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How High-Yield Savings Accounts Work

Savings accounts are where you stash cash that you want to keep secure and watch grow. But with the average interest rate on savings accounts at just 0.23% as of March 1, 2023, that isn’t going to do much to pump up your money, whether you have cash set aside for a vacation in Rio or for retirement.

But there are ways to earn more on your money while keeping it in a low-risk place. Specifically, you could open a high-yield savings account.

High-yield (aka high-interest) savings accounts often pay considerably more than standard savings accounts. As of March 2023, some offered annual percentage yields (APYs) of up to 4.55%.

Whether held at a traditional bank, online bank, or credit union, these accounts can keep your money liquid (meaning it’s nice and accessible), plus they don’t expose you to the risk that may accompany investing. However, you may have to meet a high initial deposit requirement or maintain a significant balance to reap that enticingly high interest rate.

Key Points

•   High-yield savings accounts (HYSA) offer significantly higher interest rates compared to traditional savings accounts, enhancing the growth of deposited funds.

•   These accounts are available at various financial institutions, including online banks which often provide the highest rates.

•   Funds in high-yield savings accounts are typically insured up to $250,000, providing security for depositors.

•   Accessibility to funds is easy, though withdrawals may be limited to six per month, with potential fees for exceeding this number.

•   High initial deposits and maintaining minimum balances might be required to obtain the higher interest rates offered.

What Is a High-Yield Savings Account?

First, an answer to the question, What is a high-yield or high-interest savings account? It’s a savings vehicle that functions similarly to a traditional savings account. These accounts, however, typically pay considerably higher interest rates than traditional savings accounts and almost always offer better returns than traditional checking accounts.

You may wonder, is a high-yield savings account worth it? For many people, the answer will be a resounding yes. Even a difference of one or two percent can add up over time, thanks to compounding interest — that’s when the interest you earn also starts earning interest after it’s added to your account. In other words, you make money on both your money and the interest, helping your funds grow.

You may be able to open a high-yield savings account at a variety of financial institutions, but the highest rates are often available from online banks vs. traditional banks or credit unions.

Depending on the financial institution, a high-yield savings account will likely be insured by the Federal Deposit Insurance Corporation (FDIC) or the National Credit Union Administration (NCUA) up to $250,000 per depositor.

Like other savings accounts, withdrawals from high-yield savings accounts may be limited to six times per month. Exceeding that withdrawal limit may trigger a fee. (Worth noting: While federal regulation had required all savings accounts to limit withdrawals to six per month, that rule was lifted due to the coronavirus pandemic. Institutions can now decide if they want to allow more than six transactions per month. Check with your institution to be sure.)

Earn up to 4.60% APY with a high-yield savings account from SoFi.

Open a SoFi Checking and Savings account and earn up to 4.60% APY - with no minimum balance and no account fees.


How Are High-Yield Savings Different Than Regular Savings Accounts?

As briefly mentioned above, the average savings account interest rate is currently 0.23% (that’s right, a mere fraction of a percentage point). What’s more, many of the nation’s biggest banks pay significantly less than that – only around 0.01%. Yes, it’s better than nothing, but not by much!

Here’s how the math works out: If you had $5,000 in a savings account earning 0.01% per year, you would only earn 50 cents for the entire year it sat in your savings account, assuming no compounding occurred.

Disappointing, to say the least! So if you’re looking to make more on your savings, one option to consider is a high-yield savings account (which may also be called a growth savings account).

These savings vehicles can be a good place to put money you’re saving for short-term financial goals, since they can help you get a higher-than-average return on your money but still allow relatively easy access to your cash.

How Do High-Yield Savings Accounts Work?

How a high-yield savings account works is very similar to how other savings accounts operate.

•   You make an initial deposit to open the high-interest account, while also sharing identification and other personal information with the bank or credit union.

•   You can then add to your account as you see fit.

•   You can also take money out of the account (there may be a cap on how many times a month you can do this, however), either withdrawing it or transferring it to another account.

Your account may also have minimum balances and monthly fees. This will vary with the institution. While traditional banks and credit unions may offer these accounts, it is common to find them at online banks, which have a lower overhead and can pass the savings on to you. You may find accounts that have no fees, like a SoFi Savings Account.

In many cases, your funds will be protected by either FDIC or NCUA; check with your financial institution to know the coverage limits in place.

How much interest will I get on $1,000 a year in a savings account?

Your interest will depend on where you stash the $1,000. If you put it in an account that gets only 0.01% APY, your earnings after a year would be 10 cents. In a high-yield savings account that earns 3.75% APY, you’d earn $37.50, without any compounding. Use the APY interest calculator below to see how much interest you could earn using different APY percentages.


Those are the basics on how a high-yield savings account works. There’s one other angle to consider, however. It’s worth noting that the money you keep on deposit at a bank is used by the financial institution for other purposes, such as loans to their customers. That is why they pay you interest: They are compensating you for being able to do so.

How to Use a High-Yield Savings Account

A high-yield savings account can be used for a variety of purposes, just as other types of savings accounts can be.

Building an Emergency Fund

It may be a good place to build an emergency fund that is your safety net in case you have an unexpected car or household repair needed. You typically want to have a three to six months’ worth of living expenses available, but you can certainly start one of these accounts with less and add to it.

Saving for a High Value Purchase

Perhaps you are saving for a car, a cruise, or other big-ticket item. Or maybe you are getting close to having enough money for a down payment on a house. A high-yield savings account can be a secure, interest-bearing place to park those funds until you are ready to use them.

Saving Surplus Money

A high-yield account can also be a great place for any extra cash for which you may be figuring out next steps. Perhaps you received a tax refund or a spot bonus, or you are selling your stuff that’s no longer needed on eBay. That extra cash can go into a high-yield savings account rather than sit in your checking account, potentially earning zero interest.

Separating Your Money

Sometimes, setting up an additional savings account (or two) can help you organize your money. Perhaps you want to have multiple savings accounts to help you achieve different goals, such as an account for future educational expenses and one for paying estimated taxes on your side hustle. As you save money towards each of those aims, you might as well accrue some interest. A high-yield savings account will help you do that, and let you check on how your cash is growing towards each goal.

Benefits of a High-Yield Savings Account

There are definitely some big pluses to opening a high-yield savings account. Here are some of the main ones:

•   The interest rate, of course! It is typically many times that of a traditional savings account or a CD.

•   It’s a secure place to deposit funds when you are savings towards a relatively short- or medium-term goal (say, building an emergency fund, or saving for a down payment, a wedding, or another purpose)

•   These accounts often come with no fees, zero! Typically, this is the case with online banks rather than bricks-and-mortar ones or credit unions.

Recommended: How Much Money Should You Have Left After Paying Bills?

Disadvantages of a High-Yield Savings Account

You know the saying, “Nobody’s perfect”? It holds true for high-yield savings accounts, too. These accounts may not suit your needs for a couple of key reasons.

•   While the interest is higher than your standard savings account, it may not be able to compete with other financial products (such as stocks) for long-term savings, like retirement. In fact, it may not even keep pace with inflation. So if you are able to take some time and take on a degree of risk, you may be better off with stocks or mutual funds to reach some financial goals.

•   More restrictions and/or requirements may be part of the package. For instance, you may need to deposit or keep a certain amount of money in the account, especially for those high-yield accounts offered by traditional banks. Or might need to set up direct deposit or automate bill payment.

•   Less access may be an issue. It may take more steps and/or more time (perhaps a couple of days) to transfer funds when you have a high-yield savings account.

What to Look For in a High-Yield Savings Account

Ready to explore high-yield savings accounts a bit further? Here are a few things to look for (and to look out for) when considering a high-yield account.

Annual Percentage Yield (APY)

One of the most important factors to look for in a savings account, the APY is how much you’ll earn in returns in one year. Some accounts will specify that the currently advertised rate is only available for an initial period of time, so that can be something to keep in mind.

Required Initial Deposit

Many high-yield savings accounts require a minimum opening deposit. If that’s the case, you’ll want to make sure you are comfortable depositing that much at the outset.

Minimum Balance

Some banks require you to maintain a minimum balance to keep your high-yield savings account open. You’ll want to feel comfortable with always meeting the minimum threshold because falling below it can trigger fees or mean you won’t get the interest rate you’re expecting.

Ways to Withdraw or Deposit Funds

Banks all have their own options and rules for withdrawing and transferring funds. Options might include ATM access with an ATM card, online transfers, wire transfers, or mobile check deposits. Withdrawals may be limited to six per month.

Balance Caps

A balance cap puts a limit on the amount of money you can earn interest at the high-yield account rate. So, for example, if an institution offers 3% interest on your savings account, but sets a balance cap at $2,000, you would only grow that interest on the first $2,000 and not on any additional funds you may deposit.

Bank Account Fees

It’s a good idea to understand what, if any, bank fees may be charged — and how you can avoid them, such as by keeping your balance above the minimum threshold or minimizing withdrawals per month.

Links to Other Banks and/or Brokerage Accounts

Make sure you know whether you can link your high-yield savings account and other accounts you may hold. There could be restrictions on connecting your account with other financial institutions or there might be a waiting period.

Withdrawing Your Money

You’ve just read that it may be a bit more complicated or time-consuming to get your funds transferred. You should also check to see how withdrawals can be made. For instance, would it be possible to pull some funds out of your high-yield savings at an ATM? Your financial institution can answer that question.

Compounding Method

It’s up to the bank whether they compound interest daily, monthly, quarterly, or annually — or at some other cadence. Compounding interest more frequently can boost your yield if you look at the APY versus the annual interest rate (the latter takes into account the compounding factor btw).

Recommended: 52 Week Savings Challenge

How to Open a High-Yield Savings Account

Now that you’ve learned about high-yield savings accounts, you may be ready to say, “Sign me up!” If so, a good first step is to take a look at your current bank and see if they have a high-yield savings account available — that could be the quickest, easiest path forward.

If not, look for an account and interest rate that speaks to you, and move ahead. Most high-yield savings accounts can be easily opened online with such basic information on hand, such as your driver’s license, your Social Security number, and other bank account details.

How Do High-Yield Savings Accounts Compare to CDs?

Another option you can use to grow your savings is a certificate of deposit or CD.

A CD is a type of deposit account that can pay a higher interest rate than a standard savings account in exchange for restricting access to your funds during the CD term — often between three months and five years.

Interest rates offered by CDs are typically tied to the length of time you agree to keep your money in the account. Generally, the longer the term, the better interest rate.

When you put your cash in a CD, it isn’t liquid in the way it would be in a savings account. If you want to withdraw money from a CD before it comes due, you will typically have to pay a penalty (ouch). This could mean giving up a portion of the interest you earned, depending on the policy of the bank.

Another key difference between CDs and high-interest savings accounts is that with CDs, the interest rate is guaranteed. With savings accounts, interest rates are not guaranteed and can fluctuate at any point.

A CD can be a good savings option if you’re certain you won’t need to access your cash for several months or years and you can find a CD with a higher rate than what high-yield savings accounts offer.

Make the Most of Your Money With SoFi

If you’re ready to amp up your money, a SoFi Checking and Savings account can help. We make it easy to open an online bank account and — if you sign up for direct deposit — you’ll earn a competitive APY on a qualifying account. Need more incentive? How about this: SoFi has zero account fees and offers Vaults and Roundups to further grow your cash. Plus, you’ll spend and save in one convenient place.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Can you lose money in a high-yield savings account?

In most cases, you likely won’t lose money with a high-yield savings account. If your account is held at a financial institution insured by FDIC or NCUA, you are covered in the rare event of a bank failure for up to $250,000 per account category, per depositor, per insured institution. That said, you might lose money vs. inflation if the rate of inflation exceeds that of the APY on your high-yield savings account.

Is a high-yield savings account a good idea?

A high-yield savings account can be a good idea. It provides significantly higher interest than a standard savings account, but offers the same security and easy access/liquidity.

Can I withdraw all my money from a high-yield savings account?

You can withdraw all your money from a high-yield savings account. One of the benefits of this kind of account is its liquidity. If you are ready to close the account, check with your financial institution about their exact process for doing so.

Are there any downsides to a high-yield savings account?

There are some potential downsides of a high-yield savings account. While these accounts earn more interest than a standard savings account, they may not keep pace with inflation nor how much you might earn from investments. There may be restrictions at some financial institutions, such as a minimum balance requirement and withdrawal limits. While the funds are liquid, access may require some maneuvering. Transfers may take longer, and if you keep your funds at an online bank, you cannot walk into a branch to take out cash.


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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.


Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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A Beginner’s Guide to Investing in CDs

A certificate of deposit (or CD) has many of the same low-risk benefits as a savings account, but a CD holds your money for a fixed time period in exchange for a higher rate of interest than the standard savings account.

You may be familiar with CDs as part of your savings strategy (say, keeping money secure and earning interest until you are ready to buy a house), but they can also be used as a part of a portfolio’s cash allocation. CDs generally pay a higher interest rate than you can get with other cash accounts. Owing to their lower risk profile and modest but steady returns, allocating part of your portfolio to CDs can offer diversification that may help lower your risk exposure in other areas.

Here’s a closer look at the ins and outs of investing in CDs.

Key Points

•   Certificates of deposit (CDs) offer higher interest rates than regular savings accounts by locking funds for a fixed period.

•   CDs are available through banks, credit unions, and brokerages, with varying terms and minimum deposits.

•   Early withdrawal from a CD incurs penalties, typically costing several months’ interest.

•   Investment strategies like CD laddering, barbells, and bullets help manage liquidity and returns.

•   CDs are insured up to $250,000, providing a safe investment option with predictable returns.

How to Buy CDs

Investors can buy CDs at many, if not most financial institutions, such as banks, credit unions, or brokerages. Not all institutions might offer CDs, and others may have limited options, but generally, if you’re looking to buy CDs, you might want to start at your bank, where you might hold a savings account.

Again, a certificate of deposit is similar to a savings account in that you can stash your money for a long period of time, but CDs possess some distinct features you need to understand in order to gauge whether they’re a good fit with your plan. Here are some aspects of CDs to keep in mind.

1. A Fixed Deposit for a Set Time Period

Investors purchase a CD for a fixed amount of money: e.g., $1,000, $5,000, or more. Some banks have a required minimum deposit; others don’t. Generally, you cannot increase the amount of your savings (although you can always buy another CD). Some banks offer jumbo CDs, which might require a minimum $100,000 deposit.

Unlike a savings account, which is open-ended (and allows you to access your cash at any time), you typically purchase a CD for a set period of time during which you can’t withdraw the funds without a penalty. Typical CD terms can vary from one month to five years, so check with the institution that issues the CD.

2. Guaranteed Interest Rates and Insurance

Because investing in CDs is less liquid than a savings account, the interest rate tends to be higher. CD rates are quoted as an annual percentage yield (APY). The APY is how much the account will earn in one year, including compound interest. Banks generally compound interest daily or monthly.

When the period is up, also known as the CD maturity date, the CD holder can receive the original investment, plus any interest earned. The interest rate can vary considerably, depending on the institution. Also, longer-term CDs tend to offer higher rates than shorter-term ones.

The money in a CD is protected by the same federal insurance (FDIC) that covers all deposit products, whether at a bank, credit union, or other institution.

3. Early Withdrawal Penalties

CDs can offer higher yields because customers are promising the bank that they will deposit their money for a set period of time. As a result, investing in CDs means the money is usually locked up until it reaches its maturity date. Withdrawing the money before the CD matures may trigger a penalty, which could effectively eliminate any interest rate gains.

The penalty for an early withdrawal on a CD is often stated in terms of interest: e.g. you would owe 60 days’ worth of interest, 150 days’ worth of interest, and so on. The penalty is usually charged according to the simple interest rate on your account, not the compound interest you might have earned over time.

Before purchasing a CD, it’s best to look at its disclosure statement, which should tell you the interest rate, how often interest is paid, the maturity date of the CD, and any early withdrawal penalties.

Note: There are penalty-free or no penalty CDs. These allow you to withdraw funds before the maturity date without a fee, but they typically have lower interest rates than other CDs.

4. Terms Vary Widely

It’s important to shop around for the best CD rates and terms. Brick-and-mortar banks may pay lower rates, while online banks and credit unions may pay higher rates. Because the interest rates on CDs are based on the federal funds rate, similar to mortgages and other financial products, it’s also a good idea to see whether the Federal Reserve is about to raise or lower interest rates before deciding whether it’s a good time to invest in CDs.

💡 Quick Tip: Tired of paying pointless bank fees? When you open a bank account online you often avoid excess charges.

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CD Investing Strategies

CDs can be incorporated as part of your financial plan in various ways. They can act as short-term savings vehicles — a way to secure your money for a down payment or a large purchase within five years, say. Or they can be part of a longer-term strategy. Here are some examples.

CD Ladder

A CD ladder uses a combination of shorter-term and longer-term CDs to maximize different rates of return and deliver several years of steady income.

Hypothetically, say you want to invest $10,000 over a 10-year period. You could create a CD ladder by purchasing five CDs of different maturities all at once, and reinvesting them as follows:

•   Deposit $2,000 in a 1-year CD. When that CD matures, roll over the money plus interest into a 5-year CD.

•   Deposit $2,000 in a 2-year CD. When that CD matures, again roll over those funds into another 5-year CD.

•   Do the same for a 3-year, 4-year, and 5-year CD. As each one matures, you roll over the funds, plus any accumulated interest, into a 5-year CD.

The result will be five different CDs that mature one year apart, allowing you to withdraw your funds plus interest. This strategy ensures some diversification of interest rates, so your money isn’t locked into a flat rate for the full 10 years. It can be reassuring to know that, if you need access to cash, you can expect one of the CDs to be on the verge of maturing at regular intervals.

CD Barbell

The CD barbell is like a CD ladder, but without buying any mid-length CDs: Here you invest a certain amount in a short-term CD (say, a 1-year CD), and the rest in a 5-year CD as a way to hedge your bets.

The barbell strategy allows you to take advantage of both short- and long-term rates. When the short-term CD matures, you can either reinvest at the short-term rate, if that makes sense, or shift the money over to a longer-term CD.

CD Bullet

Instead of buying a few CDs of different maturities at the same time, the bullet strategy allows you to invest different amounts at different times, as a way of saving for a specific goal like a down payment.

This strategy could allow you to invest one amount in a CD to start, save up more for a year or two and buy another CD that matures at the same time as the first, and so on. Then you have, say, three CDs that mature at the same time, with interest, allowing you to withdraw the lump sum from each one for your goal.

For example:

•   You could invest $5,000 in a 5-year CD today.

•   Then, in two years, invest $3,000 in a 3-year CD.

•   Last, save up money for another two years and buy a $2,000 1-year CD.

•   All three CDs mature at the same time, and you can withdraw all the money, plus compound interest.

Benefits of Investing in CDs

Investing in CDs can offer some investors specific benefits.

Peace of Mind

CDs are generally considered one of the safer options for investors. Like traditional savings accounts or high-yield savings accounts, CDs are insured for up to $250,000 per depositor, per account ownership category, per insured institution, when they are purchased through an FDIC-insured bank or an NCUA-insured credit union. In the very rare instance of the CD-issuing bank failing, your deposits would be covered up to $250,000.

Predictability

CD interest rates are usually fixed and will deliver a predictable yield at the end of their term. The same is not necessarily true of traditional savings accounts, which may lower the amount they pay if interest rates drop. The ability to calculate exactly how much you’ll be paid at the end of the CD’s term makes it easier to know how that CD will fit into a financial plan.

A Variety of Options

Thousands of banks and credit unions across the country offer a diverse selection of CDs, which come with many interest rate options and with maturity lengths from a month to a decade.

There also may be different styles of CDs to choose from (you’ll learn about bump-up and add-on CDs in a moment). But, as always, be sure to check the terms.

Drawbacks of Investing in CDs

Of course, like any other investment, CDs can come with their share of potential downsides.

Illiquidity

One of the main drawbacks of a CD is that most of them are relatively illiquid, meaning you can’t access the funds whenever you like. An investor’s money is tied up until the maturity date, and early withdrawals may trigger penalties in the form of lost interest payments or, in some cases, lost principal.

Though there are some CDs that offer penalty-free withdrawals, investors must often accept lower interest rates in trade.

When choosing a CD, it’s best to carefully consider a maturity date you know you will be able to meet. An emergency fund can help you avoid the temptation to tap CD investments when the unexpected happens.

Inflation Risk

Despite the fact that CDs tend to offer higher returns than traditional savings accounts, they can still be subject to the same inflation risk. When inflation is high, CD returns may be unable to outpace it. That means the money sitting in the CD may lose purchasing power before reaching maturity.

Taxes

When investors withdraw money from CDs after the maturity date, they pay no taxes on the principal withdrawn, but the money earned is taxable on state and federal levels as interest income.

The taxes will reduce the amount of money a CD investor will actually get to take home. It’s a good idea to carefully consider taxes when shopping for a CD and deciding on an APY.

Opportunity Cost

Money that’s tied up in a CD can’t be put to work anywhere else — a problem known as opportunity cost. CD interest rates may be higher than some other bank products, but stocks, bonds, and other investments may offer much higher returns. That said, higher returns are often associated with higher risk.

CD investors may be opting to avoid risk or using the accounts to diversify a portfolio that already holds a mix of stocks and bonds.

Types of CDs to Invest In

Above, you learned about the basic structure of a traditional CD, but there are a few other types that may offer features that are more desirable. In some cases, these may come with tradeoffs or additional risk factors, so be sure to weigh the pros and cons and terms of each.

1. Liquid CDs

If you’d prefer a CD that allows you to access your savings before the maturity date without paying a penalty, a liquid CD may offer a solution. These CDs don’t charge a penalty for early withdrawals, but they may offer lower interest rates as a result.

2. Bump-up CDs

Some investors dislike the idea of locking up their cash at a fixed rate, when in theory rates could rise, and you’d lose out on the higher rate of return. A bump-up CD may help address that concern by allowing you a chance to “bump up” to a higher rate.

3. Add-on CDs

If you don’t have the specific amount required to open a CD, another option could be to open an add-on CD, which allows you to make additional deposits.

4. Variable Rate CDs

Like a variable rate loan, a variable rate CD doesn’t pay a fixed interest rate. Having a variable rate may give you higher or lower rates at some points, but the point is that the rate isn’t guaranteed, so you have to be willing to take your chances.

5. Uninsured CDs

If you’re willing to forgo federal insurance on your deposits, you might be able to get a higher interest rate.

In all cases, be sure to check the terms of the CD you’re about to buy, in case there are restrictions or caveats that might make a certain CD less desirable. For example, there are some CDs offered by foreign banks, but denominated in US dollars, which may offer competitive rates but they are not federally insured.

6. Brokered CDs

A brokered CD is a lot like a traditional CD but is purchased through a broker, typically using a brokerage account. This setup can provide access to a wide range of CDs from different financial institutions.

It is also possible to trade brokered CDs on the secondary market. Finding a buyer may be difficult, however, which could mean accepting a lower price for the sale. Brokered CDs may come with additional fees.

The Takeaway

Although CDs are sometimes dismissed as simple savings vehicles, in fact investing in CDs can offer a steady if modest rate of return, and some peace of mind — factors that may appeal to some investors, especially over time. It’s also possible to use different strategies like a CD ladder to create an income stream or maximize different interest rates over time.

If, however, the idea of locking up your money for a set period of time doesn’t suit your needs, you might consider a high-yield checking and savings account instead.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Where do you go to invest in CDs?

Investors can purchase CDs at many financial institutions, such as banks, credit unions, or brokerages, although not all institutions will offer them.

How much does a $10,000 CD make in a year?

The ultimate yield on a $10,000 CD in a year will depend on the associated interest rate and compounding frequency, which can vary. But assuming the interest rate is 3.00%, an investor could earn $300 after one year if compounded annually.

Are CDs considered low-risk?

CDs are generally considered to be lower-risk investments, especially compared to assets like stocks.

How much money do you need to invest in a CD?

There are minimums to purchase a CD, which vary, but a ballpark figure is around $500, depending on where you buy them.


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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.


Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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What Is Market Value? How to Calculate and Use It

Market Value: Definition and Methods to Calculate It

Market value is a common term used in value investing to describe how much a company or asset is worth on exchanges and financial markets. Essentially it is the value of a security in the eyes of market investors. Understanding the current standing of a business in its particular industry and the broader market is important when making investing decisions.

Key Points

•   Market value is the price at which an asset would trade in a competitive auction setting.

•   It is determined by multiplying the current share price by the number of outstanding shares.

•   Factors influencing market value include company performance, industry trends, and overall market conditions.

•   Market value can fluctuate greatly over time due to changes in investor sentiment and market dynamics.

•   Various methods to calculate market value include income approaches, asset-based approaches, and market comparison approaches.

What Is Market Value?

Market value, also referred to as OMV, market capitalization, or “open market valuation,” is the price of an asset in an investment marketplace or the value the asset has within a community of investors. It is calculated by multiplying current share price in a marketplace by the number of outstanding shares. Read on to learn what market value is and how to calculate market value.

The market value represents the price that investors will pay for an asset, and therefore changes significantly over time. The more investors will pay for the asset, the higher the market value.

What investors are willing to pay depends on various factors, including the fundamentals of the asset itself, as well as the business cycle and current levels of demand for that asset. Market value could be anything from under $1 million for small businesses to more than $1 trillion for large corporations.

It’s easy to determine the market value of frequently traded assets (by looking at their current prices), but harder to determine the market value of illiquid assets, such as real estate or a company, that don’t trade very often. Market value per share is a company’s market value divided by its number of shares.

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Factors that Impact Market Value

Many factors determine market value, including a company’s profitability and its debt levels. Market value fluctuates significantly over time. Market values often move in tandem with the overall market sentiment.

During bull markets or economic expansions, market values often increase, and during bear markets they go down. Other factors influencing market value include:

•   The company’s performance

•   Long-term growth potential

•   Supply and demand of the asset

•   Company profitability

•   Company debt

•   Overall market trends

•   Industry trends

•   Valuation ratios such as earnings per share, book value per share, and price-to-earnings ratio (P/E ratio)

Earnings per Share

The higher a company’s earnings per share, the more profitable it is. A more profitable business has a higher market value, and vice versa.

Book Value per Share

Investors calculate a company’s book value per share by dividing its equity by its total outstanding shares. A company with a higher book value than market value may have an undervalued stock.

Price-to-Earnings Ratio (P/E Ratio)

Investors calculate P/E ratio by dividing a company’s current stock price by its earnings per share amount. A higher P/E ratio means a stock’s price market value might be high relative to its earnings.

💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

How Is Market Value Calculated?

There are multiple ways to calculate market value. Here’s a look at a few of them:

Income method

There are two methods of calculating market value using income:

•   Discounted Cash Flow (DCF): To find discounted cash flow, investors project a company’s future cash flow and then discount it to find its present value. The amount it gets discounted reflects current market interest rates along with the amount of risk the business has.

•   Capitalized Earnings Method: With capitalized earnings, investors find the value of a stable, income-producing property by taking its net operating income over time and dividing it by the capitalization rate. The capitalization rate is an estimate of how much potential return on investment the asset has.

Assets Method

Using the assets approach, investors find an asset’s fair market value (FMV) by determining how many liabilities and adjusted assets a company has, including intangible assets, unrecorded liabilities, and off-balance sheet assets.

Market method

Using a market-based approach, there are a few more ways market value can be determined:

•   Public Company Comparable: This company compares similar businesses that are in the same industry or region and about the same size. Ratios like P/E, EV/Revenue, and EV/EBITDA can help compare all the similar companies.

•   Precedent Transactions: Using the precedent transactions method, market value reflects how much investors paid for other similar company’s stock in previous transactions. Investors can get a sense of how much a company’s value is by looking at similar companies.

Example of Market Value

Using the capitalized earnings valuation method, here’s an example of the market value calculation. The formula used when calculating via capitalized earnings is as such:

Market value = Earnings/capitalization rate

Earnings are rather self-explanatory, and the capitalization rate is the required rate of return for investors, a number reached by subtracting a company’s expected growth rate from the investor’s expected rate of return. For this example, we’ll make things simple and say that the capitalization rate is 10%, and the company’s earnings are $1 million

Using the formula: Market value = $1 million/10%

That calculates to $10,000,000.

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

Limitations of Market Value

Market value is a very useful tool for understanding how much a company is worth and whether it is a good time to invest or sell its stock. However, it has a few limitations:

•   Fluctuation: Company stocks go up and down every day, and, therefore market value also always changes. Various factors affect market value, and it is very dynamic, which is important for investors to keep in mind when making trading decisions.

•   Precedent data: It’s easier to find market value for established businesses because it requires historical pricing data to find it. New businesses don’t have such data, making it harder for investors to determine their market value.

The Takeaway

Market value is very useful for analyzing a stock. It is easiest to calculate market value of assets such as stocks and futures that are traded on exchanges because it is easy to access their market prices. Market value for less frequently traded assets can be difficult and requires some assumptions and calculations.

Calculating market value can be useful for investors of all stripes, but it can be easy to get lost in the math. Be sure to double-check your math and consider the limitations of market value before making investing decisions.

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For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

Is market value the same as market capitalization?

Market value is the price at which a buyer purchases an asset, and can refer to a company or a security such as a stock, future, or asset. Market cap is the value of the total number of outstanding shares of a company, based on their current market value.

Is market value the same as book value?

Market value and book value per share, or explicit value, are different and can be very different amounts, but they are often used in conjunction by investors looking to gain an understanding of an asset’s value. Book value is the net value of a company’s balance sheet assets, while market value is the price at which a buyer purchases an asset.


Photo credit: iStock/SeventyFour

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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Investing in Real Estate Investment Trusts (REITs)

With REIT investing, you gain access to income-producing properties without having to own those properties outright. REITs may own several different kinds of properties (e.g. commercial, residential, storage) or focus on just one or two market segments.

Real estate investment trusts or REITs can be a great addition to a portfolio if you’re hoping to diversify. REIT investing might appeal to experienced investors as well as beginners who are looking to move beyond stocks and bonds.

Key Points

•   REITs provide a way to invest in income-producing real estate without owning the properties directly.

•   REITs must distribute at least 90% of taxable income to shareholders as dividends.

•   Types of REITs include equity, mortgage, and hybrid, each with different investment focuses.

•   Investing in REITs can be done through shares, mutual funds, or ETFs, available via brokerages.

•   Benefits of REITs include potential for high dividends and portfolio diversification, while risks involve liquidity and sensitivity to interest rates.

What Is a REIT?

A REIT is a trust that owns different types of properties that generate income. REITs are considered a type of alternative investment, because they don’t move in sync with traditional stock and bond investments.

Some of the options you might find in a REIT can include:

•   Apartment buildings

•   Shopping malls or retail centers

•   Warehouses

•   Self-storage units

•   Office buildings

•   Hotels

•   Healthcare facilities

REITS may focus on a particular geographic area or property market, or only invest in properties that meet a minimum value threshold.

A REIT may be publicly traded, meaning you can buy or sell shares on an exchange the same as you would a stock. They can also be non-traded, or private. Publicly traded and non-traded REITs are required to register with the Securities and Exchange Commission (SEC), but non-traded REITs aren’t available on public stock exchanges.

Private REITs aren’t required to register with the SEC. Most anyone can invest in public REITs while private REITs are typically the domain of high-net-worth or wealthy investors.

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How Do REITs Work?

With REIT investing individuals gain access to various types of real estate indirectly. The REIT owns and maintains the property, collecting rental income (or mortgage interest).

Investors can buy shares in the REIT, which then pays out a portion of the collected income to them as dividends.

To sum it up: REITs let investors reap the benefits of real estate investing without having to buy property themselves.

REIT Qualifications

Certain guidelines must be met for an entity to qualify as a REIT. The majority of assets must be connected to real estate investment. At least 90% of taxable income must be distributed to shareholders annually as dividend payouts.

Additionally, the REIT must:

•   Be organized in a way that would make it taxable as a corporation if not for its REIT status

•   Have a board of trustees or directors who oversee its management

•   Have shares that are fully transferable

•   Have at least 100 shareholders after its first 100 as a REIT

•   Allow no more than 50% of its shares to be held by five or fewer individuals during the last half of the taxable year

•   Invest at least 75% of assets in real estate and cash

•   Generate at least 75% of its gross income from real estate, including rents and mortgage interest

Following these rules allows REITs to avoid having to pay corporate tax. That benefits the REIT but it also creates a secondary boon for investors, since the REIT may be better positioned to grow and pay out larger dividends over time.

Types of REITs

The SEC classifies three categories of REITs: equity, mortgage, and hybrid. Each type of REIT may be publicly traded, non-traded, or private. Here’s a quick comparison of each one.

•   Equity REITs own properties that produce income. For example, an equity REIT might own several office buildings with units leased to multiple tenants. Those buildings generate income through the rent the tenants pay to the REIT.

•   Mortgage REITs don’t own property. Instead, they generate income from the interest on mortgages and mortgage-backed securities. The main thing to know about mortgage REITs is that they can potentially produce higher yields for investors, but they can also be riskier investments.

•   Hybrid REITs own income-producing properties as well as commercial mortgages. So you get the best (and potentially, the worst) of both worlds in a single investment vehicle.

Aside from these classifications, REITs can also be viewed in terms of the types of property they invest in. For example, there are storage-unit REITs, office building REITs, retail REITs, healthcare REITS, and more.

Some REITs specialize in owning land instead of property. For example, you might be able to own a stake in timberland or farmland through a real estate investment trust.

How Do REITs Make Money?

REITs make money from the income of the underlying properties they own. Again, those income sources can include:

•   Rental income

•   Interest from mortgages

•   Sale of properties

As far as how much money a REIT can generate, it depends on a mix of factors, including the size of the REIT’s portfolio, its investment strategy, and overall economic conditions.

Reviewing the prospectus of any REIT you’re considering investing in can give you a better idea of how it operates. One thing to keep in mind with REITs or any other type of investment is that past performance is not an indicator of future returns.

How to Invest in REITs

There are a few ways to invest in REITs if you’re interested in adding them to your portfolio. You can find them offered through brokerages and it’s easy to open a trading account if you don’t have one yet.

REIT Shares

The first option for investing in REITs is to buy shares on an exchange. You can browse the list of REITs available through your brokerage, decide how many shares you want to buy, and execute the trade. When comparing REITs, consider what it owns, the potential risks, and how much you’ll need to invest initially.

You might buy shares of just one REIT or several. If you’re buying multiple REITs that each hold a variety of property types, it’s a good idea to review them carefully. Otherwise, you could end up increasing your risk if you’re overexposed to a particular property sector.

REIT Funds

REIT mutual funds allow you to own a collection or basket of investments in a single vehicle. Buying a mutual fund focused on REITs may be preferable if you’d like to diversify with multiple property types.

When researching REIT funds, consider the underlying property investments and also check the expense ratio. The expense ratio represents the annual cost of owning the fund. The lower this fee is, the more of your investment returns you get to keep.

Again, you can find REIT mutual funds offered through a brokerage. It’s also possible to buy them through a 401(k) or similar workplace retirement plan if they’re on your plan’s list of approved investments.

REIT ETFs

A REIT exchange-traded fund (or ETF) combines features of stocks and mutual funds. An ETF can hold multiple real estate investments while trading on an exchange like a stock.

REIT ETFs may be attractive if you’re looking for an easy way to diversify, or more flexibility when it comes to trading.

In general, ETFs can be more tax-efficient than traditional mutual funds since they have lower turnover. They may also have lower expense ratios.

Benefits and Risks of REITs

Are REITs right for every investor? Not necessarily, and it’s important to consider where they might fit into your portfolio before investing. Weighing the pros and cons can help you decide if REITs make sense for you.

Benefits of REITs

•   Dividends. REITs are required to pay out dividends to shareholders, which can mean a steady stream of income for you should you decide to invest. Some REITs have earned a reputation for paying out dividends well above what even the best dividend stocks have to offer.

•   Diversification. Diversifying your portfolio is helpful for managing risk, and REITs can make that easier to do if you’re specifically interested in property investments. You can get access to dozens of properties or perhaps even more, inside a single investment vehicle.

•   Hands-off investing. Managing actual rental properties yourself can be a headache. Investing in REITs lets you reap some of the benefits of property ownership without all the stress or added responsibility.

•   Market insulation. Real estate generally has a low correlation with stocks. If the market gets bumpy and volatility picks up, REITs can help to smooth the ride a bit until things calm down again.

💡 Quick Tip: It’s smart to invest in a range of assets so that you’re not overly reliant on any one company or market to do well. For example, by investing in different sectors you can add diversification to your portfolio, which may help mitigate some risk factors over time.

Risks of REITs

•   Liquidity challenges. Buying REIT shares may be easy enough, but selling them can be a different matter. You may need to plan to hold on to your shares for a longer period than you’re used to or run into difficulties when trying to trade shares on an exchange.

•   Taxation. REIT investors must pay taxes on the dividends they receive, which are treated as nonqualified for IRS purposes. For that reason, it might make sense to keep REIT investments inside a tax-advantaged IRA to minimize your liability.

•   Interest rate sensitivity. When interest rates rise, that can cause REIT prices to drop. That can make them easier to buy if the entry point is lower, but it can make financing new properties more expensive or lower the value of the investments the REIT owns.

•   Debt. REITs tend to carry a lot of debt, which isn’t unusual. It can become a problem, however, if the REIT can no longer afford to service the debt. That can lead to dividend cuts, making them less attractive to investors.

The Takeaway

REITs can open the door to real estate investment for people who aren’t inclined to go all-in on property ownership. REITs can focus on a single sector, like storage units or retail properties, or a mix. If you’re new to REITs, it’s helpful to research the basics of how they work before diving into the specifics of a particular investment.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.


Invest in alts to take your portfolio beyond stocks and bonds.

FAQ

How do I buy a REIT?

You can buy shares of a REIT through a broker if it’s publicly traded on an exchange. If you’re trying to buy shares of a private REIT, you can still go through a broker, but you’ll need to find one that’s participating in the offering. Keep in mind that regardless of how you buy a REIT, you’ll need to meet minimum investment requirements to purchase shares.

Can I invest $1,000 in a REIT?

It’s possible to find REITs that allow you to invest with as little as $1,000 and some may have a minimum investment that’s even lower. Keep in mind, however, that private or non-traded REITs may require much larger minimum investments of $10,000 or even $50,000 to buy in.

Can I sell my REIT any time?

If you own shares in a public REIT you can trade them at any time, the same way you could a stock. If you own a private REIT, however, you’ll typically need to wait for a redemption period to sell your shares. Redemption events may occur quarterly or annually and you may pay a redemption fee to sell your shares.

What is the average return on REITs?

The 10-year annualized return for the S&P 500 United States REIT index, which tracks the performance of U.S. REITs, was 2.34%. Like any sector, however, REITs have performed better and worse over time. Also, the performance of different types of REITs (self-storage, strip malls, healthcare, apartments, etc.) can vary widely.


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An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

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INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.


Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at [email protected]. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

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How to Invest in Silver

For millennia, humans have used precious metals such as silver as a way to barter and exchange value. And even in today’s modern economy, many people believe that there is room for investing in silver and other precious metals as a way to diversify their overall portfolio.

Investing in silver can come in many different ways, from buying stocks or mutual funds focused on precious metals to holding the actual silver metal yourself. Depending on how you are investing in silver, it can be considered a valuable hedge against inflation and one way to diversify your overall investment portfolio.

Key Points

•   Investing in silver can help diversify an investment portfolio and act as a hedge against inflation.

•   Silver is considered valuable due to its historical use in coins, jewelry, and industrial applications.

•   Silver and gold are both precious metals that have been used as currency and for portfolio diversification.

•   Investing in silver can offer advantages such as portfolio diversification and lower cost compared to gold.

•   However, investing in silver carries risks, including price volatility and the need for secure storage for physical silver holdings.

Why Is Silver Considered Valuable?

Silver is a type of alternative investment, in that it’s different from a conventional stock or other type of security. And similar to how those types of securities or investments hold value, silver does as well.

At its most basic, silver is valuable for the same reason that anything is considered “valuable” — because we as a society have decided that it is valuable. Silver has been used for making coins and jewelry since the early days of history, which is one reason that silver is considered valuable. Silver is also quite conductive, which means that it has uses in industry as well.

Silver has many of the same qualities as gold, which is why many investors have similarly looked for different ways to invest in precious metals.

Silver vs Gold

Silver and gold have both been used as currency and jewelry since nearly the beginning of human civilization. They are both considered valuable precious metals and useful for portfolio diversification and as an inflation hedge. Deciding whether to invest in gold or invest in silver is in some ways a personal choice, and many investors decide to invest in both.

💡 Quick Tip: While investing directly in alternative assets often requires high minimum amounts, investing in alts through a mutual fund or ETF generally involves a low minimum requirement, making them accessible to retail investors.

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What Are the Advantages of Investing in Silver?

One of the biggest advantages of investing in silver is that it can help diversify your portfolio. The rate of return for silver and other precious metals is not always correlated with that of other investments, which means that it can be a useful form of portfolio diversification. Silver is also cheaper than gold on a per-ounce basis.

Many investors also consider investing in precious metals to be an inflation hedge – it’s commonly believed that precious metals like silver or gold hold their value more efficiently or for a longer-term than cash or other assets.

If you invest in actual physical silver, another advantage is that it is a hard asset — it cannot be hacked or erased. Silver and other precious metals are one of the few investments that you can actually hold in your hand. Unlike other investments, your holdings in silver can also be as private as you want them to be.

What Are the Potential Drawbacks?

One drawback of investing in silver is that its price is considered fairly volatile. That doesn’t make it a great investment if you are only holding for the short-term. Prices for precious metals can fluctuate wildly over the short-term, and even over the long-term, may not provide investors with the type of appreciation they may have seen if they had invested in other assets.

Further, if you hold physical silver, you do run the risk of having it stolen. Unlike digital assets, physical silver may not be recoverable if it is lost or stolen. As such, if you are buying physical silver coins or bars, you will need to find a safe and secure way to store them.

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

Is Silver an Inflation Hedge?

As noted, investing in precious metals is often considered an inflation hedge.

Inflation is a natural phenomenon that gradually increases the cost of many goods and services. Silver has many uses – it can be used to mint coins, for instance, and be used as an actual currency, or be incorporated into other products. For that reason, it may hold its value more effectively than cash or other assets.

But there’s no guarantee that silver will always be an effective inflation hedge, and it’s important to remember that it’s a volatile asset.

How Can I Invest in Silver?

There are a number of different ways to invest in silver, depending on what you’re looking for in your portfolio. One popular way to invest in silver is by buying physical bars or coins of silver. Another possible way to invest in silver is by investing in the stocks of silver mining companies.

Silver Funds

It may also be possible to invest in silver using various types of funds, such as exchange traded funds (ETFs) that own silver or silver mining companies. There may also be options for investors to invest in mutual funds with concentrations in the silver industry or market, too – doing a bit of research to see what your options are in relation to silver investments is likely to yield results.

The Takeaway

Investing in silver offers investors a way to add an alternative asset to their portfolio, which can help them diversify, and hedge against inflation. There are many ways to invest in silver — including investing in silver mining companies, silver ETFs or owning physical silver like coins or silver bullion.

But investing in silver has its risks, and investing in precious metals typically means investors are okay with adding a relatively volatile asset to their portfolios. As always, if you have questions, it may be a good idea to speak with a financial professional.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest in alts to take your portfolio beyond stocks and bonds.

FAQ

Does owning silver diversify your portfolio?

Depending on the composition of your investment portfolio, owning silver can diversify your portfolio. Silver and other precious metals are often considered an inflation hedge, meaning that their price generally holds its value, regardless of the inflation rate. The rate of return on investing in silver and other precious metals is also not often correlated with returns of other types of investments, like the stock market or real estate.

Will the price of silver always go up?

Like all investments, there is no guarantee that the price of silver will always go up. The price of silver can fluctuate wildly, which means that depending on when you buy and/or sell, you may lose money. Before investing in silver, make sure you understand the risks and drawbacks of silver investing.

What are some alternative metals to silver?

Probably the most popular alternative precious metal to silver is gold. Like silver, gold has been used in currency and jewelry for most of the length of human civilization. Other options for investing in precious metals if you’d rather not own gold or silver are platinum or titanium.


Photo credit: iStock/oatawa

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Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


An investor should consider the investment objectives, risks, charges, and expenses of the Fund carefully before investing. This and other important information are contained in the Fund’s prospectus. For a current prospectus, please click the Prospectus link on the Fund’s respective page. The prospectus should be read carefully prior to investing.
Alternative investments, including funds that invest in alternative investments, are risky and may not be suitable for all investors. Alternative investments often employ leveraging and other speculative practices that increase an investor's risk of loss to include complete loss of investment, often charge high fees, and can be highly illiquid and volatile. Alternative investments may lack diversification, involve complex tax structures and have delays in reporting important tax information. Registered and unregistered alternative investments are not subject to the same regulatory requirements as mutual funds.
Please note that Interval Funds are illiquid instruments, hence the ability to trade on your timeline may be restricted. Investors should review the fee schedule for Interval Funds via the prospectus.

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Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

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