocks that pay above-average levels of dividend income compared to their competitors. It primarily invests in U.S. equity securities and allocates only 5.5% of its portfolio to foreign securities. The current mix is heavy on healthcare, financials, and consumer staples. Its biggest holdings are in the stocks of Johnson & Johnson, Pfizer, and JPMorgan Chase. VEIPX charges an annual net expense ratio of 0.28%. Average Annual Returns Below are the index's returns compared to its benchmark, as of Aug. 31, 2022. (Benchmark index returns are in italics.) Vanguard Equity Income Fund (Spliced Equity Income Index) One year: -0.43% (-0.52%)10-year: 11.37% (11.17%) Fidelity Strategic Dividend & Income Fund (FSDIX) The Fidelity Strategic Dividend & Income Fund is an actively managed fund that seeks solid dividend-paying companies but adds a dose of bonds to its mix. About 50% of its total assets are in common stocks, but it allocates as much as 12.22% to corporate bonds. As of now, its biggest stock holdings are in the real estate, health care, and financials sectors. FSDIX charges an expense ratio of 0.68%. Average Annual Returns Below are the index's returns compared to its benchmark, as of Aug. 31, 2022. (Benchmark index returns are in italics.) Fidelity Strategic Dividend & Income Fund (Fidelity Strategic Dividend & Income Composite Index) One year: -7.19% (-8.33%)10-year: 9.02% (9.22%)

https://www.investopedia.com/semiconductor-impact-on-the-stock-market-7367723

Semiconductors and Advancements Investors Should Watch Out For

<div class="comp mntl-sc-page mntl-block article-body-content" data-bind-scroll-on-start="true" data-sc-ad-label-height="0" data-sc-ad-track-spacing="90" data-sc-breakpoint="50em" data-sc-content-positions="[300, 1, 1, 1250, 1, 1, 1, 1]" data-sc-load-immediate="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-semiconductor-industry-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"> Semiconductor Industry: An Overview </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_2-0"> Semiconductors are materials that conduct electricity but only under certain conditions (hence the "semi"), making them an essential component in modern electronics. They are found in products from smartphones and laptops to cars and medical devices. Semiconductors include microprocessors, memory modules, and integrated circuits, among other components. </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"> Their importance lies in their ability to process and transmit information, making it a major industry in the global economy. Semiconductor companies are among the largest in the global stock markets, including NVIDIA Corporation (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA">NVDA</a>), Taiwan Semiconductor Manufacturing Company (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=TSM">TSM</a>), and Broadcom Inc. (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AVGO">AVGO</a>). Semiconductors are critical in most modern electronics and are essential to technologies such as artificial intelligence (AI) and the Internet of Things. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_5-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_6-0"> A notoriously cyclical industry that faces vast shifts in demand, the industry is expected to grow tremendously by the early 2030s. For example, worried about the effects on national security and competitiveness of such shortages, the U.S., EU, and other areas have committed billions to expand regional semiconductor manufacturing. The <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/chips-and-science-act-6500333">U.S. CHIPS and Science Act of 2022</a> is the biggest at $39 billion in grants and a 25% investment tax credit (plus $13.2 billion in research and development). In a May 2024 report, the Semiconductor Industry Association predicted these and similar incentive programs in Taiwan, South Korea, Japan, India, and elsewhere should help propel about $2.3 trillion in private sector investment in wafer fabrication from 2024-2032, with the U.S. seeing the largest increase in capacity, about 203%.<span class="ql-inline-citation" data-cite="29"></span><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_7-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_8-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-whatyouneedtoknow" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_9-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block" id="mntl-sc-block-callout-heading_1-0">Key Takeaways</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_1-0"><ul> <li>The semiconductor industry is critical to modern electronics and is a major global industry, with companies that design, manufacture, and distribute them among the world's largest.</li> <li>The industry has, at times, faced chip shortages due to disruptions in the supply chain caused by the pandemic, trade tensions, and shipping delays.</li> <li>The future of the semiconductor industry should have tremendous growth, driven by increasing demand for new technologies such as AI and major investments from the U.S. and governments worldwide.<br/></li> <li>The largest semiconductor makers in the world are U.S.-based Intel (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=INTC">INTC</a>) and Taiwan’s TSM, and the top five countries producing semiconductors are China, Japan, Taiwan, South Korea, and the United States.</li> </ul></div></div></div> <span class="heading-toc" id="toc-semiconductor-shortages"></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"> Semiconductor Shortages </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_11-0"> After the pandemic, the semiconductor industry faced a prolonged chip shortage that disrupted supply chains and delayed manufacturing in autos and other sectors.<span class="ql-inline-citation" data-cite="9"></span> Even as PC sales have slumped, overall demand for semiconductors of all stripes—from basic microcontrollers and memory chips to the most sophisticated high-performance processors—had outgrown producer <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/c/capacity.asp">capacity</a>.<span class="ql-inline-citation" data-cite="30"></span> By mid-2024, production and supply chain slowdowns were largely mitigated, though the effect would likely be felt for some time for some types of chips. </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"> Before the pandemic, the industry was already seeing demand outstrip supply because of the increasing demand from companies involved in AI, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/i/internet-things.asp">Internet of Things (IoT)</a>, and advanced cellular networks, which require more powerful and efficient semiconductors.<span class="ql-inline-citation" data-cite="10"></span> The pandemic also reshaped global demand as people shifted to remote work and online learning, exacerbating trends already underway.<span class="ql-inline-citation" data-cite="11"></span> International trade in semiconductors increased 43% between 2017 and 2022.<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_14-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_15-0"> In addition to increased demand, the semiconductor industry has been an issue in geopolitical strife and trade tensions. For example, in recent years, the U.S. government has placed export restrictions on Chinese semiconductor companies, citing concerns about intellectual property theft and national security.<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_16-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_17-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/v0f6U/1/" frameborder="0" id="mntl-sc-block-iframe__uri_1-0" title="Semiconductor Revenues"></iframe></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-record-profits"></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"> Record Profits </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_20-0"> The semiconductor industry itself, however, had record profits and record stock prices from 2020 through 2024 after a brief dip in 2022. The chart below depicts the VanEck Semiconductor Index ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SMH">SMH</a>) prices from 2020 up to the second quarter of 2024. </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"> Chip stocks slumped in 2022 due to fears of a global <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/r/recession.asp">recession</a>. In addition, weaker consumer spending meant companies cut back on semiconductor products, even as chipmakers invested billions in new fabrication plants to increase supply. Then, in 2022, the U.S. Department of Commerce announced strict export restrictions on selling semiconductors and equipment to China, which could cost up to billions of dollars in revenue over the next few years for several struggling semiconductor firms.<span class="ql-inline-citation" data-cite="13"></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_23-0"></div> <div class="comp mntl-sc-block finance-sc-block-iframe mntl-sc-block-iframe mntl-block" id="mntl-sc-block_24-0"><iframe allow="encrypted-media 'src'" allowfullscreen="false" class="comp mntl-sc-block-iframe__uri mntl-block lazyload" data-src="https://datawrapper.dwcdn.net/EQTbg/1/" frameborder="0" id="mntl-sc-block-iframe__uri_2-0" title="SMH Chart"></iframe></div> <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 semiconductor sector, however, began recovering by mid-2023, reaching record highs in early 2024. This was due in no small part to the rise of NVIDIA, a leader in the growing <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/g/graphics-processing-unit-gpu.asp">GPU</a> market for crypto mining and AI applications. NVIDIA is the largest holding for SMH at about 20%, with TSM at about 13% and Broadcom at 8%.<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_27-0"></div> <span class="heading-toc" id="toc-technological-advances-in-semiconductors"></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"> Technological Advances in Semiconductors </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_29-0"> The semiconductor industry's future is closely intertwined with the development of several key technologies, including AI, IoT, green energy, autonomous vehicles, and 5G+ networks. The increasing demand for faster, more efficient, and more powerful computing devices is driving the need for semiconductor materials, manufacturing processes, and chip architectures.<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_30-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_31-0"> A notable recent development is the return of germanium as a semiconductor material. Germanium was used in the first transistors but was largely replaced by silicon since the latter is abundant, costs less, and tests better for certain aspects of conductivity. However, germanium's higher electron and hole mobility could make it more efficient for future high-performance transistors. Researchers are exploring ways to integrate germanium channels into circuits, which could lead to faster and more energy-efficient devices. Advances in germanium-based transistors, such as FinFETs and nanowire designs, could help overcome some of the limitations of silicon as the industry approaches the physical limits of its current materials.<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_32-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_33-0"> In addition to the potential comeback of germanium, researchers have recently made a breakthrough in manufacturing highly purified silicon, which could be a boon for quantum computing. Using a focused beam of pure silicon-28 to replace the undesirable silicon-29 atoms in a chip, they have created a material that can sustain the delicate quantum coherence needed for reliable quantum calculations, bringing the realization of robust, scalable <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/quantum-computing.asp">quantum computers</a> one step closer.<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_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"> Scaling Up Capacity </span> </h3> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_36-0"> Scaling up production is critical for the semiconductor industry while maintaining quality and reliability. This could involve investing in new manufacturing technologies, such as extreme ultraviolet lithography, which enables the creation of smaller and more precise chip features. In addition, the development of sophisticated packaging techniques, such as 3D chip stacking and wafer-level packaging, can help improve chip density and performance.<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_37-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_38-0"> The $52 billion in funding from the CHIPS Act is expected to vastly increase the size of the U.S. semiconductor industry, tripling domestic semiconductor manufacturing capacity by 2032. The EU will also see the fruits of its European Chips Act, and China initiated the third phase of its semiconductor funding. Incentive programs emerged or expanded in the first half of the 2020s in Taiwan, South Korea, Japan, and India.<span class="ql-inline-citation" data-cite="28"></span> In parallel, companies have made significant investments in both established and new semiconductor manufacturing regions. These will also increase production across the world. </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"> Wafer fabrication is projected to become more durable by geographically diversifying, with leading-edge capacity expanding beyond Taiwan and South Korea to include the U.S., Europe, and Japan. In assembly, testing and packaging (ATP), China and Taiwan should continue to hold the largest share in global capacity. However, countries in Southeast Asia, Latin America, and Eastern Europe are expected to expand ATP activity, helped along by government and investor support. The development of sophisticated packaging and new chiplet designs is also driving some ATP production growth in the U.S. and Europe near their new wafer fabs.<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_41-0"></div> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_42-0"> However, the semiconductor industry also faces potential challenges. A major concern is the increasing cost and complexity of chip manufacturing, particularly as sizes continue to shrink. Developing new manufacturing processes and materials, such as germanium, requires billions in research and development. Additionally, geopolitical tensions and trade disputes, such as those between the U.S. and China, can cause bottlenecks in trading. </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_43-0"></div> <div class="comp mntl-sc-block finance-sc-block-callout mntl-block" id="mntl-sc-block_44-0"><div class="comp mntl-sc-block mntl-sc-block-callout mntl-block theme-note" data-tracking-container="true" data-tracking-id="mntl-sc-block-callout" id="mntl-sc-block_45-0"><h3 class="comp mntl-sc-block-callout-heading mntl-text-block with-title" id="mntl-sc-block-callout-heading_2-0">U.S.-China Semiconductor Tensions</h3> <div class="comp mntl-sc-block-callout-body mntl-text-block" id="mntl-sc-block-callout-body_2-0"><p>Lingering tensions between the U.S. and China in the semiconductor space stem from U.S. efforts to curb China’s technological advances, fearing potential military applications, while also aspiring to rejuvenate domestic chip manufacturing.<span class="ql-inline-citation" data-cite="19"></span></p></div></div></div> <span class="heading-toc" id="toc-top-semiconductor-stocks-and-etfs"></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"> Top Semiconductor Stocks and ETFs </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_47-0"> In mid-2024, the <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/articles/markets/012216/worlds-top-10-semiconductor-companies-tsmintc.asp">largest semiconductor stocks by revenue</a> (trailing 12 months) are as follows:<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_48-0"></div> <ol class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_49-0"> <li>Samsung (005930.KS)—$197 billion</li> <li>TSM—$74 billion</li> <li>NVIDIA—$61 billion</li> <li>Intel—$54 billion</li> <li>Broadcom—$39 billion</li> <li>Qualcomm Inc. (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=QCOM">QCOM</a>)—$36 billion<br/></li> <li>ASML Holding N.V. (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=ASML">ASML</a>)—$30 billion</li> <li>Applied Materials (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMAT">AMAT</a>)—$26 billion</li> <li>Advanced Micro Devices Inc. (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMD">AMD</a>)—$23 billion</li> <li>SK Hynix (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="externalLink" href="https://finance.yahoo.com/quote/000660.KS/">000660.KS</a>)—$22 billion</li> </ol> <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"> Based in South Korea, Samsung has semiconductor revenues but is a diversified business. The others above have a very high percentage of their companies involved in semiconductors. </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"> Here are important exchange-traded funds (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/e/etf.asp">ETFs</a>) that track the semiconductor sector: </p> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_54-0"></div> <ul class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_55-0"> <li>VanEck Semiconductor ETF (<a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SMH">SMH</a>)</li> <li>iShares Semiconductor ETF (<a data-component="link" data-ordinal="2" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=SOXX">SOXX</a>)</li> <li>SPDR S&amp;P Semiconductor ETF (<a data-component="link" data-ordinal="3" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=XSD">XSD</a>)</li> <li>Invesco Semiconductors ETF (<a data-component="link" data-ordinal="4" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=PSI">PSI</a>)</li> <li>First Trust Nasdaq Semiconductor ETF (<a data-component="link" data-ordinal="5" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/markets/quote?tvwidgetsymbol=FTXL">FTXL</a>)<br/></li> </ul> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_56-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_57-0"><span class="heading-toc" id="toc-who-is-leading-the-semiconductor-industry"></span> <h2 class="mntl-sc-block-questionandanswer__question">Who Is Leading the Semiconductor Industry?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>The largest semiconductor makers in the world are South Korea’s Samsung, U.S.-based NVIDIA and Intel, and Taiwan’s TSMC.<span class="ql-inline-citation" data-cite="8"></span> The top five countries producing semiconductors are China, Japan, Taiwan, South Korea, and the U.S.<span class="ql-inline-citation" data-cite="21"></span><br/></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_58-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_59-0"><span class="heading-toc" id="toc-why-invest-in-semiconductors"></span> <h2 class="mntl-sc-block-questionandanswer__question">Why Invest in Semiconductors?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Investors often consider adding semiconductor stocks or ETFs to a <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/d/diversification.asp">diversified portfolio</a>. The semiconductor industry is a crucial component of the technology sector and plays a significant role in powering many devices, including computers, smartphones, and other electronic devices. As technology continues to advance, demand for semiconductors is likely to grow, driving revenue and profits for semiconductor companies. A focus on innovation can lead to significant long-term growth potential for companies that are successful in developing new products.</p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_60-0"></div> <div class="comp mntl-sc-block finance-sc-block-questionandanswer mntl-sc-block-questionandanswer" id="mntl-sc-block_61-0"><span class="heading-toc" id="toc-what-is-the-future-of-semiconductors"></span> <h2 class="mntl-sc-block-questionandanswer__question">What Is the Future of Semiconductors?</h2> <div class="mntl-sc-block-questionandanswer__answer"><p>Despite recent challenges, the semiconductor industry is expected to grow over the long term, driven by continued demand for electronics and technological advances. The industry itself is highly innovative, and chips have become exponentially more efficient and powerful over the past decades.</p><p>Since they are so ubiquitous, it seems that semiconductors will not be replaced anytime soon, although they will continue to improve. Additionally, the discovery and application of new materials like graphene (a novel form of carbon), the advent of <a data-component="link" data-ordinal="1" data-source="inlineLink" data-type="internalLink" href="https://www.investopedia.com/terms/q/quantum-computing.asp">quantum computing</a>, and the use of photonic circuits may be used alongside traditional semiconductors.<span class="ql-inline-citation" data-cite="26"></span><span class="ql-inline-citation" data-cite="29"></span></p></div> </div> <div class="comp mntl-sc-block mntl-sc-block-adslot mntl-block" id="mntl-sc-block_62-0"></div> <span class="heading-toc" id="toc-the-bottom-line"></span><h2 class="comp mntl-sc-block finance-sc-block-heading mntl-sc-block-heading" id="mntl-sc-block_63-0"> <span class="mntl-sc-block-heading__text"> The Bottom Line </span> </h2> <p class="comp mntl-sc-block finance-sc-block-html mntl-sc-block-html" id="mntl-sc-block_64-0"> The semiconductor sector is a major part of the stock market. It's not just a major player by market capitalization, but is critical to many industries, such as automotive, healthcare, and telecommunications. Disruptions in the industry, such as after the pandemic, showed its importance across the economy. </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 performance of semiconductor stocks can impact the broader market, as seen in 2024, when the sector hit record highs, following a sluggish 2022 to 2023, when the sector experienced losses, contributing to a measurable drag on the overall market. As the chip market is expected to continue growing, investors should closely monitor the performance of the companies that make them. </p></div>

## Semiconductor Industry: An Overview Semiconductors are materials that conduct electricity but only under certain conditions (hence the "semi"), making them an essential component in modern electronics. They are found in products from smartphones and laptops to cars and medical devices. Semiconductors include microprocessors, memory modules, and integrated circuits, among other components. Their importance lies in their ability to process and transmit information, making it a major industry in the global economy. Semiconductor companies are among the largest in the global stock markets, including NVIDIA Corporation ([NVDA](https://www.investopedia.com/markets/quote?tvwidgetsymbol=NVDA)), Taiwan Semiconductor Manufacturing Company ([TSM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=TSM)), and Broadcom Inc. ([AVGO](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AVGO)). Semiconductors are critical in most modern electronics and are essential to technologies such as artificial intelligence (AI) and the Internet of Things. A notoriously cyclical industry that faces vast shifts in demand, the industry is expected to grow tremendously by the early 2030s. For example, worried about the effects on national security and competitiveness of such shortages, the U.S., EU, and other areas have committed billions to expand regional semiconductor manufacturing. The [U.S. CHIPS and Science Act of 2022](https://www.investopedia.com/chips-and-science-act-6500333) is the biggest at $39 billion in grants and a 25% investment tax credit (plus $13.2 billion in research and development). In a May 2024 report, the Semiconductor Industry Association predicted these and similar incentive programs in Taiwan, South Korea, Japan, India, and elsewhere should help propel about $2.3 trillion in private sector investment in wafer fabrication from 2024-2032, with the U.S. seeing the largest increase in capacity, about 203%. ### Key Takeaways * The semiconductor industry is critical to modern electronics and is a major global industry, with companies that design, manufacture, and distribute them among the world's largest. * The industry has, at times, faced chip shortages due to disruptions in the supply chain caused by the pandemic, trade tensions, and shipping delays. * The future of the semiconductor industry should have tremendous growth, driven by increasing demand for new technologies such as AI and major investments from the U.S. and governments worldwide. * The largest semiconductor makers in the world are U.S.-based Intel ([INTC](https://www.investopedia.com/markets/quote?tvwidgetsymbol=INTC)) and Taiwan’s TSM, and the top five countries producing semiconductors are China, Japan, Taiwan, South Korea, and the United States. ## Semiconductor Shortages After the pandemic, the semiconductor industry faced a prolonged chip shortage that disrupted supply chains and delayed manufacturing in autos and other sectors. Even as PC sales have slumped, overall demand for semiconductors of all stripes—from basic microcontrollers and memory chips to the most sophisticated high-performance processors—had outgrown producer [capacity](https://www.investopedia.com/terms/c/capacity.asp). By mid-2024, production and supply chain slowdowns were largely mitigated, though the effect would likely be felt for some time for some types of chips. Before the pandemic, the industry was already seeing demand outstrip supply because of the increasing demand from companies involved in AI, the [Internet of Things (IoT)](https://www.investopedia.com/terms/i/internet-things.asp), and advanced cellular networks, which require more powerful and efficient semiconductors. The pandemic also reshaped global demand as people shifted to remote work and online learning, exacerbating trends already underway. International trade in semiconductors increased 43% between 2017 and 2022. In addition to increased demand, the semiconductor industry has been an issue in geopolitical strife and trade tensions. For example, in recent years, the U.S. government has placed export restrictions on Chinese semiconductor companies, citing concerns about intellectual property theft and national security. ## Record Profits The semiconductor industry itself, however, had record profits and record stock prices from 2020 through 2024 after a brief dip in 2022. The chart below depicts the VanEck Semiconductor Index ETF ([SMH](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SMH)) prices from 2020 up to the second quarter of 2024. Chip stocks slumped in 2022 due to fears of a global [recession](https://www.investopedia.com/terms/r/recession.asp). In addition, weaker consumer spending meant companies cut back on semiconductor products, even as chipmakers invested billions in new fabrication plants to increase supply. Then, in 2022, the U.S. Department of Commerce announced strict export restrictions on selling semiconductors and equipment to China, which could cost up to billions of dollars in revenue over the next few years for several struggling semiconductor firms. The semiconductor sector, however, began recovering by mid-2023, reaching record highs in early 2024. This was due in no small part to the rise of NVIDIA, a leader in the growing [GPU](https://www.investopedia.com/terms/g/graphics-processing-unit-gpu.asp) market for crypto mining and AI applications. NVIDIA is the largest holding for SMH at about 20%, with TSM at about 13% and Broadcom at 8%. ## Technological Advances in Semiconductors The semiconductor industry's future is closely intertwined with the development of several key technologies, including AI, IoT, green energy, autonomous vehicles, and 5G+ networks. The increasing demand for faster, more efficient, and more powerful computing devices is driving the need for semiconductor materials, manufacturing processes, and chip architectures. A notable recent development is the return of germanium as a semiconductor material. Germanium was used in the first transistors but was largely replaced by silicon since the latter is abundant, costs less, and tests better for certain aspects of conductivity. However, germanium's higher electron and hole mobility could make it more efficient for future high-performance transistors. Researchers are exploring ways to integrate germanium channels into circuits, which could lead to faster and more energy-efficient devices. Advances in germanium-based transistors, such as FinFETs and nanowire designs, could help overcome some of the limitations of silicon as the industry approaches the physical limits of its current materials. In addition to the potential comeback of germanium, researchers have recently made a breakthrough in manufacturing highly purified silicon, which could be a boon for quantum computing. Using a focused beam of pure silicon-28 to replace the undesirable silicon-29 atoms in a chip, they have created a material that can sustain the delicate quantum coherence needed for reliable quantum calculations, bringing the realization of robust, scalable [quantum computers](https://www.investopedia.com/terms/q/quantum-computing.asp) one step closer. ### Scaling Up Capacity Scaling up production is critical for the semiconductor industry while maintaining quality and reliability. This could involve investing in new manufacturing technologies, such as extreme ultraviolet lithography, which enables the creation of smaller and more precise chip features. In addition, the development of sophisticated packaging techniques, such as 3D chip stacking and wafer-level packaging, can help improve chip density and performance. The $52 billion in funding from the CHIPS Act is expected to vastly increase the size of the U.S. semiconductor industry, tripling domestic semiconductor manufacturing capacity by 2032. The EU will also see the fruits of its European Chips Act, and China initiated the third phase of its semiconductor funding. Incentive programs emerged or expanded in the first half of the 2020s in Taiwan, South Korea, Japan, and India. In parallel, companies have made significant investments in both established and new semiconductor manufacturing regions. These will also increase production across the world. Wafer fabrication is projected to become more durable by geographically diversifying, with leading-edge capacity expanding beyond Taiwan and South Korea to include the U.S., Europe, and Japan. In assembly, testing and packaging (ATP), China and Taiwan should continue to hold the largest share in global capacity. However, countries in Southeast Asia, Latin America, and Eastern Europe are expected to expand ATP activity, helped along by government and investor support. The development of sophisticated packaging and new chiplet designs is also driving some ATP production growth in the U.S. and Europe near their new wafer fabs. However, the semiconductor industry also faces potential challenges. A major concern is the increasing cost and complexity of chip manufacturing, particularly as sizes continue to shrink. Developing new manufacturing processes and materials, such as germanium, requires billions in research and development. Additionally, geopolitical tensions and trade disputes, such as those between the U.S. and China, can cause bottlenecks in trading. ### U.S.-China Semiconductor Tensions Lingering tensions between the U.S. and China in the semiconductor space stem from U.S. efforts to curb China’s technological advances, fearing potential military applications, while also aspiring to rejuvenate domestic chip manufacturing. ## Top Semiconductor Stocks and ETFs In mid-2024, the [largest semiconductor stocks by revenue](https://www.investopedia.com/articles/markets/012216/worlds-top-10-semiconductor-companies-tsmintc.asp) (trailing 12 months) are as follows: 1. Samsung (005930.KS)—$197 billion 2. TSM—$74 billion 3. NVIDIA—$61 billion 4. Intel—$54 billion 5. Broadcom—$39 billion 6. Qualcomm Inc. ([QCOM](https://www.investopedia.com/markets/quote?tvwidgetsymbol=QCOM))—$36 billion 7. ASML Holding N.V. ([ASML](https://www.investopedia.com/markets/quote?tvwidgetsymbol=ASML))—$30 billion 8. Applied Materials ([AMAT](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMAT))—$26 billion 9. Advanced Micro Devices Inc. ([AMD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=AMD))—$23 billion 10. SK Hynix ([000660.KS](https://finance.yahoo.com/quote/000660.KS/))—$22 billion Based in South Korea, Samsung has semiconductor revenues but is a diversified business. The others above have a very high percentage of their companies involved in semiconductors. Here are important exchange-traded funds ([ETFs](https://www.investopedia.com/terms/e/etf.asp)) that track the semiconductor sector: * VanEck Semiconductor ETF ([SMH](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SMH)) * iShares Semiconductor ETF ([SOXX](https://www.investopedia.com/markets/quote?tvwidgetsymbol=SOXX)) * SPDR S&P Semiconductor ETF ([XSD](https://www.investopedia.com/markets/quote?tvwidgetsymbol=XSD)) * Invesco Semiconductors ETF ([PSI](https://www.investopedia.com/markets/quote?tvwidgetsymbol=PSI)) * First Trust Nasdaq Semiconductor ETF ([FTXL](https://www.investopedia.com/markets/quote?tvwidgetsymbol=FTXL)) ## Who Is Leading the Semiconductor Industry? The largest semiconductor makers in the world are South Korea’s Samsung, U.S.-based NVIDIA and Intel, and Taiwan’s TSMC. The top five countries producing semiconductors are China, Japan, Taiwan, South Korea, and the U.S. ## Why Invest in Semiconductors? Investors often consider adding semiconductor stocks or ETFs to a [diversified portfolio](https://www.investopedia.com/terms/d/diversification.asp). The semiconductor industry is a crucial component of the technology sector and plays a significant role in powering many devices, including computers, smartphones, and other electronic devices. As technology continues to advance, demand for semiconductors is likely to grow, driving revenue and profits for semiconductor companies. A focus on innovation can lead to significant long-term growth potential for companies that are successful in developing new products. ## What Is the Future of Semiconductors? Despite recent challenges, the semiconductor industry is expected to grow over the long term, driven by continued demand for electronics and technological advances. The industry itself is highly innovative, and chips have become exponentially more efficient and powerful over the past decades. Since they are so ubiquitous, it seems that semiconductors will not be replaced anytime soon, although they will continue to improve. Additionally, the discovery and application of new materials like graphene (a novel form of carbon), the advent of [quantum computing](https://www.investopedia.com/terms/q/quantum-computing.asp), and the use of photonic circuits may be used alongside traditional semiconductors. ## The Bottom Line The semiconductor sector is a major part of the stock market. It's not just a major player by market capitalization, but is critical to many industries, such as automotive, healthcare, and telecommunications. Disruptions in the industry, such as after the pandemic, showed its importance across the economy. The performance of semiconductor stocks can impact the broader market, as seen in 2024, when the sector hit record highs, following a sluggish 2022 to 2023, when the sector experienced losses, contributing to a measurable drag on the overall market. As the chip market is expected to continue growing, investors should closely monitor the performance of the companies that make them.

Semiconductor Industry: An Overview Semiconductors are materials that conduct electricity but only under certain conditions (hence the "semi"), making them an essential component in modern electronics. They are found in products from smartphones and laptops to cars and medical devices. Semiconductors include microprocessors, memory modules, and integrated circuits, among other components. Their importance lies in their ability to process and transmit information, making it a major industry in the global economy. Semiconductor companies are among the largest in the global stock markets, including NVIDIA Corporation (NVDA), Taiwan Semiconductor Manufacturing Company (TSM), and Broadcom Inc. (AVGO). Semiconductors are critical in most modern electronics and are essential to technologies such as artificial intelligence (AI) and the Internet of Things. A notoriously cyclical industry that faces vast shifts in demand, the industry is expected to grow tremendously by the early 2030s. For example, worried about the effects on national security and competitiveness of such shortages, the U.S., EU, and other areas have committed billions to expand regional semiconductor manufacturing. The U.S. CHIPS and Science Act of 2022 is the biggest at $39 billion in grants and a 25% investment tax credit (plus $13.2 billion in research and development). In a May 2024 report, the Semiconductor Industry Association predicted these and similar incentive programs in Taiwan, South Korea, Japan, India, and elsewhere should help propel about $2.3 trillion in private sector investment in wafer fabrication from 2024-2032, with the U.S. seeing the largest increase in capacity, about 203%. Key Takeaways The semiconductor industry is critical to modern electronics and is a major global industry, with companies that design, manufacture, and distribute them among the world's largest. The industry has, at times, faced chip shortages due to disruptions in the supply chain caused by the pandemic, trade tensions, and shipping delays. The future of the semiconductor industry should have tremendous growth, driven by increasing demand for new technologies such as AI and major investments from the U.S. and governments worldwide. The largest semiconductor makers in the world are U.S.-based Intel (INTC) and Taiwan’s TSM, and the top five countries producing semiconductors are China, Japan, Taiwan, South Korea, and the United States. Semiconductor Shortages After the pandemic, the semiconductor industry faced a prolonged chip shortage that disrupted supply chains and delayed manufacturing in autos and other sectors. Even as PC sales have slumped, overall demand for semiconductors of all stripes—from basic microcontrollers and memory chips to the most sophisticated high-performance processors—had outgrown producer capacity. By mid-2024, production and supply chain slowdowns were largely mitigated, though the effect would likely be felt for some time for some types of chips. Before the pandemic, the industry was already seeing demand outstrip supply because of the increasing demand from companies involved in AI, the Internet of Things (IoT), and advanced cellular networks, which require more powerful and efficient semiconductors. The pandemic also reshaped global demand as people shifted to remote work and online learning, exacerbating trends already underway. International trade in semiconductors increased 43% between 2017 and 2022. In addition to increased demand, the semiconductor industry has been an issue in geopolitical strife and trade tensions. For example, in recent years, the U.S. government has placed export restrictions on Chinese semiconductor companies, citing concerns about intellectual property theft and national security. Record Profits The semiconductor industry itself, however, had record profits and record stock prices from 2020 through 2024 after a brief dip in 2022. The chart below depicts the VanEck Semiconductor Index ETF (SMH) prices from 2020 up to the second quarter of 2024. Chip stocks slumped in 2022 due to fears of a global recession. In addition, weaker consumer spending meant companies cut back on semiconductor products, even as chipmakers invested billions in new fabrication plants to increase supply. Then, in 2022, the U.S. Department of Commerce announced strict export restrictions on selling semiconductors and equipment to China, which could cost up to billions of dollars in revenue over the next few years for several struggling semiconductor firms. The semiconductor sector, however, began recovering by mid-2023, reaching record highs in early 2024. This was due in no small part to the rise of NVIDIA, a leader in the growing GPU market for crypto mining and AI applications. NVIDIA is the largest holding for SMH at about 20%, with TSM at about 13% and Broadcom at 8%. Technological Advances in Semiconductors The semiconductor industry's future is closely intertwined with the development of several key technologies, including AI, IoT, green energy, autonomous vehicles, and 5G+ networks. The increasing demand for faster, more efficient, and more powerful computing devices is driving the need for semiconductor materials, manufacturing processes, and chip architectures. A notable recent development is the return of germanium as a semiconductor material. Germanium was used in the first transistors but was largely replaced by silicon since the latter is abundant, costs less, and tests better for certain aspects of conductivity. However, germanium's higher electron and hole mobility could make it more efficient for future high-performance transistors. Researchers are exploring ways to integrate germanium channels into circuits, which could lead to faster and more energy-efficient devices. Advances in germanium-based transistors, such as FinFETs and nanowire designs, could help overcome some of the limitations of silicon as the industry approaches the physical limits of its current materials. In addition to the potential comeback of germanium, researchers have recently made a breakthrough in manufacturing highly purified silicon, which could be a boon for quantum computing. Using a focused beam of pure silicon-28 to replace the undesirable silicon-29 atoms in a chip, they have created a material that can sustain the delicate quantum coherence needed for reliable quantum calculations, bringing the realization of robust, scalable quantum computers one step closer. Scaling Up Capacity Scaling up production is critical for the semiconductor industry while maintaining quality and reliability. This could involve investing in new manufacturing technologies, such as extreme ultraviolet lithography, which enables the creation of smaller and more precise chip features. In addition, the development of sophisticated packaging techniques, such as 3D chip stacking and wafer-level packaging, can help improve chip density and performance. The $52 billion in funding from the CHIPS Act is expected to vastly increase the size of the U.S. semiconductor industry, tripling domestic semiconductor manufacturing capacity by 2032. The EU will also see the fruits of its European Chips Act, and China initiated the third phase of its semiconductor funding. Incentive programs emerged or expanded in the first half of the 2020s in Taiwan, South Korea, Japan, and India. In parallel, companies have made significant investments in both established and new semiconductor manufacturing regions. These will also increase production across the world. Wafer fabrication is projected to become more durable by geographically diversifying, with leading-edge capacity expanding beyond Taiwan and South Korea to include the U.S., Europe, and Japan. In assembly, testing and packaging (ATP), China and Taiwan should continue to hold the largest share in global capacity. However, countries in Southeast Asia, Latin America, and Eastern Europe are expected to expand ATP activity, helped along by government and investor support. The development of sophisticated packaging and new chiplet designs is also driving some ATP production growth in the U.S. and Europe near their new wafer fabs. However, the semiconductor industry also faces potential challenges. A major concern is the increasing cost and complexity of chip manufacturing, particularly as sizes continue to shrink. Developing new manufacturing processes and materials, such as germanium, requires billions in research and development. Additionally, geopolitical tensions and trade disputes, such as those between the U.S. and China, can cause bottlenecks in trading. U.S.-China Semiconductor Tensions Lingering tensions between the U.S. and China in the semiconductor space stem from U.S. efforts to curb China’s technological advances, fearing potential military applications, while also aspiring to rejuvenate domestic chip manufacturing. Top Semiconductor Stocks and ETFs In mid-2024, the largest semiconductor stocks by revenue (trailing 12 months) are as follows: Samsung (005930.KS)—$197 billion TSM—$74 billion NVIDIA—$61 billion Intel—$54 billion Broadcom—$39 billion Qualcomm Inc. (QCOM)—$36 billion ASML Holding N.V. (ASML)—$30 billion Applied Materials (AMAT)—$26 billion Advanced Micro Devices Inc. (AMD)—$23 billion SK Hynix (000660.KS)—$22 billion Based in South Korea, Samsung has semiconductor revenues but is a diversified business. The others above have a very high percentage of their companies involved in semiconductors. Here are important exchange-traded funds (ETFs) that track the semiconductor sector: VanEck Semiconductor ETF (SMH) iShares Semiconductor ETF (SOXX) SPDR S&P Semiconductor ETF (XSD) Invesco Semiconductors ETF (PSI) First Trust Nasdaq Semiconductor ETF (FTXL) Who Is Leading the Semiconductor Industry? The largest semiconductor makers in the world are South Korea’s Samsung, U.S.-based NVIDIA and Intel, and Taiwan’s TSMC. The top five countries producing semiconductors are China, Japan, Taiwan, South Korea, and the U.S. Why Invest in Semiconductors? Investors often consider adding semiconductor stocks or ETFs to a diversified portfolio. The semiconductor industry is a crucial component of the technology sector and plays a significant role in powering many devices, including computers, smartphones, and other electronic devices. As technology continues to advance, demand for semiconductors is likely to grow, driving revenue and profits for semiconductor companies. A focus on innovation can lead to significant long-term growth potential for companies that are successful in developing new products. What Is the Future of Semiconductors? Despite recent challenges, the semiconductor industry is expected to grow over the long term, driven by continued demand for electronics and technological advances. The industry itself is highly innovative, and chips have become exponentially more efficient and powerful over the past decades.Since they are so ubiquitous, it seems that semiconductors will not be replaced anytime soon, although they will continue to improve. Additionally, the discovery and application of new materials like graphene (a novel form of carbon), the advent of quantum computing, and the use of photonic circuits may be used alongside traditional semiconductors. The Bottom Line The semiconductor sector is a major part of the stock market. It's not just a major player by market capitalization, but is critical to many industries, such as automotive, healthcare, and telecommunications. Disruptions in the industry, such as after the pandemic, showed its importance across the economy. The performance of semiconductor stocks can impact the broader market, as seen in 2024, when the sector hit record highs, following a sluggish 2022 to 2023, when the sector experienced losses, contributing to a measurable drag on the overall market. As the chip market is expected to continue growing, investors should closely monitor the performance of the companies that make them.