Money Market Account vs Money Market Fund

Money Market Account vs Money Market Fund: What’s the Difference?

Money market accounts and money market funds may sound like the same thing, but the former is actually a savings account, while the latter is a kind of investment. It’s not a matter of one being better than another; they are simply different financial products, and each can play an important role in a person’s money management.

Here, learn more about the uses and benefits of each.

Key Differences Between a Money Market Account and Money Market Fund

A money market account vs. fund are the same in the following ways:

•   Both options are a great place to keep cash in the short term.

•   Both options are low-risk and offer yields that help boost your cash position.

•   These financial vehicles offer easy access to your funds.

That said, there are some important differences between a money market account and a money market fund:

•   A money market account is a savings account, while a money market fund is an investment vehicle.

•   Money market accounts are insured by the FDIC, while money market funds are not federally protected.

•   You open a money market account with a bank or credit union, but you invest in a money market fund via a brokerage firm.

•   Money market accounts may or may not charge account fees; money market funds probably carry maintenance fees.

Here are these differences in chart form:

Money Market Account

Money Market Fund

A savings account An investment vehicle
Insured by the FDIC Not federally insured
Opened at a bank or credit union Opened with a brokerage firm
May or may not have account fees Probably have maintenance fees

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What Is a Money Market Account?

A money market account (or MMA) is a kind of savings account, which is one of the most common types of bank accounts. It allows account holders to earn a higher savings rate compared to a conventional savings account.

Thanks to its higher-than-standard annual percentage yield (APY), it can be a good option to earn interest. Simply put, your money can grow faster than it would at a lower APY account. (Interest earned will be taxable, as with other savings accounts.)

Another benefit is that money market accounts usually have some of the features of a checking account. These may include a debit card and check-writing abilities. It gives you easy access for spending money from your savings account.

This account type, however, typically involves a higher minimum balance compared to a traditional savings account. There may also be a maximum of six withdrawals per month from a money market account, whether by ATM, check, debit card, or electronic transfer.

Recommended: What Is a Good Interest Rate on Savings?

Are Money Market Accounts Safe?

If you open a money market account with a bank that is insured by the Federal Deposit Insurance Corporation (FDIC), you can consider your money to be safe. FDIC-insured banks give account holders peace of mind because even in the rare event of a bank failure, your money is insured up to $250,000 per depositor, per account ownership category, per insured bank. In other words, a money market account is a very safe deposit account.

What Is a Money Market Fund?

Money market funds are a type of mutual fund; they are sometimes referred to as money market mutual funds. Whichever term is used, these funds allow investors to purchase securities that may provide higher returns compared to interest-yielding bank accounts. There are a variety of types of money market funds, but many popular ones invest in debt securities with short-term maturities. This account is typically known as a lower-risk type of investment since it invests in high-quality, short-term debt securities.

Money market mutual funds are typically offered by brokerage firms and can be used as a savings or investing vehicle. The typical profile of a money market fund account holder is someone who wants to stow their cash away for a short period of time as an alternative to investing in the stock market. These funds tend to experience very low volatility compared to the stock market.

Depending on the specific fund, earnings may or may not be taxable.

Are Money Market Funds Safe?

Unlike a money market savings account, which is federally insured, money markets mutual funds are not FDIC-insured, though they are subject to the scrutiny of the Security and Exchange Commission. That’s because your fund could potentially lose value.

While there isn’t an FDIC safety net, money market funds likely invest in high-quality securities, so the risk of loss tends to be very low. The investments in the fund, for example, may be Treasury bills or certificates of deposit. For these reasons, money market funds have a reputation for being relatively safe investments even though you are not protected against losses.

Choosing Between a Money Market Account and Money Market Fund

Here’s important information on when a money market account is the right option and when a money market fund is the better choice. Or you might decide to have both.

When to Consider a Money Market Account

Account holders can consider a money market account if they want to improve their savings rate and get higher rates compared to traditional savings accounts. If you have an existing savings account and you want to put your extra cash to work for higher yield, a money market account could be a suitable option. It can be appropriate for short-term savings, though it may not be the best long-term savings account option.

Keep in mind that money market accounts, unlike some other common types of savings accounts, may have minimum deposit requirements. The higher the yield you’re searching for, typically, the greater the minimum deposit may be. In addition, there may be monthly fees for these accounts.

Money market accounts are also great for account holders who want the flexibility to write checks, withdraw cash, and even use a debit card for purchases. These features, which typically come with checking accounts, are some of the upsides of a money market account.

When to Consider a Money Market Fund

You may want to consider opening a money market mutual fund vs. a money market account (or any other vehicle) if you are seeking a low-risk investment with what are probably higher yields compared with savings accounts. More specifically, they may be a good option if you are, say, an investor looking to build up cash holdings through a high-quality investment vehicle that pays dividends reflecting short-term interest rates.

That said, investors must consider the fees attached to money market funds. Many investment vehicles charge a management fee or an expense ratio. This can range considerably, but the average annual rate is currently around 0.13%, so if you had $20,000 invested, you’d pay $26. This expense can eat away at your investment returns.

The Takeaway

Money market accounts and money market funds can be great tools for safely building wealth. However, they are different kinds of products: A money market account is a savings account that earns interest while providing checking-account style access (say, via a debit card). Money market funds are an investment vehicle that puts your money in historically low-risk debt securities. Depending on your money goals and style, either or both can be a positive part of your financial portfolio.

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FAQ

Are money market funds safe?

While not immune to losses, money market funds are relatively safe investments since they invest in high-quality debt securities.

Can you lose money in a money market fund?

Since money market funds are an investment, they are not insured by the FDIC. There is a possibility of loss, but money market funds are known for investing in very low-risk debt securities.

What are money market funds?

Also known as money market mutual funds, money market funds are a low-risk investment account. They allow investors to purchase securities that typically provide higher returns than interest-yielding accounts.

Is a money market account considered cash in the bank, like a savings account?

Yes. A money market account is a savings account with some checking account features. Money can be withdrawn at will, but there may be a limit regarding how many of these transactions you can complete in a given month. Check with your financial institution for specific account details.



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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.

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Portfolio Diversification: What It Is and Why It’s Important

Portfolio diversification involves investing your money across a range of different asset classes — such as stocks, bonds, and real estate — rather than concentrating all of it in one class. The logic is that by diversifying the assets in your portfolio, you may offset a certain amount of investment risk, and thereby, hopefully, improve returns.

Taking portfolio diversification to the next step — further differentiating the investments you have within asset classes (for example, holding small-, medium-, and large-cap stocks, or a variety of bonds) — may also be beneficial.

Building a diversified portfolio is only one of many financial tools that can help mitigate investment risk and improve performance. But there is a lot of research behind this strategy, so it’s a good idea to understand how it works and how it might benefit your financial plan.

What Is Portfolio Diversification?

Portfolio diversification refers to spreading a portfolio’s investments across asset classes, industries, sectors, geographies, and more, in an effort to reduce investment risk, as noted.

When you invest in stocks and other securities, you may be tempted to invest your money in a handful of sectors or companies where you feel comfortable. You might justify this approach because you’ve done your due diligence, and you feel confident about those sectors or companies. But rather than protecting your money, limiting your portfolio like this could make you more vulnerable to losses.

To understand this important aspect of portfolio management, it helps to know about the two main types of risk: Systemic risk, and unsystematic risk.

•   Systematic risk, or market risk, is caused by widespread events like inflation, geopolitical instability, interest rate changes, or even public health crises. You can’t manage systematic risk through diversification, though; it’s part of the investing landscape.

•   Unsystematic risk is unique or idiosyncratic to a particular company, industry, or place. Let’s say, for example, a CEO is implicated in a corruption scandal, sending their company’s stock plummeting; or extreme weather threatens a particular crop, putting a drag on prices in that sector. This is what may be referred to as unsystematic risk.

While investors may not be able to do much about systematic risk, portfolio diversification may help mitigate unsystematic risk. That’s because even if one investment is hit by a certain negative event, another holding could remain relatively stable. So while you might see a dip in part of your portfolio, other sectors can act as ballast to keep returns steady.

This is why diversification matters.

You can’t protect against the possibility of loss completely — after all, risk is inherent in investing. But building a portfolio that’s well diversified helps reduce your risk exposure because your money is distributed across areas that aren’t likely to react in the same way to the same occurrence.

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What Should a Diversified Portfolio Look Like?

60:40 stock bond split returns 1977-2023

A fairly basic example of a relatively diversified portfolio may concern the 60-40 rule, which is a basic rule-of-thumb for asset allocation: You invest 60% of your portfolio in equities and 40% in fixed income and cash.

But that’s just one example. A portfolio can contain a broader mix of assets that includes stocks, bonds, alternative assets, real estate, and much more.

The mix you choose will likely be determined by factors such as your age, investment objectives, and/or risk tolerance. But this model reflects the basic principles of diversification: By investing part of your portfolio in equities and part in bonds/fixed income, you can manage some of the risk that can come with being invested in equities.

Stocks

You can fill your portfolio with stocks, and that would have some upsides and downsides. Most prominently, perhaps, is that stocks, compared to fixed-income assets, offer the potential for higher returns in exchange for higher risk.

If you’re invested 100% in equities, you’re more vulnerable to a market downturn that’s due to systematic risk, as well as shocks that come from unsystematic risk. By balancing your portfolio with bonds, say, which usually react differently than stocks to market volatility, you can offset part of that downside.

Of course, that also means that when the market goes up, you likely wouldn’t see the same gains as you would if your portfolio were 100% in equities.

Bonds

By the same token, if your portfolio is invested 100% in bonds offering a fixed rate of return, you might be shielded to a certain extent from market volatility and other risk factors associated with equities, but you likely wouldn’t get as much growth either.

Other Investments

As noted, you can also add other types of investments to the mix. While a typical portfolio may mostly comprise stocks and bonds, a smaller portion — maybe 10%-20%, just as an example — could hold real estate, or even cryptocurrencies. But again, there would ideally be a mixture of different types of those assets, too, in a diversified portfolio.

Again, a 60-40 portfolio is an example of simple diversification (sometimes called naive diversification) — which means investing in a range of asset classes. Proper diversification would have you go deeper, and invest in several different stocks (domestic, international, tech, health care, and so on), as well as an assortment of fixed income instruments.

Diversification Considerations for Different Stages

It’s also important to take your stage of life into account when considering how to diversify your portfolio and what asset allocation may be right for you.. Broadly speaking, the younger you are, the more risk you may be willing to take with your specific mix of investments (likely more stocks). While stocks may be more volatile and risky in the short-term, they tend to perform better than other lower-risk assets over the long-term.

The older you are, and the closer you are to retiring or needing to liquidate the equity in your portfolio, the less risk you may be willing to take.

Again, this will depend on the individual’s goals and risk tolerance, but consider the stage of your life and investing journey when deciding on your allocation and diversification strategy.

It may be a good idea to regularly review your allocation and change up your asset mix every few years, or work with a financial professional to make sure that your portfolio is aligned with your goals.

6 Ways to Diversify Your Portfolio

To attain a diversified portfolio, it’s important to think through your asset allocation, based on your available capital and risk tolerance. It’s also important to spread investments out within each asset class.

There can be a number of ways to diversify your portfolio, including (but not necessarily limited to) the following strategies.

Invest in a Range of Stocks or Index Funds

Diversifying a stock portfolio requires thinking about a number of factors, including quantity, sector, the risk profile of different companies, and so on.

•   Quantity. Instead of owning shares of just one company, a portfolio may have a margin of protection when it’s invested in many stocks (perhaps dozens or even hundreds).

•   Sector. You may want to think about a range of sectors, e.g. consumer goods, sustainable energy, agriculture, energy, and so on.

•   Variety. Variety is the spice of life, as they say, and variety in the types of stocks you are selecting is also an important factor. A mix of small-, mid-, and large-cap companies may offer diversification. Small-cap stocks, which might include startups, for example, have the potential to offer substantially higher returns than more stable large-cap companies, but they also come with greater risk.

You can further diversify by style. Some investors may opt for a mix of cyclical versus defensive companies, those closely tied to economic growth cycles versus ones that aren’t. Some investors may prefer value vs. growth stocks, companies that are underpriced rather than those that demonstrate faster revenue or earnings growth.

One common way to diversify a stock portfolio is to avoid picking individual stocks and invest instead in a mutual fund or exchange-traded fund (ETF) that offers exposure to dozens of companies or more. This is known as passive investing, as opposed to active. But it can be an effective way to diversify.

Invest in Fixed Income Assets, Such as Bonds

Investing in bonds is a good way to diversify your portfolio because they tend to perform very differently from stocks. Bonds offer a set interest rate, and though bond yields can be lower than the return on some stocks, you can generally predict the income you’ll get from bond investments.

Bonds tend to be less risky than stocks, but they aren’t risk free. They can be subject to default risk or call risk — and can also be subject to market volatility, especially when rates rise or fall. But bonds generally move in the opposite direction from stocks, and so can serve to counterbalance the risk associated with a stock portfolio.

You can diversify your mix of bonds, as well. High-yield bonds offer higher interest rates, but have a greater risk of default from the borrower. Short-term Treasury bonds, on the other hand, tend to be safer, but the return on investment isn’t as high.

You may also consider specific types of bonds, such as green bonds, which typically invest in sustainable organizations or municipal projects, or municipal bonds, which can offer tax benefits. And you can expand your options, and create more diversification, when you invest in bond mutual funds, or exchange-traded bond funds.

Consider Investing in Real Estate

Real estate may provide a hedge against inflation and tends to have a low correlation with stocks, so it can also provide diversification. The housing market and equity market can influence each other — case in point: the 2008 recession, when widespread troubles in real estate led to a stock market crash. But they don’t always have such a strong relationship. When stocks or bonds drop, real estate prices can take much longer to follow.

Conversely, when the markets improve, housing can take a while to catch up. Also, every real estate market is different. Location-specific factors that have nothing to do with the broader economy can cause prices to soar or plummet. Real estate can also be unpredictable and comes with risk, such as illiquidity and changing property values, which is something to keep in mind.

These are all factors to consider when investing in real estate. In addition, there are different types of investments, like Real Estate Investment Trusts (REITs), which can provide exposure to different types of properties without you having to own them.

Alternative Investments

While stocks, bonds, and cash equivalents are among the most common investments, you can diversify your portfolio by putting money into alternative investments, such as commodities, private credit, private equity, foreign currencies, and real estate, mentioned above. Alternatives can also include collectibles, such as art, wine, cars, or even non-fungible tokens (NFTs).

Alternatives have a low correlation with conventional assets, and have the potential to offer investors higher returns. Of course, knowing something about the area you want to invest in, or doing a bit of research, is likely a good idea before you get started.

However, alternative investments can be particularly risky compared to other types of assets. Their values may be particularly volatile and subject to a variety of factors, and it’s possible that some investors may even find themselves being targeted as a part of a scam — which is common, for instance, in the crypto space. Remember that though alternative investments may offer the opportunity to secure high returns, they can also subject investors to high potential losses.

Short-term Investments and Cash

Another possibility is to opt for low-risk short-term investments, such as certificates of deposit (CDs). A CD is a savings account that requires you to keep your funds locked up for a set amount of time (typically a few months to a few years). In exchange it pays you a fixed interest rate that may be higher than a traditional savings account.

A diversification strategy can also involve holding some funds in cash, just in case the bottom falls out on other investments.

International Investments

Another strategy for diversification is to invest in both U.S. and foreign stocks. Spreading out your investments geographically might protect you from market volatility concentrated in one area. When one region is in recession, you may still have holdings in places that are booming. Also, emerging and developed markets have different dynamics, so investing in both can potentially leave you with less overall risk.

Why Is Portfolio Diversification Important?

Diversification is important mainly because it can help investors mitigate risk. Although creating a well-diversified portfolio may help improve performance, risk minimization is the true end of diversification efforts.

Of course past performance is no guarantee that outcomes of those portfolio allocations will be the same in the future. But the research is interesting in that it suggests certain strategies might be effective in mitigating risk.

Introducing greater diversification, by way of bonds and fixed income instruments, actually may create a portfolio with similar returns, but lower volatility over time.

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Pros and Cons of Diversification

As with any investment strategy, diversification has its pros and cons.

Pros

The clearest benefit, or pro, to diversification is that it may help reduce risk in a portfolio. That can create a smoother ride, so to speak, for investors during times of high market volatility, and there is also evidence, as discussed, that diversified portfolios can provide equal or better returns over time.

Cons

The drawbacks to diversification include the fact that short-term gains may be limited by a more risk-averse approach. It can also take more time and energy to manage your portfolio, or to check in and consider your allocation — although that will depend on your specific strategy.

The Takeaway

Portfolio diversification is one of the key tenets of long-term investing. Instead of putting all your money into one investment or a single asset class like stocks or bonds, diversification spreads your money out across a range of securities. Investors should make sure they vary their investments in a way that matches their goals and tolerance for risk.

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).

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

What is an example of a well-diversified portfolio?

An hypothetical example of a well-diversified portfolio could be one used by hedge fund founder Ray Dalio, who constructed an example portfolio that includes 30% stocks, 40% bonds, 15% U.S. bonds, 7.5% gold, and 7.5% other commodities. Again, this is just one example, and this particular mix is likely not ideal for many investors.

What are the dangers of over-diversifying your portfolio?

The main risk associated with over-diversification is that you stymie your portfolio’s potential gains while seeing diminishing returns in terms of risk mitigation. In other words, you cost yourself potential gains while not meaningfully reducing risk.

When should you diversify your portfolio?

It may be a good idea to diversify your portfolio as soon as you start investing. Further, you can repeatedly check your allocation at regular intervals, to ensure you’re properly diversified in accordance with your risk tolerance, age, and goals.


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.

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

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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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.


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How to Negotiate Your Signing Bonus

Although many people believe that the negotiation process ends once they have accepted a job offer, that’s often not the case. One of the most critical aspects of the negotiation process is negotiating your signing bonus. A signing bonus is a monetary incentive that an employer agrees to pay you. This bonus is meant to entice you to accept the job offer, and is typically negotiable.

It can be beneficial to know the nuances of negotiating a signing bonus to get the most out of your job hunt. If you are offered a signing bonus, be sure to negotiate it to get the most money possible. And even if your initial job offer doesn’t include a signing bonus, it might be worth asking for one.

Understanding Why Companies Offer a Hiring Bonus

Employers aren’t obligated to offer job candidates a hiring bonus, which is sometimes called a signing bonus or sign-on bonus. However, companies may choose to extend this one-time financial benefit to attract new talent, especially in a competitive hiring landscape.

This one-time signing bonus can help an employer close the gap between a candidate’s desired pay and what the company can offer. Additionally, the hiring bonus may compensate a new hire for any benefits the candidate might otherwise miss out on by changing jobs or forgoing other job offers.

Companies may also use a sign-on bonus to incentivize an employee to stay with a company for a certain period of time. If an employee quits within an agreed-upon time after accepting the position, they may be required to pay back the bonus.

💡 Recommended: What Is a Good Entry Level Salary?

How Signing Bonuses Work

If you’re being considered for a job, the hiring company can include a signing bonus as part of the job offer. You can then decide whether to accept the bonus and the position, attempt to negotiate for a larger sign-on bonus, or walk away from the offer altogether.

Should you accept the offer, the hiring bonus can be paid out to you as a lump sum or as employee stock options. If the company pays the bonus as a lump cash sum, they may pay it out with a first paycheck, or after a specified period, like 90 days.

Like any other bonuses, salary, or wages you receive, a signing bonus is taxable. So you’ll have to report that money on your tax return when you file. If the signing bonus is paid with regular pay, it’s taxed as ordinary income. If it isn’t, then the sign-on bonus is taxed as supplemental wages. For 2024, the supplemental wage tax rate is 22%, which increases to 37% if your bonus exceeds $1 million.

Additionally, bonuses, whether they’re paid when starting a new job or as a year-end bonus, may also be subject to Social Security and Medicare tax as well as state income tax. Employers withhold these taxes and pay them to the IRS for you. So when you get your bonus, you’re getting the net amount, less taxes withheld.

💡 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.

Average Signing Bonus

The average signing bonus can vary greatly depending on the company, position, and location. In general, signing bonuses may range from $10,000 to more than $50,000 for management and executive positions, while entry and mid-level position hiring bonuses are usually less than $10,000.

But again, there’s no guarantee that you’ll be offered a signing bonus, or that they’ll be pervasive in your given industry.

What Industries Offer the Highest Hiring Bonuses?

The industries that offer the highest hiring bonuses tend to be in the financial and technology sectors.

However, during competitive labor markets, signing bonuses may be offered in various industries that usually don’t offer a bonus. For instance, following the Covid-19 pandemic and subsequent labor shortage, industries like healthcare, warehousing, and food and beverage offered substantial hiring bonuses to attract potential employees.

💡 Recommended: The Highest-Paying Jobs in Every State

Pros & Cons of Signing Bonuses

Receiving a sign-on bonus could make a job offer more attractive. But before you sign on the dotted line, it’s helpful to consider the advantages and potential disadvantages of accepting a bonus.

Signing Bonus Pros

A signing bonus could help make up a salary shortfall. If you went into salary negotiations with one number in mind, but the company offered something different, a sign-on bonus could make the compensation package more attractive. While the bonus won’t carry on past your first year of employment, it could give you a nice initial bump in pay that might persuade you to accept the position.

You may be able to use a signing bonus as leverage in job negotiations. When multiple companies make job offers, you could use a signing bonus as a bargaining chip. For instance, if Company A represents your dream employer but Company B is offering a larger bonus, you might be able to use that to persuade Company A to match or beat their offer.

A sign-on bonus could make up for benefits package gaps. Things like sick pay, vacation pay, holiday pay, insurance, and a retirement plan can all enhance an employee benefits package. But if the company you’re interviewing with doesn’t offer as many benefits as you’re hoping to get, a large sign-on bonus could make those shortcomings easier to bear.

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Signing Bonus Cons

Since sign bonuses are taxable as supplemental wages, you might see a temporary bump in your tax liability for the year. You may want to talk to a tax professional about how you could balance that out with 401(k) or IRA contributions, deductions for student loan interest payments, and other tax breaks.

Additionally, changing jobs might mean having to repay the bonus, depending on your contract. Employers can include a clause in your job offer that states if you leave the company within a specific time frame after hiring, you’d have to pay back your sign-on bonus. If you have to pay back a bonus and don’t have cash on hand to do so, that could lead to debt if you have to get a loan to cover the amount owed.

This might cause you to get stuck in a job you don’t love. If your employer requires you to pay back a signing bonus and six months into the job, you realize you hate it, you could be caught in a tough spot financially. Unless you have money to repay the bonus, you might have to tough it out with your employer a little longer until you can change jobs without any repayment obligation.

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Reasons to Negotiate a Signing Bonus

There are several reasons it can be beneficial to negotiate a signing bonus rather than just accept whatever the employer offers.

For one, a signing bonus can help offset the costs of relocating for a new job. Additionally, a signing bonus can help you maintain your current standard of living while you transition to a new city or state. Finally, a signing bonus can allow you to negotiate for other perks and benefits, such as a higher salary, stock options, or a more generous vacation policy.

When Is a Hiring Bonus Negotiated?

A hiring bonus is typically negotiated during the job offer stage after the employer has extended a job offer to the candidate. You don’t want to get ahead of yourself and ask for a hiring bonus immediately because that could hurt your chances of getting one. You generally want to wait for the hiring manager to start the conversation.

After receiving your official job offer with your projected salary and benefits, you will be able to gauge your potential bonus opportunity; one rule of thumb is that a hiring bonus is about 10% of your annual salary. And if the hiring manager offers you a bonus initially, you might have an advantage in negotiating for a better one.

Tips on How to Ask for a Signing Bonus

If an employer doesn’t offer a sign-on bonus, you don’t have to assume it’s off the table. It’s at least worth it to make the request since the worst that can happen is they say no.

Here are some tips on how to ask for a signing bonus:

1. Know Your Value to the Company

Before asking for more money, either with a bonus or your regular salary, get clear on what value you can bring to the company. In other words, be prepared to sell the company on why you deserve a signing bonus.

2. Choose a Specific Amount

Having a set number in mind when asking for a bonus can make negotiating easier. Do some research to learn what competitor companies are offering new hires with your skill set and experience. Then use those numbers to determine what size bonus it makes sense to ask for.

3. Make Your Case

Signing bonuses are gaining steam in industries such as technology, engineering, and nursing, where there is more competition for the best job candidates. You are also sometimes in a better position to ask for a signing bonus if the company did not meet the salary you requested when interviewing — a signing bonus is an opportunity to recoup some of that difference. Regardless, it never hurts to consider asking for more money.

Just be sure to do your research first. For instance, perhaps discreetly ask your contacts whether the company might be open to offering a signing bonus, and be sure to do some research online or within your network to see how your job offer stacks up.

4. Split the Difference With Your Salary

One way to potentially have your cake and eat it, too, when it comes to signing bonuses is to use your salary to offset it. Specifically, instead of asking for a large bonus, you could ask for a smaller one while also asking for a bump in pay.

An employer may be more open to paying you an additional $2,000 a year to keep you on the payroll, for instance, versus handing out a $20,000 bonus upfront when there’s no guarantee you might stick around after the first year.

5. Get it in Writing

If a signing bonus wasn’t part of your original job offer, and you’ve negotiated for one, ensure you receive an updated contract with the bonus included.

The agreement should spell out the amount of the bonus, how it will be paid (separate check or part of your regular paycheck), and the terms of the bonus. The contract should note how long you must stay employed at the company to retain your bonus (typically one year).

How to Maximize Your Signing Bonus

After receiving a signing bonus, the next question should be: What do I do with the extra money?

There are several ways you can put a signing bonus to work. For example, if you have credit card debt, your best move might be to pay that off. This could be especially helpful if you have credit cards with high-interest rates.

You could also use a sign-on bonus to eliminate some or all of your remaining student loan debt. But if you’d rather save your bonus, you might refinance your loans and use the bonus money to grow your emergency fund. Having three to six months’ worth of living expenses saved up could be helpful in case you lose your job or get hit with an unexpected bill.

Recommended: Don’t know how much to save for unexpected expenses? Try our intuitive emergency fund calculator.

You might also consider longer-term savings goals, such as buying a car or putting money down on a home. Keeping your money in a savings account that earns a high-interest rate can help you grow your money until you’re ready to use it.

Using Your Bonus for Retirement

If you are caught up with your credit card payments and already have an emergency fund, you might consider investing your bonus for the long-term.

This could be a wise financial move considering that a $5,000 signing bonus isn’t as lucrative as negotiating a $2,000 increase in your annual salary. If you can’t negotiate the higher salary, you can at least use your bonus to invest. Investing can be an excellent way to build wealth over time.

For example, you might use part of the money to open a traditional or Roth IRA. This can help you get a head start on saving for retirement and supplement any money you’re already saving in your employer’s 401(k). And you can also enjoy tax advantages by saving your bonus money in these accounts.

💡 Recommended: Should I Put My Bonus Into My 401(k)?

The Takeaway

There’s a lot to think about when you’re looking for a new job. You want to make sure you find a position you love that will compensate you fairly. So adding another step in the job search process may seem overwhelming. However, asking for and negotiating a signing bonus using the tips above is critical to help you get hired with the bonus you deserve.

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FAQ

What is a signing bonus?

A signing bonus, also known as a hiring bonus or a sign-on bonus, is a bonus given to employees when they are hired. A company will pay a signing bonus to help entice the employee to accept the job offer.

How can you negotiate your signing bonus?

To negotiate a signing bonus, you should be clear about what you are asking for, be reasonable in your request, and have a backup plan if your initial request is not met. It is also important to remember that the company you are negotiating with likely has a budget for signing bonuses, so be mindful of that when making your request.

What is the average signing bonus?

The average signing bonus depends on several factors, including the company, position, and location. In general, the average hiring bonus for managers and executives may range from $10,000 to more than $50,000. For lower-level employees, a signing bonus may be less than $10,000.


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.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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What is Margin Equity & Margin Equity Percentage?

What Is Margin Equity & Margin Equity Percentage?

Investors who trade using margin, or funds they’ve borrowed from their broker, do so via a margin account. The amount of money in that account is their margin equity, and their margin equity percentage is the portion of funds in that account that they own (versus funds they’ve borrowed).

It can be important for investors who use margin to understand both margin equity and margin percentage — and their importance when trading or investing with a margin brokerage account.

What Is Margin Equity?

Margin equity is the amount of money in a margin trading account at any given time. A margin account is a stock brokerage account that allows the account holder to borrow up to a specific amount of money from the brokerage firm.

Margin accounts can be a powerful investment tool for sophisticated investors comfortable with higher levels or risk because they have to put up less of their own money in order to make a trade.

Investors can use funds in a margin account to invest in more financial securities, such as stocks, bonds, or funds, that are paid for with funds that exist in the margin account. Money in a margin account is typically in either cash or securities.

Using the value of those assets, a margin account investor can borrow up to 50% of the amount of the cash needed to buy a stock or other security. The securities broker charges interest on any money borrowed in a margin account, plus a commission for executing the trade.

The goal for any margin account investor is to earn back enough profit from a margin account trade to cover the costs of interest on the borrowed margin account funds. If an investor loses money on a margin account trade using borrowed funds, they still have to repay those funds, with interest.

💡 Quick Tip: When you trade using a margin account, you’re using leverage — i.e. borrowed funds that increase your purchasing power. Remember that whatever you borrow you must repay, with interest.

Recommend: What Is Margin Trading and How Does It Work?

Margin Account Rules

The Financial Industry Regulatory Authority (FINRA) sets the minimum balance of a margin account at $2,000. And a brokerage firm may have its own maximum fund limits based on the ability of the investor to prove they can repay any money borrowed from the broker via a margin account.

Any time a margin buying investor wants to buy a new security and requires borrowed margin account funds to do so, the amount of cash the investor puts on the table is known as the margin requirement.

To determine an account’s margin equity, you’d first add up the cash amount borrowed from the brokerage firm and the value of “covered call” options the investor has sold. Any unleveraged assets (like cash or stocks) left in the margin account after the above assets are subtracted is margin equity.

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What Is Margin Equity Percentage?

Margin equity percentage is the portion of unleveraged assets in the account. The process of calculating margin equity percentage is similar to using debt-to-equity ratios.
Here’s an example:

Let’s say the investor buys $10,000 in stocks and funds and has borrowed $5,000 in margin account funds from the broker. The value of that $10,000 investment has increased to $11,000, as the assets purchased have increased by $1,000. The margin loan hasn’t changed – it’s still $5,000. Thus, the investor margin equity in the account stands at $6,000.
If that original $10,000 investment had resulted in a $1,000 loss, the margin equity portion of the account stands at $4,000 ($5,000 – $1,000 = $4,000.)

In the example above, the equity margin percentage is represented by the investors margin equity divided by the value of the margin account.

Using the same figures in the example where the account grows by $1,000 ($10,000 + $1,000), $6,000 divided into $11,000 is 54.5%. Using the same figures where the account declines by $1,000, and the equity value of the margin account is $4,000 and divided by $9,000 (the total amount of money left in the margin account) the margin equity percentage is 44.4%.

💡 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.

The Importance of Knowing Your Margin Equity and Margin Equity Percentage

Knowing your margin equity and margin equity percentage can help you understand the level of risk that you’re taking in the account. That can help you determine whether you might need to make changes in order to boost your maintenance margin, or the minimum account balance needed to avoid a “margin call.”

Brokerage firms issue margin calls if an investor’s funds fall below the required maintenance margin. If you can’t meet a margin call, the brokerage firm can shut down your margin account and hold you personally responsible for any losses incurred in the account (and charge you additional fees and commissions, as well.)

The Takeaway

As discussed, the existing balance in a margin account is their margin equity, and their margin equity percentage is the portion of funds in that account that they own (versus funds they’ve borrowed).

Investors who choose to trade on margin should keep an eye on their margin equity and margin equity percentage as one metric on measuring the performance and investment risk of that account. A margin account with a higher equity percentage has lower levels of debt, making a margin call less likely.

If you’re an experienced trader and have the risk tolerance to try out trading on margin, consider enabling a SoFi margin account. With a SoFi margin account, experienced investors can take advantage of more investment opportunities, and potentially increase returns. That said, margin trading is a high-risk endeavor, and using margin loans can amplify losses as well as gains.

Get one of the most competitive margin loan rates with SoFi, 12%*


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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.

*Borrow at 12%. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.
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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FINRA vs the SEC

FINRA vs the SEC

The U.S. Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) are critical regulating entities for the financial services industry in the United States. They oversee financial markets to ensure that they are fair and orderly, and to protect investors. The role of financial regulators is to facilitate a sound financial services industry that consists of markets, exchanges, and firms that comply with their laws and regulations.

As regulators, the SEC and FINRA exist to keep market participants safe from financial fraud and to help participants to manage their investment risk. There are many reasons why investors should understand the roles and responsibilities of both the SEC and FINRA, as well as how these regulatory bodies differ.

What Is the Financial Industry Regulatory Authority (FINRA)?

FINRA is a government-authorized, not-for-profit organization that oversees U.S. broker-dealers. The organization’s purpose is to protect investors and uphold the integrity of financial markets to ensure they operate fairly. FINRA oversees hundreds of thousands of brokers throughout the U.S., and monitors billions of daily market events.

The SEC supervises FINRA in writing and enforcing investing rules that all registered broker-dealers in the U.S. must follow. FINRA makes sure that these firms comply with these rules, as it facilitates market transparency and educates investors.

💡 Quick Tip: One of the advantages of using a margin account, if you qualify, is that a margin loan gives you the ability to buy more securities. Be sure to understand the terms of the margin account, though, as buying on margin includes the risk of bigger losses.

FINRA Regulates Margin Accounts

FINRA also regulates margin accounts, which involve a customer borrowing funds from a firm to make trades. Under FINRA margin requirements, some securities cannot be purchased on margin, in which case a cash account must be used to deposit 100% of the purchase price.

FINRA rules require traders to have 25% or more of the current market value of securities in the account, otherwise they may be required to deposit more funds or securities to meet the 25% threshold. If this requirement is not met, the firm may need to liquidate the securities to bring the account to the required level.

What Is the Securities and Exchange Commission (SEC)?

The SEC is a market regulator whose purpose is to protect investors, maintain fair markets, and facilitate ways for businesses to access capital. This regulatory body consists of 11 regional offices and 6 divisions. It requires public companies, asset managers, and investment professionals to disclose important financial information, so investors are equipped to make the best investment decisions.

The SEC will also enforce federal securities laws to keep lawbreakers accountable in the name of protecting investors. In order to maintain fair and efficient markets, the SEC monitors the market and adjusts rules and regulations according to the evolving market environment.

💡 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.

FINRA vs the SEC

Both institutions were created to protect investors against investment fraud and maintain the integrity of U.S. financial markets, but there are differences between these regulatory agencies.

How are FINRA and the SEC Different?

The SEC was created under the Securities Exchange Act of 1934 and one of its responsibilities is to oversee FINRA, which was created in 2007. FINRA is a self-regulatory organization that oversees and regulates its member’s actions. Unlike the SEC, FINRA is not mandated by the U.S. government. Rather, it’s a private, or self-regulatory organization (SRO) consisting of the registered broker-dealers that FINRA oversees.

The SEC, on the other hand, focuses more on protecting the individual investor. The SEC was born at the advent of the Great Depression in 1929 with the goal of restoring investors’ confidence in financial markets, as well as enforcing the rules. FINRA’s role is narrower. It revolves around regulating brokerage firms and handles the testing and licensing requirements, such as the series 7 exam. All broker dealers must be licensed and registered by FINRA.

How They Are Similar

Both FINRA and the SEC are responsible for protecting investors. Both organizations play important roles in upholding the integrity of the U.S. financial system and take action to protect the public from fraud and other financial bad practices. And both agencies offer tools and insights that help educate investors about how to secure their financial future.

The SEC is the ultimate regulatory watchdog of financial markets, and FINRA regulates the securities industry by overseeing stockbrokers. The work that comes out of the SEC and FINRA helps these agencies to function smoothly. The SEC reviews FINRA’s regulatory work — like managing required industry examinations and inspecting securities firms — which is vital to protecting investors and monitoring financial markets.

FINRA vs the SEC: A Quick Comparison

FINRA

The SEC

What Is It? A government-authorized not-for-profit that oversees U.S. broker dealers (BDs) A U.S. government agency; ultimate regulatory watchdog of financial markets
What is it’s purpose? Both uphold integrity of financial markets; maintain fair/ orderly markets; specific regulator for margin accounts Focuses more on protecting individual investors; created to restore investors’ confidence in financial markets; helps firms to access capital
When was it created? Created in 2007 Created with the Securities Exchange Act of 1934
Relationship with U.S. Government Not mandated by U.S. government; a private SRO; consists of registered BDs A U.S. government agency; born of Great Depression,1929
Function? Enforces rules; but narrower role than SEC’s; regulates BDs; manages testing/ licensing requirements (e.g., series 7 exam); all BDs must be licensed by FINRA Enforces rules; oversees FINRA; creates and enforces securities laws
Public resources? Yes, offers tools and insights that help educate investors about how to secure their financial future Yes, offers tools and insights that help educate investors about how to secure their financial future

How to Avoid Trouble With FINRA and the SEC

The best way to avoid trouble with FINRA and the SEC is to abide by their rules and regulations. And, if you give your money to an investment or financial professional to manage, you also may want to confirm that this professional is registered with the SEC and licensed to do business in your particular state. It also could be worthwhile to research whether they have ever been disciplined by the regulatory agencies, or if there are any prior complaints against these professionals.

Cash Accounts vs Margin Accounts

Two popular accounts that are typically opened by market participants are either cash accounts or margin accounts. Each type of account comes with its own regulations. With margin accounts — which are regulated by FINRA along with other financial institutions — you have the ability to borrow funds, but with a cash account, you cannot borrow funds.

For investors using cash accounts to purchase securities, there are regulations to abide by. To avoid violations, remember that you can’t borrow funds from your brokerage firm to pay for transactions in your cash account. Transactions using borrowed funds can only be made in a margin account.

The Takeaway

The SEC and FINRA exist to manage U.S. financial markets with investor protection top of mind. Their rules and regulations can adjust according to how the market is evolving. Understanding their mandates and goals is a great tool for investors to understand their rights as market participants in the event they fall victim to fraud.

If you’re an experienced trader and have the risk tolerance to try out trading on margin, consider enabling a SoFi margin account. With a SoFi margin account, experienced investors can take advantage of more investment opportunities, and potentially increase returns. That said, margin trading is a high-risk endeavor, and using margin loans can amplify losses as well as gains.

Get one of the most competitive margin loan rates with SoFi, 12%*

FAQ

Does FINRA approve SEC rules?

No. The SEC is the oversight authority over FINRA, not the other way around.

Is FINRA part of the US federal government?

No. FINRA is an independent, private entity, while the SEC is a government-mandated organization.

Does FINRA report to the SEC?

FINRA is a self-regulatory organization that operates under the purview of the SEC.


Photo credit: iStock/damircudic

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.

*Borrow at 12%. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.
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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