Investing Archives

Nov

2025

A man sitting at a table working on his laptop to find out how much to withdraw from an account like an IRA in retirement.

4% Rule for Withdrawals in Retirement

By Krystal Etienne | invest, Investing, Preparing for Retirement | Comments Off

Table of Contents

What Is the 4% Rule for Retirement Withdrawals?
Drawbacks of the 4% Rule
How Can I Tailor the 4% Rule to Fit My Needs?
Should You Use the 4% Rule?
FAQ

After decades of saving for retirement, many new retirees often find themselves facing a new challenge: Determining how much money they can take out of their retirement account each year without running the risk of depleting their nest egg too quickly.

One popular rule of thumb is “the 4% rule.” Read on to learn more about the rule and how it works.

Key Points

• The 4% rule suggests withdrawing 4% of retirement savings in the first year, and then adjusting for inflation annually.

• The rule assumes a 30-year retirement period and a balanced 50% stock, 50% bond portfolio.

• Flexibility is important to adapt to lifestyle changes and fluctuating expenses in retirement.

• Additional income sources, such as Social Security or pensions, should be considered when it comes to how much to withdraw in retirement.

• For those who hope to retire early, the 4% rule likely won’t provide a sustainable income for all their years of retirement.

What Is the 4% Rule for Retirement Withdrawals?

The 4% rule suggests that retirees withdraw 4% from their retirement savings the year they retire, and adjust that dollar amount each year going forward for inflation. Based on historical data, the idea is that the 4% rule should allow retirees to cover their expenses for 30 years.

The rule is intended to give retirees some planning guidance about retirement withdrawals. The 4% rule may also help provide them with a sense of how much money they need for retirement.

How to Calculate the 4% Rule

To calculate the 4% rule, add up all of your retirement investments and savings and then withdraw 4% of the total in your first year of retirement. Each year after that, you increase or decrease the amount, based on inflation.

For example, if you have $1 million in retirement savings in an online investment account, you would withdraw 4% of that, or $40,000, in your first year of retirement. If inflation rises 3% the next year, you would increase the amount you withdraw by 3% to $41,200.

Drawbacks of the 4% Rule

While the 4% rule is simple to understand and calculate, it’s also a rigid plan that doesn’t fit every investor’s individual situation. Here are some of the disadvantages of the 4% rule to consider.

It doesn’t allow for flexibility

The 4% rule assumes you will spend the same amount in each year of retirement. It doesn’t make allowances for lifestyle changes or retirement expenses that may be higher or lower from year to year, such as medical bills.

The 4% rule assumes that your retirement will be 30 years

In reality, an individual’s retirement may be shorter or longer than 30 years, depending on what age they retire, their health, and so on. If someone’s life expectancy goes beyond 30 years post-retirement they could find themselves running out of money.

It’s based on a specific portfolio composition

The 4% rule applies to a portfolio of 50% stocks and 50% bonds. Portfolios with different investments of varying percentages would likely have different results, depending on that portfolio’s risk level.

It assumes that your retirement savings will last for 30 years

Again, depending on the assets in your portfolio, and how aggressive or conservative your investments have been, your portfolio may not last a full 30 years. Or it could last longer than 30 years. The 4% rule doesn’t adjust for this.

4% may be too conservative

Some financial professionals believe that the 4% rule is too conservative, as long as the U.S. doesn’t experience a significant economic depression. Because of that, retirees may be too frugal with their retirement funds and not necessarily live life as fully as they could.

Others say the rule doesn’t take into account any other sources of income retirees may have, such as Social Security, company pensions, or an inheritance.

How Can I Tailor the 4% Rule to Fit My Needs?

You don’t have to strictly follow the 4% rule. Instead you might choose to use it as as a starting point and then customize your savings from there based on:

• When you plan to retire: At what age do you expect to stop working and enter retirement? That information will give you an idea about how many years worth of savings you might need. For instance, if you plan to retire early, you may very well need more than 30 years’ worth of retirement savings.

• The amount you have saved for retirement: How much money you have in your retirement plans will help you determine how much you can withdraw to live on each year and how long those savings might last. Also be sure to factor in your Social Security benefits and any pensions you might have.

• The kinds of investments you have: Do you have a mix of stocks, bonds, mutual funds, and cash, for instance? The assets you have, how aggressive or conservative they are, and how they are allocated plays an important role in the balance of your portfolio. An investor might want assets that have a higher potential for growth but also a higher risk tolerance when they are younger, and then switch to a more conservative investment strategy as they get closer to retirement.

• How much you think you’ll spend each year in retirement: To figure out what your expenses might be each year that you’re retired, factor in such costs as your mortgage or rent, healthcare expenses, transportation (including gas and car maintenance), travel, entertainment, and food. Add everything up to see how much you may need from your retirement savings. That will give you a sense if 4% is too much or not enough, and you can adjust accordingly.

Should You Use the 4% Rule?

The 4% rule can be used as a starting point to determine how much money you might need for retirement. But consider this: You may have certain goals for retirement. You might want to travel. You may want to work part-time. Maybe you want to move into a smaller or bigger house. What matters most is that you plan for the retirement you want to experience.

Given those variations, the 4% rule may make more sense as a guideline than as a hard-and-fast rule.

Having flexibility in planning for withdrawals in retirement means saving as much as possible first. A starting place for many people is their workplace 401(k), but that’s not the only way you can save for retirement. For instance, those who don’t have access to a workplace retirement account might want to open an IRA or a retirement savings plan for the self-employed to invest for their future.

The Takeaway

The 4% rule represents a percentage that retirees can withdraw from their retirement savings annually (increasing or decreasing the amount each year, based on inflation) and theoretically have their savings last a minimum of 30 years. For example, in the first year in retirement, someone following this rule could withdraw $20,000 from a $500,000 retirement account balance.

However, the 4% rule has limitations. It’s a rigid strategy that doesn’t take factors like lifestyle changes into consideration. It assumes that your retirement will last 30 years, and it’s based on a specific portfolio allocation. A more flexible plan may be better suited to your needs.

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FAQ

How long will money last using the 4% rule?

The intention of the 4% rule is to make retirement savings last for approximately 30 years. But exactly how long your money may last will depend on your specific financial and lifestyle situation.

Does the 4% rule work for early retirement?

The 4% rule is based on a retirement age of 65. If you retire early, you may have more years to spend in retirement and your financial needs will likely be different. In this instance, the 4% rule may not give you enough income to sustain you through all the years of retirement.

Does the 4% rule preserve capital?

With the 4% rule, the idea is to withdraw 4% of your total funds and allow the remaining money in the account to keep growing. Because the withdrawals would at least partly consist of dividends and interest on savings, the amount withdrawn each year would not come totally out of the principal balance.

Is the 4% rule too conservative?

Some financial professionals say the 4% rule is too conservative, and that by using it, retirees may be too frugal with their retirement funds and not live as comfortable a life as they could. Others say withdrawing 4% of retirement funds could be too much because the rule doesn’t take into account any other sources of income retirees may have, such as Social Security.

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q425-016

Nov

2025

In the Money (ITM) vs Out of the Money (OTM) Options

In the Money vs Out of the Money Options: Main Differences

By Brian Nibley | Growing Wealth, invest, Investing | Comments Off

Editor's Note: Options are not suitable for all investors. Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Please see the Characteristics and Risks of Standardized Options.

Table of Contents

What Does “In the Money” Mean?
What Does “Out of the Money” Mean?
What’s the Difference Between In the Money and Out of the Money?
Should I Buy ITM or OTM Options?
Frequently Asked Questions

In options trading, knowing the difference between being “in the money” (ITM) and “out of the money” (OTM) allows the holder of a contract to know whether they might realize a profit from their option. The terms refer to the relationship between the option contract’s strike price and the market value of the underlying asset.

“In the money” refers to options that may be profitable if exercised today, while “out of the money” refers to those that lack intrinsic value. In the rare case that the market price of an underlying security reaches the strike price of an option exactly at the time of expiry, this is considered an “at the money option.”

Key Points

• Understanding the difference between “in the money” and “out of the money” options can help options traders gauge potential profitability.

• Options classified as “in the money” have intrinsic value and may be profitable if exercised, while “out of the money” options lack intrinsic value and may expire worthless.

• The potential for profit from options largely depends on the relationship between the strike price and the current market price of the underlying asset.

• Options based on assets with higher volatility are often written “out of the money,” which can appeal to speculators due to their typically lower premiums and the potential for larger price swings.

• Decisions to buy “in the money” or “out of the money” options should align with an investor’s goals, risk tolerance, and outlook for the underlying asset’s future performance.

What Does “In the Money” Mean?

In the money (ITM) describes a contract that may result in a profit if its owner were to choose to exercise the option today. If this is the case, the option is said to have intrinsic value.

A call option would be in the money if the strike price is lower than the current market price of the underlying security. An investor holding such a contract could exercise the option to buy the security at a discount and potentially sell it for a profit.

Put options, which are a way to speculate on a decline of a stock (known as shorting a stock), would be in the money if the strike price is higher than the current market price of the underlying security. A contract of this nature allows the holder to sell the security at a higher price than it currently trades for and potentially profit from the difference.

In either case, an in the money contract has intrinsic value, so the options trader may choose to exercise the option to profit from it, assuming the gains exceed the premiums paid to purchase the contract.

Example of In the Money

For example, say an options trader owns a call option with a strike price of $15 on a stock currently trading at $17 per share. This option would be in the money because its owner could exercise the option to realize a profit. The contract gives the holder the right to buy 100 shares of the stock at $15, even though the market price is currently $17.

The contract holder could take shares acquired through the contract for a total of $1,500 and potentially sell them for $1,700, hypothetically realizing a profit of $200 minus the premium paid for the contract and any associated trading fees or commissions.

While call options give the holder the right to buy a security, put options give holders the right to sell. For example, say an investor owns a put option with a strike price of $10 on a stock that is trading at $8 per share. This would be an in the money option. The holder could sell 100 shares of stock at a price of $10 for a total of $1,000, even though those shares are only worth $800 shares on the market. The contract holder would then realize that difference of $200 as profit, minus the premium and any fees.

What Does “Out of the Money” Mean?

Out of the money (OTM) is the opposite of being in the money. OTM contracts do not have intrinsic value. If an option is out of the money at the time of expiration, the contract expires worthless. Options are out of the money when the relation of their strike prices to the current market price of their securities is the opposite of in the money options: they have no intrinsic value but may still carry time value before expiration.

For calls, an option with a strike price higher than the current price of the underlying security would be out of the money. Exercising such an option through a brokerage (or online brokerage) would result in an investor buying a security for a price higher than its current market value.

For puts, an option with a strike price lower than the current price of its security would be out of the money. Exercising such an option would cause an investor to sell a security at a price lower than its current market value.

In either case, the contracts are out of the money because they don’t have intrinsic value – anyone exercising those contracts could incur a loss.

Example of Out of the Money

Say an investor buys a call option with a strike price of $15 on a stock currently trading at $13. This option would be out of the money. An investor might buy an option like this in the hopes that the stock may rise above the strike price before expiration, in which case a profit may be realized.

Another example would be an investor buying a put option with a strike price of $7 on a stock currently trading at $10. This would also be an out of the money option. An investor might buy this kind of option with the belief that the stock may fall below the strike price before expiration.

What’s the Difference Between In the Money and Out of the Money?

The premium of an options contract involves two different factors: intrinsic value and extrinsic value. Options that have intrinsic value at the time they are written have a strike price that is favorable relative to the current market price. In other words, such options are already in the money when written.

But not all options are written ITM. Those without intrinsic value rely instead on their extrinsic value. This value comes from speculative bets that investors make over a period of time. For this reason, options contracts based on assets with higher volatility are often written out of the money, as investors anticipate there may be bigger price swings. Lower options premiums could make these contracts appealing, despite possible lower probabilities of profit. Conversely, assets considered to be less volatile often have their options written in the money.

Options written out of the money may appeal to speculators because their contracts may come with lower premiums and offer a high potential payoff relative to cost, despite a lower chance of expiring in the money.

Should I Buy ITM or OTM Options?

The answer to this question depends on an investor’s goals and risk tolerance. Options that are further out of the money may offer higher potential rewards but can come with greater risk, uncertainty, and volatility. Whether an option is in or out of the money (and the extent that it’s out of the money), can impact the premium for that option, as can the amount of time before expiry and its level of implied volatility.

Whether to buy ITM or OTM options also depends on how confident an investor feels about the future of the underlying asset. If a trader believes that a particular stock may trade at a much higher price three months from now, then they might not hesitate to buy a call option with a very high strike price, which would be both deeply out of the money and likely lower cost.

Conversely, if an investor thinks a stock may decline in value, they might buy a put option with a very low strike price, which would also make the option out of the money and lower cost.

Beginning options traders and those with lower risk tolerance may prefer buying options that are only somewhat out of the money or those that are in the money. These options often have lower premiums than in-the-money contracts, and cost more than deeply out-of-the-money options, striking a balance between affordability and probability. There are also generally greater odds that the contract might end up in the money before expiration, as it requires a less dramatic move to make that happen.

Investors can also choose to combine multiple options legs into a spread strategy that attempts to take advantage of both possibilities.

Recommended: 10 Important Options Trading Strategies

Test your understanding of what you just read.

The Takeaway

In options trading, “in the money” refers to options that offer profit potential if exercised immediately (having extrinsic value), while “out of the money” refers to those that don’t (lacking intrinsic value). Options contracts don’t necessarily have to be exercised for a trader to realize a profit from them. Sometimes investors buy out-of-the-money contracts with the intent of selling them on the open market for a profit if they move into the money before expiration. Though, of course, they risk losing the premium paid if the option remains out of the money and expires worthless.

In either case, it’s important to consider if an option is in the money or out of the money when buying or writing options contracts, as well as when deciding when to execute them. Options trading is an advanced investing strategy, and investors may benefit from understanding the risks before participating or consulting a financial professional for guidance.

SoFi’s options trading platform offers qualified investors the flexibility to pursue income generation, manage risk, and use advanced trading strategies. Investors may buy put and call options or sell covered calls and cash-secured puts to speculate on the price movements of stocks, all through a simple, intuitive interface.

With SoFi Invest® online options trading, there are no contract fees and no commissions. Plus, SoFi offers educational support — including in-app coaching resources, real-time pricing, and other tools to help you make informed decisions, based on your tolerance for risk.

Explore SoFi’s user-friendly options trading platform.

Frequently Asked Questions

What is the difference between in the money and out of the money?

ITM options have intrinsic value because the strike price is favorable relative to the market price. OTM options have no intrinsic value and would not be profitable if exercised immediately. ITM options generally cost more, while OTM options tend to have lower premiums and rely on the price of the underlying asset moving in a favorable direction before expiration.

What is the difference between ITM and OTM options?

ITM options can be exercised at a price that’s better than the current market value, giving them intrinsic value. OTM options have strike prices that are not favorable relative to the market price and therefore have no intrinsic value. ITM options are more expensive but carry a higher probability of expiring with value, while OTM options are cheaper but more speculative.

What is the difference between an out-of-the-money and in-the-money put?

An ITM put has a strike price above the current market price of the underlying asset, which gives it intrinsic value. An OTM put has a strike price below the current market price, so it cannot currently be exercised for a profit. The difference lies in whether the put option would generate value if exercised immediately.

How can you tell if an option is in or out of the money?

Check the relationship between the option’s strike price and the current market price of the underlying asset. A call is in the money when the strike price is below the market price; it’s out of the money when the strike is above. For puts, it’s the opposite: the option is in the money when the strike is above the market price and out of the money when it’s below.

Photo credit: iStock/damircudic

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SOIN-Q325-031

Nov

2025

What are Underlying Assets?

By Brian O'Connell | Growing Wealth, invest, Investing | Comments Off

Table of Contents

What Is an Underlying Asset?
How Underlying Assets Work
5 Different Types of Underlying Assets
FAQ

Underlying assets are the financial instruments (stocks, bonds, and commodities) that help determine the value of derivatives (options, futures, and swaps). These assets serve as the foundation for many trading strategies, influencing how derivatives contracts are priced and how risk is managed in the market.

Here, we look at the role of underlying assets in derivatives trading, and outline the five of the most common types used by investors.

Key Points

• Underlying assets are the securities derivatives are based on, such as stocks, bonds, and commodities.

• Investors may trade derivatives to speculate and attempt to profit from the future price movements of underlying assets, or to hedge against risk.

• Derivatives prices are based on the price of the underlying asset, as well as potentially other factors, depending on the type of derivative.

• Derivatives carry high risk and are complex, often requiring advanced trading knowledge.

• These financial instruments may be used by investment firms, hedge funds, institutional investors, and retail investors.

What Is an Underlying Asset?

An underlying asset is a financial instrument, like a stock, bond, or commodity, that helps determine the value of a related derivative contract. Underlying assets can be individual securities (like stocks or bonds) or groups of securities (like in an index fund).

A derivative is a financial contract between two or more parties based on the current or future value of an underlying asset. Derivatives can take many forms, involving trading in widely used markets like futures, equity options, swaps, and warrants, among others.

These contracts can involve significant risk as investors speculate on the future price movements of an underlying asset. An investor may profit if the price of the underlying asset moves as they anticipated, but they could potentially face steep losses if the price moves in an adverse direction. Derivatives are also often used to hedge against potential losses in other investments.

How Underlying Assets Work

To illustrate how underlying assets work in the derivatives market, consider options trading as an example.

An option is a financial derivative that gives the contract holder the right, but not the obligation, to buy or sell an underlying security by or at a specific time and at a specific price. When an option is exercised by the contract holder, that means the holder has exercised the right to buy or sell an underlying asset.

Options come in two specific categories: puts and calls.

• Put options allow the options owner to sell an underlying asset (such as a stock or commodity) at a certain price and on or by a certain date (known as the expiration date).

• Call options enable the owner to buy an underlying asset (like a stock or a commodity) at a certain price and on or by a certain date.

The underlying asset first comes into play when that options contract is initiated.

Example of an Underlying Asset in Play

Suppose an investor believes the price of a company’s stock is going to rise. The stock is currently trading at $275 per share, and so they opt to purchase a call option with a strike price of $285. The contract is struck on September 1 and the options contract expiration date is November 30.

Now that the contract is up and running, the performance of the underlying asset (the stock) can determine whether the option becomes profitable or expires worthless.

In this scenario, the options owner now has the “option” (hence the name) to buy 100 shares of the stock at $285 per share on or before November 30. If the underlying stock, which is now trading at $275, moves above the $285 strike price, the options owner can exercise the contract and potentially profit from the difference between the strike price and the market price.

If, for example, the stock slides to $290 per share in the options contract timeframe, the call options owner can exercise the purchase of the stock at $285 per share, $5 below its current value of the stock (i.e., the underlying asset). With each contract typically representing 100 shares of stock, the profits can add up on the call option investment.

If, on the other hand, the stock remains below the $285 per share level, and the November 30 deadline has come and gone, the options owner would not exercise the contract, since the stock is now worth less than the $285 strike price. That’s also the price the options owner has to pay for the stock by the expiration date.

Keep in mind, too, that options buyers must also take into account the amount they spent to purchase the options contract, since this would detract from their potential profits. If for example, the premium for a contract was $1 per share, or $100 total, they would need the price of the underlying asset to rise above $286 (the breakeven point) to profit.

This scenario represents the importance of the underlying asset. The derivatives investment depends entirely on the performance of the underlying asset, with abundant risk for derivative speculators who’ve taken positions on the underlying asset moving in a certain direction over a certain period of time.

5 Different Types of Underlying Assets

Underlying assets come in myriad forms in the derivatives trading market, with certain assets being used more frequently due to their liquidity and price volatility.

Here’s a snapshot.

1. Stocks

One of the most widely used underlying assets is stocks, which is only natural given the pervasiveness of stocks in the investment world.

Derivatives traders rely on equities as benchmark assets when making market moves. Since stocks are so widely traded, it gives derivatives investors more options to speculate, hedge, and generally leverage stocks as an underlying asset.

2. Bonds and Fixed Income Instruments

Bonds, typified by Treasury, municipal, and corporate bonds, among others, are also used as derivative instruments. Since bond prices do fluctuate based on general economic and market conditions, derivative investors may try to leverage bonds as an underlying asset as both bond interest rates and prices fluctuate.

3. Index Funds

Derivative traders also use funds as underlying assets, especially exchange-traded funds (ETFs), which are widely traded in short-term (or intra-day) trading sessions. Besides being highly liquid and fairly easy to trade, exchange-traded funds are also tradeable on major global exchanges at any point during the trading day.

That’s not the case with mutual funds, which can only be traded after the day’s trading session comes to a close. The distinction is important to derivative traders, who have more opportunities for market movement with ETFs than they might with mutual funds.

ETFs also cover a wide variety of investment market sectors, such as stocks, bonds, commodities, international and emerging markets, and business sector funds (such as manufacturing, health care, and finance). That availability gives derivatives investors even more flexibility, which is a characteristic investors typically seek with underlying assets.

4. Currencies

Global currencies like the dollar or yen, among many others, are also frequently used by derivative investors as underlying assets. A primary reason is the typically fast-moving foreign currency (FX) market, where prices can change rapidly based on geopolitical, economic, and market conditions.

Currencies usually trade fast and often, which may make for a volatile market — and derivative investors tend to steer cash toward underlying assets that demonstrate volatility, as quick market movements may create short-term profit potential. Given that they move so quickly, currencies can also move in the wrong direction quickly, which is why some financial professionals caution that currency markets may be too volatile for most individual investors.

5. Commodities

Common global commodities like gold, silver, platinum, and oil and gas can also serve as the basis for derivatives contracts traded by investors.

Historically, commodities have been one of the most volatile and fast-moving investment markets. Like currencies, commodities are often highly desirable for derivative traders, but high volatility may lead to significant investment losses in the derivatives market if the investor lacks the experience and knowledge required to trade against underlying assets.

The Takeaway

Underlying assets are the fundamental financial instruments used to create derivatives contracts and strategies. Derivatives, such as options, futures, and swaps, can come with high risk — and trading against those assets requires a comprehensive knowledge of trading, position sizing, leverage, hedging, and speculation.

Explore SoFi’s user-friendly options trading platform.

FAQ

What are underlying assets?

Underlying assets are the foundation of derivatives contracts. They influence how a derivatives contract is priced and serve as the basis of a derivative buyer or seller’s trading strategy. Broadly, investors trade derivatives to try to profit from the future price movements of underlying assets, or to hedge against risk with other assets they own.

What are different types of underlying assets?

The different types of underlying assets may include stocks, bonds, index funds (especially ETFs), global currencies, and commodities like gold and oil. These assets are generally chosen for their liquidity, volatility, and their role as the foundation for various derivatives trading strategies.

Are gold and silver considered underlying assets?

Yes, gold, silver, and other precious metals may serve as underlying assets in derivatives contracts. Precious metals are considered commodities, and derivatives are frequently based on these and other types of commodities, such as oil, gas, and agricultural products. Due to their historical volatility, commodities like gold and silver are often desirable for derivative traders, though these trades entail significant risk.

Photo credit: iStock/MixMedia

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.

Mutual Funds (MFs): 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 clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

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 emailing customer service at [email protected]. Please read the prospectus carefully prior to investing.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

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.

SOIN-Q325-032

Nov

2025

Three white dollar-sign symbols, drawn in chalk, are set against a blue background.

Guide to Liquid Certificates of Deposit (CDs)

By Paulina Likos | Family Finances, Investing, money | Comments Off

Table of Contents

What Is a Liquid Certificate of Deposit?
Understanding a Liquid CD
How Do You Withdraw Money From a Liquid CD?
Liquid CD: Real World Example
Pros of a Liquid CD
Cons of a Liquid CD
Alternatives to a Liquid CD
The Takeaway
FAQ

If you’re in search of a low-risk way to grow your money, a liquid certificate of deposit (CD) might be worth a closer look. A liquid CD gives you a fixed, guaranteed rate of interest for a specific term, but unlike standard CDs, you don’t pay a penalty if you withdraw the funds before the maturity date.

Granted, the returns you earn on a liquid CD may not compete with stock market investments, but knowing that your money is earning interest and likely won’t incur any losses can be powerful benefits.

Key Points

• Liquid CDs allow for flexible withdrawals without penalties.

• They offer guaranteed, fixed interest rates, generally lower than traditional CDs.

• Liquid CDs are safe, insured investments up to $250,000.

• Withdrawal rules can vary, impacting flexibility.

• Earnings from liquid CDs are federally taxable.

🛈 SoFi does not currently offer certificates of deposit.

What Is a Liquid Certificate of Deposit?

Before you think about investing in a CD, here’s a look at definitions:

• A certificate of deposit, or CD, is a savings vehicle that usually gives you a bit of interest with virtually no risk, provided you keep the money in place for a certain term. If, however, you withdraw funds before the CD matures (or reaches the end of its term), you are usually penalized. You will likely lose some or all of the interest earned and perhaps even a bit of the principal. In other words, are certificates of deposit liquid? Usually not.

• A liquid certificate of deposit, on the other hand, gives you flexibility. It allows the account holder to withdraw money from their account prior to the maturity date without incurring penalties. This means you can access funds in the CD should you need them without penalty. However, the rates for liquid CDs tend to be lower than other kinds of CDs.

Understanding a Liquid CD

You may wonder what liquid assets are. In the realm of finance, the concept of “liquid” means that an asset (like money in a checking or savings account) can quickly be converted to cash. A liquid CD is a time-bound deposit account where you can earn interest for a specific period of time. Compared to traditional CD’s however, liquid CDs typically will not charge you early withdrawal penalties. This means you can easily liquidate (turn into cash) your CD without taking a hit in terms of its value.

As noted above, there’s a “but” to this proposition, which you may hear referred to as no-penalty CDs: Liquid CDs typically pay less than traditional CDs. Depending on which financial institution you go to, these products can offer various terms, either as little as a few months or up to several years or longer. Your fixed interest rate will vary according to the length of the term you’ve chosen. Typically, the longer you hold your money in the liquid CD, the higher the rate of return.

What can be a big plus about CD rates is that they are locked in during the full term. This means even if interest rates decrease, your rate would not change. Some financial institutions may require a minimum deposit for these CDs, and they can be significantly higher than traditional CDs; some are at the $10,000 and up level. What’s more, the minimum deposit may go up if you are seeking a higher interest rate, while others don’t have a minimum deposit requirement at all.

How Do You Withdraw Money From a Liquid CD?

If you have decided that you need to withdraw from your liquid CD, here’s what usually happens:

• Check with your bank about how long it will take to process a withdrawal and whether you need to withdraw a certain percentage at a time. (Some banks may require you to close the account entirely.)

• When ready, notify your bank of your withdrawal.

• You will likely have to wait about a week after opening the liquid CD before you can start withdrawing.

• Wait for your funds. Withdrawal is likely not as quick as withdrawing funds from a checking or savings account; your financial institution might require anywhere from a week to a month to process the transaction.

Liquid CD: Real World Example

Once you have decided a no-penalty CD is right for you, you will need to go to a bank or credit union that offers this account. Once you’ve opened an account, you have to fund it.

How it grows will depend on the principal, your APY (annual percentage yield), and how often the CD compounds the interest, which could be, say, daily or monthly.

• If you invested $10,000 in a liquid CD with a three-year at a rate of 4.00%, at the end of the three-year period with interest compounded monthly, you will have a total balance of about $11,248.64.

Pros of a Liquid CD

When evaluating liquid CDs, it’s worthwhile to review the benefits of these accounts. Some of the key upsides are:

• Liquidity. You can access and withdraw your funds prior to the term’s end. Perhaps you’re having an emergency that requires cash, or you decide to move around your money to better meet your financial goals. It’s possible!

• No penalties. If you dip into the account before it matures, you won’t be assessed a fee.

• Security. Liquid CDs are safe investments. These accounts are federally insured up to $250,000 per depositor, per account ownership category, per insured institution by the FDIC or NCUA. You’ll know your money is protected when you open a liquid CD with a bank or credit union. Even in the very rare situation of a bank failure, you’re covered as noted.

• Guaranteed returns. When you start a liquid CD account, you usually know the interest rate upfront. It may not be stratospheric, but it’s a sure thing.

Cons of a Liquid CD

Now that we’ve explored the good things about a liquid CD, we need to give equal time to the potential downsides:

• Lower rate of return. The interest rates are significantly lower compared to certificate of deposit rates.

• Withdrawal rules. Yes, these accounts are more accessible, but after your deposit has been in place for a week, your withdrawal guidelines may be quite specific. For instance, you may have to remove all your funds if you want to make a withdrawal, or the amount might be limited to a certain percentage that doesn’t suit your needs. Check before starting a liquid CD investment.

• Tax implications. Earnings on your liquid CD will be taxed at your federal rate, which is something to keep in mind as that will take your return down a notch.

Recommended: How to Make Money From Home

Alternatives to a Liquid CD

If the idea of a liquid CD doesn’t sound like an appealing low-risk investment option, there are alternatives to also consider.

Traditional CDs

Traditional certificates of deposit require you to stow your money away for a certain period of time. In exchange, you receive a return at the end of that period. The catch is, you are not able to withdraw your funds during this holding period. If you have a financial emergency, for example, and need the money from your CD, you will receive penalties for withdrawing your cash before the period of maturity.

However, this might be a gamble you are willing to take, especially if you have a nice, healthy emergency fund set aside. You’ll earn a better rate of return than with a liquid CD.

Laddering

CD laddering usually involves opening CDs of different term lengths. This strategy allows you to invest long-term CDs which provide higher rates of return, while having the ability to access your funds through a shorter-term CD maturing.

Money Market Account

Another CD alternative is a money market account, which is similar to a savings account with some added benefits. Money market accounts typically require minimum balances and offer rates comparable to savings accounts, which can change over time. While the rates may be lower than a CD, money market accounts typically allow you to withdraw and transfer your money six times per month or more.

Emergency Fund

An emergency fund, or a rainy-day fund, is a savings account that should only be used in times of financial emergencies or unexpected expenses. Depending on your financial position, you can have an emergency fund in a regular savings account, money market account, CD, or liquid CD. It depends on how much you plan to access your emergency fund and how much interest you want to earn in the account.

High-Yield Savings Account

A high-yield savings account can offer a competitive rate of interest, depending on the financial institution offering it (online banks tend to pay more than traditional ones). And you’ll have more liquidity than a CD because you can deposit and withdraw from the account more frequently, though the specifics may vary with each bank. If you want easy access to your funds plus interest, a high-yield bank account may be a good option.

The Takeaway

Liquid CDs are a financial product that offers the safety and guaranteed return of a traditional CD with the bonus of not being penalized if you make an early withdrawal. For those who are comfortable locking their money into a CD but worry an emergency or other need might pop up, this accessibility can be very attractive. Worth noting: Expect lower interest rates from a liquid CD than a standard one. Alternatives to a liquid CD can include a high-yield savings account.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with eligible 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 3.30% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

Are CDs liquid investments?

Traditional CDs are not liquid investments. Funds held in a CD cannot be accessed until the account term is reached. If you need to withdraw money from your CD prior to its maturity date, you will have to pay a penalty. A liquid CD, however, offers flexibility to withdraw money from your account prior to its term date without the usual fees.

What is a non-penalty CD?

A non-penalty CD, also known as a liquid CD, is a time deposit that offers interest on your money. However, the rate is usually somewhat lower than the rate for a typical CD (the kind with penalties). The longer the term you choose for your liquid CD, the more you usually can earn.

How much is the penalty for early withdrawal from a CD?

Each financial institution has its own way of calculating this, but it usually involves losing some of all of the interest you have accrued. If you have a two-year traditional CD and withdraw funds early, the fee could vary considerably; it might equal two months’ or a year’s’ worth of interest. If you have a liquid or no-penalty CD, you will of course avoid these fees.

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SOBNK-Q425-020

Oct

2025

Crypto Wallets vs Crypto Exchanges: How They Compare

Crypto Exchange vs Crypto Wallet: Key Differences and How to Choose

By Julia Califano | Growing Wealth, invest, Investing | Comments Off

Table of Contents

Why Knowing the Difference Between Crypto Wallets and Exchanges Is Essential
What Is a Crypto Exchange?
What Is a Crypto Wallet?
Crypto Exchange vs Crypto Wallet
How to Move Crypto From an Exchange to a Wallet
Common Mistakes to Avoid With Exchanges and Wallets
FAQ

If you’re getting started with cryptocurrency, one of the first things you’ll need to understand is the difference between a crypto exchange and a crypto wallet. At first they may seem similar since both let you handle your digital assets, but they actually serve different purposes.

A crypto exchange is an online platform where you can buy and sell cryptocurrencies. A crypto wallet is where you securely store and manage the keys needed to access your cryptocurrencies. Both exchanges and wallets are essential for navigating the crypto world, but knowing how they differ is key to keeping your assets safe. This guide explains how each works, what sets them apart, and how to choose the right platforms and tools for your needs.

Key Points

• Exchanges enable buying and selling of cryptocurrencies, while wallets store and manage private keys.

• Many exchanges provide wallet services as a convenience for customers.

• Private wallets offer self-management of keys and greater control.

• Offline wallets are generally more secure than online and custodial wallets.

• Exchanges require identity verification, but wallets can be used anonymously, enhancing privacy.

🛈 While SoFi members may be able to buy, sell, and hold a selection of cryptocurrencies, such as Bitcoin, Solana, and Ethereum, other cryptocurrencies mentioned may not be offered by SoFi.

Why Knowing the Difference Between Crypto Wallets and Exchanges Is Essential

While the terms “crypto wallet” and “crypto exchange” are sometimes used interchangeably, they aren’t the same thing. A crypto wallet is a piece of hardware or software that enables you to access your cryptocurrencies, which are technically stored on the blockchain. Crypto exchanges, on the other hand, are online marketplaces where users can buy and sell crypto.

The idea of a crypto wallet vs. exchange can be confusing for beginners, however, because many exchanges provide wallet services to account holders — these are known as custodial wallets.

Control, Security, and Risk Management

While you can use custodial wallets (which live on an exchange) to store your crypto keys and manage your assets, the wallet itself is technically owned and controlled by the exchange. A personal crypto wallet, by contrast, puts you in charge, allowing you to store and secure your private keys independently.

Dangers of Confusing Exchanges and Wallets

Leaving assets on an exchange for long-term storage (using a custodial wallet) comes with some risks. Unlike non-custodial wallets where you control your own keys, a custodial wallet requires you to trust the exchange with the security and management of your funds. If the provider encounters technical difficulties, goes bankrupt, or restricts withdrawals, users could lose access to their assets. If the exchange gets hacked, a user’s funds could potentially be lost.

What Is a Crypto Exchange?

A crypto exchange is a marketplace for cryptocurrencies. It primarily serves as a platform where crypto prices are listed and people can buy and sell crypto. Many exchanges also provide their users with wallet services, though that is not their main purpose. Some exchanges also offer other financial services such as credit and debit cards and crypto-backed loans.

Core Functions and Services

The core function of a crypto exchange is to act as a marketplace for buying and selling cryptocurrencies and other digital assets. It facilitates transactions between buyers and sellers, matching orders based on price and liquidity, and typically charges a fee for these services.

Many exchanges also provide a platform where users can convert fiat currency (government-backed currency) such as the U.S. dollar to digital assets and swap one cryptocurrency for another.

Types of Exchanges

There are two main types of cryptocurrency exchanges — centralized and decentralized. Here’s a closer look at how each one works.

Centralized (CEX)

A centralized crypto exchange (CEX) is an online platform operated by a single, for-profit company that acts as an intermediary, facilitating the buying and selling of cryptocurrencies. Different CEXs work in different ways, but generally customers deposit assets into a custodial wallet managed by the exchange and submit their trading instructions. An internal order book tracks and prioritizes these requests, which are then automatically executed to settle trades and credit users’ accounts.^[1]

CEXs typically offer user-friendly interfaces, strong customer support, and fiat-to-crypto exchanges, making them appealing to beginners.

Decentralized (DEX)

A decentralized exchange (DEX) is a peer-to-peer crypto trading platform that operates without a central authority or intermediary. Instead of a company managing funds and transactions, DEXs use blockchain technology and smart contracts (self-executing, automated contracts) to enable direct transactions between users.

Unlike most centralized exchanges, DEX users make transactions directly from their wallets, keeping full control of their assets. Without an intermediary, however, DEXs offer little or no customer support, which means that user mistakes can result in permanent loss of funds. In addition, DEXs typically don’t support fiat-to-crypto trades and require users to know their way around wallets, private keys, and smart contracts. As a result, they generally aren’t ideal for beginners.

How Exchanges Enable Buying and Selling

Crypto exchanges match buyers and sellers of specific assets and facilitate swaps between the two. However, there’s a lot that happens in the background to enable these transactions.

Account Creation, KYC, and Regulatory Aspects

Centralized exchanges require users to complete Know Your Customer (KYC) verification, which entails submitting ID documents to comply with anti-money laundering (AML) laws. While this adds legitimacy, it reduces anonymity.

DEX users can usually remain more anonymous. These exchanges generally do not require identity verification (KYC) or personal account creation, allowing users to transact directly from their own crypto wallets.

Exchange Fee Structures and Hidden Costs

Crypto exchanges typically charge fees for their services. They are the main way these exchanges make money and can vary significantly depending on the platform and type of transaction. Common types of fees include:^[2]

• Trading fees: These are fees charged for buying or selling cryptocurrencies (sometimes referred to as maker and taker fees).

• Deposit fees: This is the cost of transferring funds (fiat or crypto) into your exchange account.

• Withdrawal fees: This is a fee for transferring funds out of the exchange.

• Network fees: These are blockchain-related fees that are not controlled by the exchange.

Security Protocols and Risks on Exchanges

Reputable exchanges will employ a variety of security features. These may include:

• Whitelisting withdrawal addresses (this means users can only withdraw to pre-approved wallet addresses)

• Withdrawal time delays and approval requirements

• AI-driven transaction monitoring to flag suspicious withdrawals

• Daily or weekly withdrawal limits

• End-to-end encryption and secure data handling

Still, crypto exchanges remain high-profile targets for hackers. If an exchange is compromised (or were to collapse or go bankrupt), you could lose your funds. Unlike bank deposits, cryptocurrency holdings in wallets are not covered by Federal Deposit Insurance Corporation (FDIC) insurance.

What Is a Crypto Wallet?

A crypto wallet is a tool — digital or physical — that stores your cryptocurrency keys and allows you to send and receive funds securely.

Main Purpose and How Crypto Wallets Work

The term “crypto wallet” is somewhat misleading because it doesn’t hold your digital assets. Instead, a wallet securely stores the private keys that prove your ownership of cryptocurrency on the blockchain. When you make a transaction, your wallet uses your private key to sign and authorize the transfer.

Types of Crypto Wallets

Crypto wallets generally fall into one of two categories: software wallets (or hot wallets) and hardware wallets (cold wallets). Software wallets can be further subdivided into custodial and non-custodial. Here’s a closer look at the different types of crypto wallets.

Hardware Wallets (Cold Storage)

Hardware wallets are small, physical devices (resembling USB sticks) that hold a user’s private keys offline or in “cold storage.” By keeping private keys separate from the cloud and connected computers, hardware wallets protect them from online threats like malware and hacking. However, hardware wallets have an upfront cost and are less convenient for making frequent transactions. They also carry physical risks like being lost, stolen, or damaged.

Software Wallets (Hot Wallets)

A software wallet, also known as a hot wallet, is a digital wallet that is constantly connected to the internet. These wallets are designed to store private keys on internet-connected devices like smartphones, desktop computers, or through web browser extensions. Hot wallets can be custodial (part of an exchange) or non-custodial, where you have control over your private keys.

Hot wallets allow for easy and quick access to your crypto, but are more vulnerable to cyberthreats, such as hacking and malware. Due to the higher security risk, they are generally best for holding small amounts of crypto.

Paper Wallets

A paper wallet is a physical document where a user writes or prints out their public and private keys. This method keeps keys away from online threats like hackers but carries risks of physical damage or loss. If you lose your keys, you may lose access to your holdings.

Custodial vs Non-Custodial Options

In a custodial wallet, a third party service holds and manages your private keys. This offers convenience and easy recovery but requires you to trust them with your assets. In contrast, a non-custodial wallet gives you complete control and ownership of your private keys. This offers more privacy and potentially higher security, but makes you fully responsible for their safekeeping and recovery.

Understanding Private Keys and Public Addresses

There are two main parts to a crypto wallet: the private key and the public key. The private key is a secret, unique code that gives you the ability to access and spend your cryptocurrency. If someone gets access to your private key, they have full control of your funds, so it must be kept highly secure.

The public key is mathematically linked to the private key but does not compromise your security when shared. The public key is used to generate a public cryptocurrency address, which is a shorter, more convenient version of the public key for sending and receiving funds. This public address is like a bank account number that anyone can use to send cryptocurrency to your wallet.

Security Features and Backup/Recovery Methods

Crypto wallets can have a number of security features, depending on the type of wallet. A software wallet will typically require two-factor authentication (2FA) for access. A hardware wallet might have biometric authentication features, so you can’t physically get into your wallet unless you can scan your fingerprints, for example.

Non-custodial wallets typically generate a seed phrase, which is also known as a recovery phrase. A seed phrase is a randomly generated list of words (typically 12 to 24) words that acts as a master key for your cryptocurrency wallet. It provides a backup mechanism that allows you to restore access to your private keys if you lose your device, forget your password, or need to restore your wallet on a new device.

Privacy and Anonymity Considerations

The type of crypto wallet you choose plays a major role in determining your level of privacy and anonymity.

Custodial wallets, such as those offered by exchanges, require users to complete identity verification (KYC), meaning your transactions are tied to your real identity and stored by a third party. Non-custodial wallets, on the other hand, give you full control over your private keys, allowing for greater privacy since no personal information is required to create or use them. However, even with non-custodial wallets, transactions on blockchains are publicly viewable, which means they generally don’t guarantee complete anonymity.

Wallet Fees and Transaction Costs

Hot wallets, which are software-based and connected to the internet, are typically free. Cold wallets, which are physical devices that store crypto offline, have an upfront cost.

Using your wallet to buy and sell cryptocurrencies will come with some transaction fees. Crypto exchanges charge fees whenever you buy or sell digital currencies on their platforms. In addition, you may be charged fees by the blockchain network to process transactions.

Crypto Exchange vs Crypto Wallet

While crypto wallets and exchanges are two different things, they do have some overlap. Here’s a closer look at how they compare.

Transaction vs Storage Functions

In simple terms, wallets are for storage, while exchanges are for buying and selling. Wallets may have some transaction features, and exchanges may have some storage features, but broadly speaking, those are the two main functions of each.

Who Controls Your Crypto? (Custody and Access)

As mentioned, custody is important to understand. If you own your wallet and your holdings are in that wallet, you are the sole custodian. If you’re using a hot wallet supplied by an exchange, a third party holds your private keys for you.

When using a custodian for your cryptocurrency, you are entrusting your assets to a third party’s honesty, competence, and financial health, rather than maintaining absolute control yourself.

Security Levels and Risk Exposure

Exchanges are online and connected to the internet. Many private wallets are, too, but not all. Cold storage or hardware wallets are the most secure, as they’re offline and untouchable by hackers or bad actors (unless, of course, someone steals the physical device). Overall, exchanges can be inherently less secure than private wallets, depending on the wallet type.

Private Key Access and Responsibility

If you store your crypto keys on an exchange (in a custodial wallet), you access your wallet and funds through an account, using credentials like a username and password.

If you’re using your own private wallet, you’re responsible for keeping it safe and keeping track of your private keys and seed phrases. If you lose those, you could lose access to your holdings — and there may be no way to get help regaining access.

Connectivity: Online (Hot) vs Offline (Cold) Storage

Crypto exchanges are always online (hot), whereas wallets can be hot (software) or cold (hardware/paper).

Regulatory Compliance and KYC Requirements

Exchanges (and custodial wallets) typically must comply with KYC/AML laws. Non-custodial wallets typically do not require submitting any personal data.

Exchange vs Wallet Comparison Table

Here’s a side-by-side comparison of crypto exchanges vs. wallets:

	Crypto Exchange	Crypto Wallet
Primary function	Buying/selling crypto	Storing crypto
Private key access	No	Yes
Security level	Moderate	High (especially hardware)
Connectivity	Always online	Online or offline
Ease of use	Beginner-friendly	Moderate to advanced
Recovery options	Password reset	Seed phrase backup
Custody	Custodial	Non-custodial
Best for	Active crypto users	Long-term holders

How to Move Crypto From an Exchange to a Wallet

If you want to move your crypto from an exchange (where it’s held in a custodial wallet) to a personal wallet, here’s a look at how the process works.

Setting Up and Securing Your Wallet

The process for setting up a wallet will depend on the type of wallet. Generally, you’ll need to:

• Download or purchase a reputable wallet

• Download the official wallet software or app (if applicable)

• Create a “new wallet”

• Set up a strong password to protect your wallet

• Securely back up your recovery (or seed) phrase offline

Step-by-Step Guide to Transferring Cryptocurrency

The steps for transferring your cryptocurrency from an exchange to a personal wallet will vary depending on the exchange and type of wallet you’re using, but these are often the steps involved:

1. Log into your exchange account

2. Navigate to “Withdraw” or “Send”

3. Copy your wallet’s public address for the specific crypto

4. Paste it carefully in the withdrawal form

5. Choose the correct blockchain network

6. Confirm and send

Tips for Smooth Transfers

For safe and secure transfers, you’ll want to:

• Avoid public Wi-Fi when transferring

• Keep devices malware-free

• Never share your private key or seed phrase

• Bookmark official sites to avoid phishing

Common Mistakes to Avoid With Exchanges and Wallets

There are a number of common mistakes people make when using crypto exchanges and wallets. Here are some to be aware of and try to avoid.

Leaving Assets on Exchanges for Too Long

It can be easy to make a transaction on an exchange and then simply leave your holdings in the hot wallet supplied by that exchange — and in the exchange’s custody. While that’s not necessarily unsafe, it could mean that your holdings may be less secure than they would be in your own private wallet.

Failing to Back Up Seed Phrases

Failing to properly back up a seed phrase is a critical mistake in crypto that can lead to permanent loss of funds. A seed phrase is the master key to your wallet, and without it, there is no way to regain access to your assets if your device is lost, stolen, or damaged.

To backup your seed phrase, you’ll want to write it on durable, offline materials like paper or fireproof metal plates and store multiple copies in separate, secure locations.

Falling Victim to Phishing and Scams

Phishing and other crypto scams involve being tricked into revealing personal wallet information or sending cryptocurrency to fraudsters. To avoid this mistake, be wary of unsolicited offers of free tokens or guaranteed high returns; avoid clicking on links in questionable emails/texts; and always check the exact URL of any website to ensure it’s legitimate.

Overlooking Two-Factor Authentication (2FA)

Having to take extra extra steps to get into an account is a hassle, but neglecting to set up 2FA can be a costly mistake. This leaves your accounts vulnerable to unauthorized access and potential loss if your password is compromised.

Forgetting to Test Small Transfers First

Cryptocurrency transactions are irreversible. Once confirmed, funds sent to a wrong address or on an incompatible network are generally lost forever. Sending a trivial amount first can save you from a potentially expensive mistake. Once the test is confirmed, you can proceed with confidence and send the full amount of crypto.

The Takeaway

Crypto wallets and exchanges are different entities. Crypto wallets can be software or hardware based. And while you don’t technically hold actual crypto in a cryptocurrency wallet, these wallets are specially constructed so you can send and receive crypto via different blockchain platforms using private and public keys.

Crypto exchanges are like online marketplaces where people can buy, sell, and swap crypto. You can use a centralized exchange, which is a third-party platform that acts as an intermediary for cryptocurrency transactions, or a decentralized exchange, which allows users to buy and sell cryptocurrencies directly with each other without an intermediary.

SoFi Crypto is back. SoFi members can now buy, sell, and hold cryptocurrencies on a platform with the safeguards of a bank. Access 25+ cryptocurrencies, such as Bitcoin, Ethereum, and Solana, with the first national chartered bank to offer crypto trading. Now you can manage your banking, investing, borrowing, and crypto all in one place, giving you more control over your money.

Learn more about crypto trading with SoFi.

FAQ

Is it better to keep your crypto in a wallet or an exchange?

It is generally safer to store your crypto in a private wallet rather than on an exchange. A private wallet gives you full control of your private keys and complete autonomy over your assets. In contrast, exchanges use custodial wallets, where the exchange holds the private keys for your assets. This means you do not have full control, and your funds are vulnerable to exchange-specific risks, such as hacking, account freezes, or platform bankruptcy. For frequent traders, exchanges may be convenient, but for long-term storage, a hardware or software wallet may be the more secure option.

Should I move my crypto from an exchange to a wallet?

If you have crypto on an exchange, it’s technically in a custodial wallet, where the exchange holds your private keys on your behalf. You must trust the exchange to keep your keys secure, manage your funds, and grant access when you need to make a transaction.

It’s a good idea to move your crypto to a personal wallet, especially for long-term holdings. Exchanges can present risks like hacks and mismanagement, whereas a personal wallet gives you sole control over your private keys and, therefore, your assets.

What should I do if I lose access to my wallet or exchange account?

If you lose access to your private wallet, recovery depends on whether you saved your seed phrase — this is essential for regaining control. Without it, your funds may be unrecoverable. For exchange accounts, contact the exchange’s customer support immediately, verify your identity, and request an account recovery.

Should beginners use an exchange or a wallet?

Beginners often start with an exchange because they offer user-friendly interfaces, built-in wallets, and simple buying and selling options. However, exchanges control your private keys, acting as a custodial third party. Once you become familiar with crypto, you may want to transition to a personal wallet, which can offer greater security.

Do wallets charge transaction fees like exchanges?

Yes, both cryptocurrency wallets and exchanges charge transaction fees, but they are for different purposes. Wallets primarily charge network fees, which compensate the miners or validators who process and secure transactions on the blockchain. In contrast, exchanges typically charge fees for executing buy-and-sell orders. They may also charge withdrawal and deposit fees.

About the author

Julia Califano

Julia Califano is an award-winning journalist who covers banking, small business, personal loans, student loans, and other money issues for SoFi. She has over 20 years of experience writing about personal finance and lifestyle topics. Read full bio.

Article Sources

changelly. Centralized Exchange (CEX) vs Decentralized Exchange (DEX): What’s The Difference?.
Meegle. Crypto Exchange Fees Comparison.

Photo credit: iStock/AndreyPopov

CRYPTOCURRENCY AND OTHER DIGITAL ASSETS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

Cryptocurrency and other digital assets are highly speculative, involve significant risk, and may result in the complete loss of value. Cryptocurrency and other digital assets are not deposits, are not insured by the FDIC or SIPC, are not bank guaranteed, and may lose value.

All cryptocurrency transactions, once submitted to the blockchain, are final and irreversible. SoFi is not responsible for any failure or delay in processing a transaction resulting from factors beyond its reasonable control, including blockchain network congestion, protocol or network operations, or incorrect address information. Availability of specific digital assets, features, and services is subject to change and may be limited by applicable law and regulation.

SoFi Crypto products and services are offered by SoFi Bank, N.A., a national bank regulated by the Office of the Comptroller of the Currency. SoFi Bank does not provide investment, tax, or legal advice. Please refer to the SoFi Crypto account agreement for additional terms and conditions.

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.

SOCRYP-Q325-091

4% Rule for Withdrawals in Retirement

What Is the 4% Rule for Retirement Withdrawals?

How to Calculate the 4% Rule

Drawbacks of the 4% Rule

It doesn’t allow for flexibility

The 4% rule assumes that your retirement will be 30 years

It’s based on a specific portfolio composition

It assumes that your retirement savings will last for 30 years

4% may be too conservative

How Can I Tailor the 4% Rule to Fit My Needs?

Should You Use the 4% Rule?

The Takeaway

FAQ

How long will money last using the 4% rule?

Does the 4% rule work for early retirement?

Does the 4% rule preserve capital?

Is the 4% rule too conservative?

In the Money vs Out of the Money Options: Main Differences

What Does “In the Money” Mean?

Example of In the Money

What Does “Out of the Money” Mean?

Example of Out of the Money

What’s the Difference Between In the Money and Out of the Money?

Should I Buy ITM or OTM Options?

The Takeaway

Frequently Asked Questions

What is the difference between in the money and out of the money?

What is the difference between ITM and OTM options?

What is the difference between an out-of-the-money and in-the-money put?

How can you tell if an option is in or out of the money?

What are Underlying Assets?

What Is an Underlying Asset?

How Underlying Assets Work

Example of an Underlying Asset in Play

5 Different Types of Underlying Assets

1. Stocks

2. Bonds and Fixed Income Instruments

3. Index Funds

4. Currencies

5. Commodities

The Takeaway

FAQ

What are underlying assets?

What are different types of underlying assets?

Are gold and silver considered underlying assets?

Guide to Liquid Certificates of Deposit (CDs)

What Is a Liquid Certificate of Deposit?

Understanding a Liquid CD

How Do You Withdraw Money From a Liquid CD?

Liquid CD: Real World Example

Pros of a Liquid CD

Cons of a Liquid CD

Alternatives to a Liquid CD

Traditional CDs

Laddering

Money Market Account

Emergency Fund

High-Yield Savings Account

The Takeaway

FAQ

Are CDs liquid investments?

What is a non-penalty CD?

How much is the penalty for early withdrawal from a CD?

Crypto Exchange vs Crypto Wallet: Key Differences and How to Choose

Why Knowing the Difference Between Crypto Wallets and Exchanges Is Essential

Control, Security, and Risk Management

Dangers of Confusing Exchanges and Wallets

Crypto is back at SoFi.

SoFi Crypto is the first and only national chartered bank where retail customers can buy, sell, and hold 25+ cryptocurrencies.

What Is a Crypto Exchange?

Core Functions and Services

Types of Exchanges

Centralized (CEX)

Decentralized (DEX)

How Exchanges Enable Buying and Selling

Account Creation, KYC, and Regulatory Aspects

Exchange Fee Structures and Hidden Costs

Security Protocols and Risks on Exchanges

What Is a Crypto Wallet?

Main Purpose and How Crypto Wallets Work

Crypto is
back at SoFi.

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