Jul
31
2025
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APY vs Interest Rate

By | Budgeting & Goals, money, Terminology | Comments Off on APY vs Interest Rate

When comparing different interest-bearing accounts, you may come across the terms APY (annual percentage yield) and interest rate. While similar, they are not the same thing.

The interest rate is the base rate the financial institution offers, while APY factors in how often that interest is compounded (or credited to the account). The more frequently interest is compounded, the faster your money grows, since interest is earned on previously earned interest more often. As a result, APY gives you a more accurate picture of potential earnings over time.

Ready to learn more about APY vs. interest rate and how each impacts your finances

Key Points

•   APY (annual percentage yield) and interest rate are two different concepts that are often used interchangeably but have distinct meanings.

•   APY represents the amount of money you will earn on your deposits over the course of a year, taking into account compound interest.

•   Interest rate is the percentage at which your money will accrue interest, without considering compounding.

•   APY is typically higher than the interest rate because it includes the effect of compounding, which allows your money to grow faster.

•   Understanding the difference between APY and interest rate is important when opening a bank account.

APY and Interest Rate Defined

Both APY and interest rate indicate how much you’ll earn on your balance in a savings account, or other interest-bearing account, but there is a key distinction between the two.

What Is APY?

If you deposit money into any type of savings account, you will earn an annual percentage yield (APY) on that money. The APY is a useful number because it tells you how much you’ll earn on your deposits over the course of a year, expressed as a percentage. The APY calculation takes into account the interest rate being offered, then factors in whether or not the financial institution offers compounded interest.

Compound interest is the interest you earn on the interest you’ve already earned. Depending on the bank or credit union, interest may compound daily, monthly, quarterly, or annually. The more frequently interest compounds, the faster your money grows.

What Is an Interest Rate?

When it comes to a savings account, an interest rate is simply the percentage return you’ll earn on your original balance, without compounding. The higher the interest rate, the more you’ll earn on your deposits. But interest rate is only one component of the account’s APY, which also factors in compound frequency — or how often interest is paid.

When it comes to loans (e.g., a mortgage, car loan, or credit card), the interest rate refers to the price you pay for using that money. The higher the interest rate, the more you’ll pay back in addition to the principal amount. The interest rate on a loan doesn’t include any fees associated with the loan, such as origination fees, application fees, or other charges. To understand the total cost of a loan, you’ll want to look at its APR (annual percentage rate).

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*Earn up to 4.30% Annual Percentage Yield (APY) on SoFi Savings with a 0.70% APY Boost (added to the 3.60% APY as of 11/12/25) for up to 6 months. Open a new SoFi Checking & Savings account and enroll in SoFi Plus by 1/31/26. Rates variable, subject to change. Terms apply here. SoFi Bank, N.A. Member FDIC.

APY vs. Interest Rate Explained

Why does interest rate vs. APY matter? When you are opening a bank account, it can make a difference as one can give you a better picture of how your money will grow while on deposit.

The interest rate tells you the basic rate at which your money will accrue interest. The APY, however, gives you better insight to how much interest you will earn by the end of a year because it factors in the boost that compound interest can deliver.

Recommended: Different Ways to Earn Interest

The APY Formula

For those who want to delve in a bit deeper, the actual formula for APY calculation is as follows: (1 + r/n)ⁿ – 1.

•   The “r” stands for the interest rate being paid.

•   The “n” represents the number of compounding periods within a year.

If, for example, the interest rate is 3.50%, then that’s what you’d use for the “r.” If interest is compounded quarterly, then “n” would equal four.

The “n,” or compounding frequency, can cause two different savings accounts with the same interest rates to have different APYs. For example, if two different banks offer a savings account with the same interest rate but one compounds quarterly and the other compounds annually, that the account that compounds annually would have a lower APY than the account that compounds quarterly or daily.

Fortunately, if you want to compare savings rates from one bank or credit union to another, you don’t need to perform any in-depth calculations.

Financial institutions are required to provide information on APY as part of the Truth in Savings Act. And, here’s the heart of it all: The higher the APY, then the more quickly the money you deposit can grow.

Recommended: APY calculator

Calculating APR

The APR vs. interest rate of a loan tells you how much the loan will cost you over one year, including both the loan’s interest rate and fees, and is expressed as a percentage. A loan’s APR gives you a better sense of the true cost of the loan than the loan’s interest rate, since it includes fees. The higher the APR, the more you’ll pay over the life of the loan.

Thanks to the federal Truth in Lending Act, lenders must provide the APR of a loan. This allows you to compare loans apples to apples. A loan with a low interest rate but high fees may not be a good deal. In fact, you may be better off with a loan that charges a higher interest rate but no or lower fees. APR allows you to be a savvy consumer.

APR can be calculated with this formula:

APR = (((Interest + Fees ÷ Loan amount) ÷ Number of days in loan term) x 365) x 100.

Lenders will tell you the APR of a loan and you won’t need to perform any complicated calculations.

How Simple and Compound Interest Differ

With simple interest, no compounding is involved. If you were to deposit $10,000 in an account earning 4.00% simple interest, at the end of three years, your money would earn $1,200 for a total of $11,200.

If, however, the interest were compounded daily, you would earn around $408 the first year. The second year, interest would accrue on the principal and the interest earned in the first year, and you would earn roughly $425 the next year and then $442 the year after that, for a total of around $11,275.

While the difference in dollar amount may not seem earth-shattering in this example of a few years, when you are talking about your decades-long financial life, it can really add up. Your money will grow faster with compound interest, helping you reach your financial goals.

Types of High-Interest Accounts for Savings

If you’re looking to earn a competitive rate on your savings, you’ll want to compare accounts by looking at APYs, as well as account fees and balance minimums. Generally, you can find competitive rates by looking at high-yield savings accounts, money market accounts, and CDs.

•   High-yield savings accounts, typically offered by credit unions and online banks, are accounts that typically pay a substantially higher APY than the national average of traditional savings accounts. They generally also have low or no fees.

•   Money market accounts are savings accounts that offer some of the features of a checking account, such as checks or a debit card. They often come with a higher APY than a traditional savings account, but typically require a higher balance, such as $2,500 or more.

•   Certificates of deposits (CDs) also tend to pay a higher APY than a regular savings account but require you to leave your money untouched for a certain period of time, called a term. If you take money out before then, you’ll likely pay an early withdrawal penalty. CD terms typically range from three months to five years. Generally, the longer the term, the higher the APY (however, this isn’t always the case).

Recommended: How Does a High-Yield Savings Account Work?

High-Interest Checking Accounts

Checking accounts work well for everyday spending but typically offer no interest or very little. A high-yield checking account is a special type of account offered by some financial institutions (such as traditional and online banks, and credit unions) that offers a higher-than-average APY. These are accounts designed to give you the flexibility of a traditional checking account (with checks and/or a debit card) but with higher-interest returns.

A few points to note:

•   Some high-interest checking accounts will offer different APY tiers, with higher account balances earning a higher APY than lower account balances.

•   Often, to qualify for the highest rate the checking account has to offer, you need to meet certain criteria. This might be making a certain number of debit card transactions in a month, having at least one direct deposit or automated clearing house (ACH) payment each month, or choosing to receive paperless statements.

Test your understanding of what you just read.

The Takeaway

When it comes to choosing a savings account, it’s essential to understand the difference between APY (annual percentage yield) and interest rate. While both relate to how your money grows, they aren’t the same.

The interest rate is the basic rate the bank pays you for keeping your money in the account and doesn’t account for compounding, while APY includes the effects of compounding.

When comparing accounts, it’s a good idea to look at the APY, since it shows the real return on your money and can help you select an account that maximizes your earnings.

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


Annual percentage yield (APY) is variable and subject to change at any time. Rates are current as of 11/12/25. There is no minimum balance requirement. Fees may reduce earnings. Additional rates and information can be found at https://www.sofi.com/legal/banking-rate-sheet

Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network every 31 calendar days.

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning the APY for account holders with Eligible Direct Deposit, we encourage you to check your APY Details page the day after your Eligible Direct Deposit posts to your SoFi account. If your APY is not showing as the APY for account holders with Eligible Direct Deposit, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning the APY for account holders with Eligible Direct Deposit from the date you contact SoFi for the next 31 calendar days. You will also be eligible for the APY for account holders with Eligible Direct Deposit on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, Wise, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi Bank shall, in its sole discretion, assess each account holder's Eligible Direct Deposit activity to determine the applicability of rates and may request additional documentation for verification of eligibility.

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*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.

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.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.

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31
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What Are Leveraged ETFs?

By | Growing Wealth, invest, Investing, Terminology | Comments Off on What Are Leveraged ETFs?

Leveraged exchange-traded funds (ETFs) are tradable funds that allow investors to make magnified bets on an underlying index. Leveraged ETFs have been popular among investors looking to amplify their exposure to a market with a single trade. But it’s important to know that leveraged ETFs are much more complicated than traditional ETFs, and they’re also higher risk.

Because they’re constructed to deliver multiples of the daily performance of the benchmark they track, investing in leveraged ETFs can lead to massive losses. And for reasons related to their inner mechanics, they’re not good for investors who may be looking for returns when held for an extended time.

Key Points

•   Leveraged ETFs allow magnified bets on an underlying index.

•   These funds are popular for amplifying market exposure with a single trade.

•   Potential for amplified losses exists due to compounding returns.

•   The risk of holding leveraged ETFs longer than a day increases risk of potential losses for most investors. The SEC has also warned that these ETFs are designed to meet daily performance objectives, not necessarily long-term investing goals.

•   Higher costs and closure risks are notable concerns.

How Do Leveraged ETFs Work?

Exchange-traded funds, or ETFs, are securities, and can embody a form of index investing. They’re typically baskets of stocks, bonds, or other assets that aim to mirror the moves of an index, though ETFs can have many different aims or goals. Leveraged ETFs use derivatives so that investors may potentially double (2x), triple (3x) or short (-1) the daily gains or losses of the index. Financial derivatives are contracts whose prices are reliant on an underlying asset.

In finance, leverage is the practice of using borrowed money to increase the potential return on an investment. Leveraged ETFs use derivatives to increase the potential return on an investment.

Let’s look at a hypothetical example. Say an investor buys a regular, non-leveraged ETF. Here’s how such an ETF would work. If it tracks the S&P 500 Index and the benchmark gauge rises 1% on a given day, the non-leveraged ETF would also climb about 1%.

If, however, the investor buys a triple leveraged ETF or 3x ETF, their return for that given trading day could be a 3% gain. The reverse scenario could also happen, though. If the S&P 500 fell 1% on a given day, the owner of the triple leveraged ETF can suffer a 3% loss.

Most of these ETFs are designed to try to outperform a benchmark or index’s daily performance, and holding them longer than a day could result in losses, as such. Accordingly, they’re not intended for long-term investing strategies.


💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

What Is “Decay” in Leveraged ETFs?

There are pros and cons to ETFs themselves. But leveraged ETFs can be particularly problematic for investors due to their design. They are constructed to deliver multiples of an underlying asset’s daily returns, not weekly, monthly or annual returns. Leveraged ETFs don’t deliver the exact magnitude of 2x or 3x if held for longer than a day.

So, if the S&P 500 were to rise 5% in a week, a triple leveraged S&P 500 would not climb 15% in that week. The same would be true for a double leveraged ETF. There’s no guarantee it would return 2x or 10% to its owner.

That’s because of how leveraged ETFs are constructed. In order to maintain their 2x or 3x exposure, leveraged ETFs use derivatives that need to be rebalanced at the end of each day. This process can erode the returns of the ETFs — a process known as “decay” in the market.

Types of Leveraged ETFs

Here are some of the types of leveraged ETFs on the market:

•   Double Leveraged (2x) ETFs give investors double exposure to the daily return of an index of stocks, bonds, or commodities. So if an asset or market moves 1.5% in a single day, the fund aims to deliver a return of 3% that day.

•   Triple Leveraged (3x) ETFs try to provide investors with 3x amplification. So if the underlying asset or index rises or falls 2% on a trading day, the ETF seeks to rise or fall 6%.

•   Inverse (-1) ETFs are also considered to be leveraged ETFs. They move in the opposite direction of the underlying asset they’re designed to follow. So if an index moves -1%, the ETF would aim to climb 1%, and vice versa. Inverse ETFs are essentially a form of shorting a stock. Investors are able to short the underlying market by buying shares of an inverse ETF.

Pros of Leveraged ETFs

Some of the advantages of leveraged ETFs include the following:

Easy Leveraged Trades

Leveraged ETFs have made it easier for investors to make leveraged wagers on the market, which can be a day-trading strategy but not a practice that’s readily available to all investors, particularly retail investors at home who may be trading in smaller increments.

Useful For Quick Leveraged Market Wagers

Leveraged ETFs can be useful for a one-day wager that an investor wants to make on an underlying market, such as technology stocks, high-yield bonds, or emerging markets.

Allow For Easy Shorting

Inverse ETFs can give investors the ability to short, or bet against, an asset. Short sales aren’t easily available to non-professional investors, particularly retail investors at home. Shorting can be a way for investors to hedge or offset the risk in their holdings.

Cons of Leveraged ETFs

Some of the potential disadvantages of leveraged ETFs include the following:

Potential For Outsized Losses

With leveraged ETFs, investors could potentially see outsized losses due to how the products compound returns. For instance, if an index were to tumble 3% in a single day, a holder of leveraged ETFs would experience a plunge of 9% in the shares of their fund.

Increased Investment Risk

Inverse ETFs allow investors to short assets, but because of how there’s no limit to how high an asset can go, that means investors could see their holdings in the inverse ETF go to zero.

Derivative Risks

Leveraged ETFs use derivatives to achieve their amplified returns. Therefore, investors should be aware of the counterparty risk — or the risk from the other parties involved in the derivatives.

Higher Costs

Leveraged ETFs tend to be more expensive than traditional ETFs. Investors who want to understand how fund fees work should look at the ETF’s expense ratio. For instance, some popular leveraged ETFs can have an expense ratio of 0.95%. That compares with more traditional ETFs, which can have an expense ratio of around 0.20%.

Closure Risks

There’s a high risk of closure. Investors who don’t sell out of their leveraged ETF shares before the delisting date could be left with positions that are difficult or costly to liquidate.


💡 Quick Tip: How to manage potential risk factors in a self directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

Regulation of Leveraged ETFs

Regulators’ rules on leveraged ETFs have varied in recent years. And they continue to change.

Most recently, in early 2023, the Securities and Exchange Commission (SEC) issued a bulletin about leveraged ETFs, warning investors about the particular risks associated with them.

In October 2020, the SEC made a rule change that would make it easier to launch leveraged ETFs, while capping the amount of leverage at 200%. The move was a break away from prior announcements that sought to slow down the creation of new leveraged ETFs. The SEC had previously allowed existing leveraged ETFs to be continued to be traded, while putting restrictions on the approval of new such funds. The SEC issued an alert about leveraged funds to retail investors in 2009.

In May 2017, the SEC approved the first quadruple (4x) leveraged ETF, only to halt its decision soon after.

Some investment firms and ETF providers have pushed for the term “ETF” to not be applied to leveraged and inverse funds. They argue that the term “ETF” is used for a range of products that can lead to significantly different outcomes for investors.

The Takeaway

Leveraged ETFs use derivatives in their construction to try to deliver amplified returns for an investor. Relative to index funds, ETFs can allow entire markets to be more easily traded, similar to how shares of a stock are traded. Leveraged ETFs are not safe for all investors, particularly inexperienced ones.

These ETFs can cause massive losses because of how they may magnify returns and losses. In addition, market observers and regulators have said that leveraged ETFs may be better suited for professional or experienced investors to be used within a single trading session. The use of derivatives in such funds causes their performance to veer from the underlying market if the ETFs are bought and held. As always, it’s important to do your research about any ETF or investment before investing.

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).

¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.

FAQ

What are examples of different types of leveraged ETFs?

There are several types of leveraged ETFs, including double leveraged (2x) ETFs, which give investors double exposure to the daily return of an index of stocks, bonds, or commodities. There are also triple leveraged (3x) ETFs that try to provide investors with 3x amplification. Inverse (-1) ETFs are also considered to be leveraged ETFs. They move in the opposite direction of the underlying asset they’re designed to follow.

What are some drawbacks of leveraged ETFs?

Leveraged ETFs allow for the potential of outsized losses, introduce additional investment and derivative risks, and may have higher associated costs than traditional ETFs.

Are leveraged ETFs good for beginning investors?

Leveraged ETFs are not intended for beginning investors, as they’re more complex, and have additional risks. As such, traditional ETFs may be a better option, depending on the specifics of an investor’s situation.

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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.

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.

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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.

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.

S&P 500 Index: The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Dollar Cost Averaging (DCA): Dollar cost averaging is an investment strategy that involves regularly investing a fixed amount of money, regardless of market conditions. This approach can help reduce the impact of market volatility and lower the average cost per share over time. However, it does not guarantee a profit or protect against losses in declining markets. Investors should consider their financial goals, risk tolerance, and market conditions when deciding whether to use dollar cost averaging. Past performance is not indicative of future results. You should consult with a financial advisor to determine if this strategy is appropriate for your individual circumstances.

Fund Fees
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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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How to Use the Risk-Reward Ratio in Investing

By | Growing Wealth, invest, Investing, Terminology | Comments Off on How to Use the Risk-Reward Ratio in Investing

The risk-reward ratio in trading is a way of assessing the potential gain from a trade versus the potential risk of loss. This ratio is also useful for comparing the relative risk and reward potentials of different trades.

For example, a risk-reward ratio of 1:3 means that an investor is prepared to risk losing $1 for the possible gain of $3. A risk-reward ratio of 1:1 means that the risk of loss is about the same as the potential gain.

The risk-reward ratio is a valuable analytical tool available to investors. Since no investment is genuinely risk-free, the risk-reward ratio helps calculate the potential outcomes of any investment transaction — good or bad.

Key Points

•   The risk-reward ratio is a useful tool for investors, capturing potential gains against the risks involved in an investment transaction.

•   Calculating the risk-reward ratio requires dividing net profits by the maximum risk of an investment, providing a straightforward evaluation of investment potential.

•   Utilizing the risk-reward ratio aids in informed decision-making, helping investors assess whether potential rewards justify the risks taken, given their own risk tolerance.

•   Investors demonstrate different levels of risk tolerance: conservative, moderate, and aggressive.

•   Despite its utility, the risk-reward ratio has limitations. It is not predictive, and it cannot account for market volatility or external factors that may impact investment outcomes.

What Is the Risk-Reward Ratio?

As noted, the reward-to-risk ratio is a way to assess how much money an investor might gain versus how much they’re risking in order to generate that potential gain. Although the risk-reward ratio is chiefly an analytical tool, it can be particularly important for those with small portfolios, and it may be helpful to review tips on risk for new investors.

Typically, the more risk involved in an investment — when trading stocks, for example — the more ample the reward if the investment turns out to be a winner. Conversely, the less risk you take with an investment, the less reward will likely be earned on the investment.

For example, when buying bonds, investors take on relatively low risk for a relatively low return.

Compare that scenario to a stock market investor, who has no guarantees that the money they steer into a stock transaction will be intact in the future. It’s even possible the stock market investor will lose all of their investment principal if the stock turns sour and loses significant value.

Correspondingly, this investor is presumably looking at a greater reward for the risk taken when buying a stock. If the stock climbs in value, the investor is rewarded for the risk they took with the investment.


💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, alternative investments, IRAs, and more. Get started in just a few minutes.

*Customer must fund their Active Invest account with at least $50 within 45 days of opening the account. Probability of customer receiving $1,000 is 0.026%. See full terms and conditions.

How to Calculate Risk-Reward Ratio

The reward-to-risk ratio formula is a fairly straightforward calculation.

Risk-Reward Ratio Formula

To calculate risk-reward ratio, divide potential net profits (which represent the reward) by the cost of the investment’s maximum risk.

For instance, for a risk-reward ratio of 1:3, the investor risks $1 to hopefully gain $3 in profit. For a 1:4 risk-reward ratio, an investor is risking $1 to potentially make $4.

Example of a Risk-Reward Ratio Calculation

Let’s say an investor is weighing the purchase of a stock selling at $100 per share and the consensus analyst outlook has the stock price topping out at $115 per share with an expected downside bottom of $95 per share.

The investor makes the trade, hoping the stock will rise to $115, but hedges their investment by putting in a stop-loss order at $95, ensuring the investment will do no worse by automatically selling out at $95.

A stop loss order is a type of market order in which the order is placed with a stockbroker to buy or sell a specific stock once that security reaches a predetermined price level. The mechanism is specifically designed to place a limit on an investor’s stock position.

The investor can also lock in a profit by instructing the broker to automatically sell the stock, if it reaches its perceived apex of $115 per share.

In this scenario, the “risk” figure in the equation is $5 — the total amount of money that can be lost if the stock declines and is automatically sold out at $95 (i.e., $100 minus $95 = $5).

The “reward” figure is $15. That’s the amount of per-share money the investor will earn once the share price rises from buying the stock at $100 per share and selling it if and when the stock rises to $115 per share.

Thus, with an expected risk of 5 and an expected reward of 15, the actual risk reward ratio is 1:3 — the potential to lose $5 in order to gain $15.

Pros and Cons of the Risk-Reward Ratio

There are pros and cons to using the risk-reward ratio when investing.

As for the upsides, it’s a relatively simple formula and calculation that can help investors gauge whether their strategy makes sense.

On the other hand, it’s a relatively simple formula and calculation that may not be terribly accurate, and doesn’t necessarily deliver a lot of additional insight into a strategy. That’s something investors should take to heart, and why they may not want to only rely on risk-reward ratio to guide their overall strategy.


💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

Three Risk-and-Reward Investor Types

Investors have their own comfort levels when assessing risk and reward ratios with their portfolios, with some proceeding cautiously, some taking a moderate dose of investment risk, and still others taking on more risk by investing aggressively on a regular basis.

The investment portfolios you build, either by yourself or with the help of a money management professional, reflect your personal risk tolerance. When doing so, it also helps to know stock market basics.

Typically, there are three different types of investor when it comes to risk tolerance:

•   Conservative investors. These investors focus on low-risk, low-reward investments like cash, bonds, bond funds, and large-company stocks or stock mutual funds.

•   Moderate investors. These investors look for a blend of risk and reward when constructing their investment portfolios, putting money into lower-risk investment vehicles like bonds, bond funds, and large-company stocks and funds with more broadly based categories like value and/or growth stocks and funds, international stocks, and funds.

They may also consider a small slice of alternative funds and alternative investments like real estate, commodities, and stock options and futures.

•   Aggressive investors. This type of investor may completely bypass conservative investments and elect to build an investment portfolio with higher-risk stocks and funds (like foreign stocks or small company stocks), along with higher-risk assets like gold and oil (commodities), stock options and futures, and more.

How Investors May View Risk vs. Reward

Each of the above investors recognizes the realities of risk and the potential of reward and balances them in different ways. Even conservative investors will accept a little risk to gain some reward.

For example, a conservative investor may invest in a corporate bond or municipal bond, knowing that in return for a guaranteed profit (in the form of paid interest) and upside asset protection (the bond’s principal being repaid), they take on the small risk that the bond will default.

An aggressive investor understands that by placing money in a high-risk stock, they are potentially risking some or all of the investment if the stock goes under, or significantly underperforms. In return for that risk, the more aggressive investor may reap the financial rewards of a booming stock price and a resulting major return on his investment, but there are no guarantees.

The Takeaway

The risk-reward ratio is helpful in allowing investors to get an idea of how much they stand to gain versus how much they stand to lose in a given investment situation. Any risk-reward engagement depends on the quality of the research undertaken by the investor and/or a professional money management specialist.

That research should set the proper expected parameters of the risk (i.e., the money the investor can lose) and the reward (i.e., the expected portfolio gain the investment might make.) Once the risk and reward boundaries are set, the investor can weigh the potential outcomes of the investment scenario and make the decision to go forward (or not) with the investment.

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FAQ

What is a good risk-reward ratio?

Generally speaking, a good risk-reward ratio is one that skews toward reward, rather than risk. But that range will depend on each investor’s tolerance for risk, as well as other means of assessing the potential outcome of a trade.

What is a poor risk-reward ratio?

A poor risk-reward ratio would be one that is higher or greater than 1, as that would indicate that an investment involves more risk relative to the potential reward. But again, it depends on the individual and the investment in question.

What are some things that the risk-reward ratio doesn’t take into account?

The risk-reward ratio doesn’t take several factors into account, and some of those include external and current events, market volatility, and liquidity in the markets.

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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.

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A dollar sign made of splashing water, shimmering against a solid golden-yellow background.

Guide to Liquid Net Worth

By | Budgeting & Goals, Financial Independence, Growing Wealth, money, Terminology | Comments Off on Guide to Liquid Net Worth

Curious about your financial health? A good first step is to calculate your net worth and your liquid net worth. These two numbers can give you a snapshot of where you stand financially by comparing what you own (your assets) to what you owe (your liabilities). They can also offer insight into how your personal wealth is growing over time.

While your net worth gives a broad overview of your total assets minus your total liabilities, liquid net worth zooms in cash and other assets that you could convert to cash quickly in an emergency.

Liquid net worth is a valuable number to know, since it measures your financial safety net, which is your capacity to manage both anticipated and unexpected financial events effectively. Below, we’ll walk you through how to calculate your liquid net worth, along with ways to improve it over time.

Key Points

•   Net worth is the value of your assets minus your liabilities, while liquid net worth focuses on easily accessible assets.

•   Liquid net worth includes cash, checking and savings accounts, stocks, bonds, and other assets that can be quickly converted to cash.

•   Nonliquid assets like real estate and retirement accounts are not included in liquid net worth calculations.

•   Liquid net worth is important for financial stability and emergency preparedness.

•   Strategies for improving liquid net worth include building an emergency fund, reducing expenses, paying off high-interest debt, and increasing investments.

What Is Liquid Net Worth?

Liquid net worth is a subset of net worth, which is your total assets minus your total liabilities. The meaning of liquid net worth is similar to net worth except that it only includes liquid assets, which are holdings that are in cash or can be converted into cash quickly.

When calculating liquid net worth, you would exclude the value of your home or car (since you likely can’t sell them quickly for cash), as well as your retirement accounts (as there is typically a penalty for withdrawing retirement funds before age 59½). However, you would include money you have in your bank accounts and any brokerage accounts.

What Counts for Liquid Net Worth Calculations?

Here are some assets that can count when calculating liquid net worth:

•   Cash

•   Money in a checking account

•   Money in a savings or money market account

•   Mutual funds, stocks, and bonds

•   Possibly jewelry and watches that could be quickly sold (and without much or any loss in value), if need be.

Mutual funds, stocks, and bonds are typically considered liquid, since you can usually sell these investments and have the transaction settled within two business days. That said, if the quick sale of an investment would significantly decrease its value, it is not considered a liquid asset. Also any asset you need to hold for a period of time before it can be issued as cash is not considered liquid.

Net Worth vs Liquid Net Worth

As mentioned, your total net worth is all of your assets (what you own) minus your liabilities (what you owe). When you determine your net worth, you add up all your assets, including non-liquid assets (such as your house, car, and retirement accounts), and then subtract all of your liabilities. The resulting number is your total net worth.

Your liquid net worth is the amount of money you have in cash or cash equivalents (assets that can be easily converted into cash) after you’ve deducted all of your liabilities. It’s similar to net worth, except that it doesn’t account for nonliquid assets such as real estate or retirement accounts.

Your total net worth gives you a picture of your overall financial strength and balance sheet, while liquid net worth shows how much money you have available that is quickly accessible in case of emergency or other financial hardship.

Both measures of net worth can give you a useful snapshot of your financial wellness, since they consider both assets and debts. Looking at your assets without considering your debts can give you a false picture of your financial situation.

Knowing and tracking these numbers can also tell you if you are moving in the right or wrong financial direction. If your net worth or liquid net worth is in negative territory or the numbers are declining over time, it can be a sign you need to make some changes and/or may want to put off making a major purchase such as a home or a car.

Why Liquid Net Worth Matters

Your liquid net worth is a measure of your ability to weather a financial storm. Imagine you need money for something important — a major home or car repair, a trip to the ER, or starting your own business after getting laid off.

You need it now… or, at least, within the next few weeks or months. Where are you going to get the money?

You might not want to look at cashing in things like your home, your car, your retirement savings, your baseball card collection, or Grandma’s wedding ring unless it’s absolutely necessary.

Those kinds of assets can be difficult to convert to cash in a hurry — and there could be consequences if you did decide to go that route.

Instead, it may be easier to tap your more liquid assets, such as cash from a checking, savings, or money market account, or cash equivalents, like stocks and bonds, mutual funds, or money market funds.

Liquid net worth is often considered a true measure of how financially stable you are because it tells you what you can rely on to cover expenses. In addition, your liquid net worth acts as an overall emergency fund.

Recommended: Emergency Fund Calculator

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Calculating Your Liquid Net Worth

The difference in calculating net worth and liquid net worth is understanding which of your financial assets are liquid assets.

As mentioned, liquid assets are cash and assets that could be converted to cash quickly. The following are considered liquid assets.

•   Cash: This includes the money that is in your wallet, as well as the cash you have in any savings, checking, and money market accounts.

•   Stocks: Any equities in a brokerage account, such as stocks, index funds, mutual funds, and exchange-traded funds (ETFs), are typically considered liquid assets. While you might have to pay taxes and other fees if you sell equities to convert to cash, you could liquidate these assets fairly quickly.

•   Bonds: Like equities, any bonds or bond funds are also liquid assets. Again, you may have to pay taxes on your profits when you sell, but the translation is relatively quick.

Nonliquid assets include anything that cannot be converted to cash quickly or for their full value, such as:

•   Retirement accounts, such as 401(k)s and IRAs.

•   A house or other real estate holding (which could take a while to sell and the actual sales price is not known).

•   Cars (while you may be able to liquidate a car relatively quickly, cars generally don’t hold their original value; they depreciate).

Liquid Net Worth Formula

For a liquid net worth calculation, here are the steps to follow:

•   List all of your liquid assets: The cash and cash equivalents you could easily and quickly get your hands on if you need money.

•   Next, list your current liabilities, including credit card debt, student loan balance, unsecured loans, medical debt, a car loan, and any other debt.

•   Subtract your liabilities from your liquid assets. The result is your liquid net worth.

4 Tips for Improving Liquid Net Worth

If your liquid net worth is too low to cover at least three to six months’ worth of living expenses or is in negative territory, you may want to take some steps to bolster this number. Here are some strategies that can help boost liquid net worth.

1. Building an Emergency Fund

If you don’t already have a solid contingency fund set aside in a liquid account, you may want to start building one. Having enough cash on hand to cover three to six months’ worth of expenses can be a great place to start building your liquid net worth.

An emergency fund can help keep you from getting behind on your bills and running up high interest credit card debt in the event of an unexpected expense, job loss, or reduction in work hours.

It’s fine to build towards this slowly. Automating your savings to deposit, say, $25 per paycheck into an emergency fund can be a good starting point if money is tight.

2. Reducing Expenses

For every dollar you save each month, you are potentially increasing your liquid net worth by that amount. One way to cut spending is to take a close look at your monthly expenses and to then try to find places where you may be able to cut back, such as saving on streaming services, lowering your food bills, or shopping around for a better deal on home and car insurance.

3. Lowering High-Interest Debt

Debts add to your liabilities and therefore lowers your liquid net worth. Expensive debt also increases your monthly expenses in the form of interest. This gives you less money to put in the bank each month, making it harder to build your liquid net worth.

If you’re carrying credit card debt, you may want to start a debt reduction plan (such as the “debt snowball” or “debt avalanche” method) to get it paid down faster.

4. Increasing Investments

Investing money in the market for longer-term savings goals can increase your liquid net worth. While there is risk involved, you’ll have more time to ride out the ups and downs of the securities markets when saving for the longer term.

Recommended: Average Net Worth by Age

Test your understanding of what you just read.

The Takeaway

Liquid net worth is the portion of your net worth that is readily accessible as cash or can be quickly converted to cash without significant loss of value. You calculate it by subtracting your total liabilities from your total liquid assets.

Your liquid net worth can be a valuable measure of your financial health and stability because it shows how prepared you are to handle a change in plans, an unexpected expense, or a true emergency.

One easy way to boost your liquid net worth is to start building an emergency fund. If you’re looking for a good place to start saving, you may want to consider opening a high-interest bank account.

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


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FAQ

Does a 401(k) count as liquid net worth?

A 401(k) typically does not count as part of your liquid net worth because it generally isn’t easily accessible without penalties before age 59 ½. Liquid net worth refers to assets that can be quickly converted to cash without significant loss of value. However, your 401(k) does hold value and contributes to your overall net worth.

How do you calculate liquid net worth?

To calculate your liquid net worth, add up your liquid assets (cash, money in the bank, stocks, bonds, and the like) and subtract your liabilities (credit card debt, student loans, car loan, etc.). When adding up your assets, do not include real estate or retirement accounts.

What is the average liquid net worth by age?

The government tracks total net worth (not liquid net worth). According to the most recent Federal Reserve’s “Survey of Consumer Finances” (2022), the average net worth is $183,500 for those younger than 35; $549,600 for those 35 to 44; $975,800 for those 45 to 54; $1,566,900 for those 55 to 64; and $1,794,600 for those 65 to 74.

It’s important to keep in mind that outliers can skew average numbers. Median (the middle value in a set of numbers when those numbers are arranged in order from least to greatest) can be more accurate at representing the typical net worth by age.

About the author

Kelly Boyer Sagert

Kelly Boyer Sagert

Kelly Boyer Sagert is a full-time freelance writer who specializes in SEO-optimized blog and website copy: both B2B and B2C for companies ranging from one-person shops to Fortune 500 companies. Read full bio.

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

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

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The Effects of Deadweight Loss

The Effects of Deadweight Loss

By | invest, Investing, Terminology | Comments Off on The Effects of Deadweight Loss

Deadweight loss is a macroeconomic term that refers to the total value of lost trades, caused by a mismatch between supply and demand. Deadweight loss can be the result of taxation, price restrictions, the impact of monopolies, and other factors.

Deadweight loss isn’t limited to a single company, but rather describes the impacts on the overall economy of certain policies, which can trickle down and have an effect on the markets.

Key Points

•   Deadweight loss refers to the value of all the trades or transactions that did not occur owing to a market inefficiency.

•   These inefficiencies are the result of a market distortion, or mismatch, such as what occurs when a tax or minimum wage is imposed.

•   These factors can impact production costs and pricing, which can cause a disequilibrium in both supply and demand, leading to deadweight loss.

•   Deadweight loss generally plays out in terms of larger societal and/or economic trends, and as such can impact markets as well.

What Is Deadweight Loss?

Deadweight loss refers to inefficiencies created by a misallocation or inefficient allocation of resources, and is an important economic concept. Deadweight loss is often due to government interventions such as price floors or ceilings, or inefficiencies within a tax system that effectively reduce trades or transactions by interfering with supply and demand equilibrium.

To understand more fully, it can be helpful to think about how government interventions can impact the equilibrium between supply and demand.

First: Calculate Surplus

In order to know how to calculate deadweight loss, we must first be able to calculate surplus.

Typically, a business will only sell something if they can do so at a price that’s greater than what they paid for it themselves, and a consumer will only buy something if it’s at or less than the price they want to pay for it — the same principle as generating a stock profit.

Scenario A — The Equilibrium: Let’s imagine Store X sells comic books for $10 each. The store buys the comic books from the wholesaler for $5 and sells them for $10, pocketing $5 of “producer surplus.”

Before the Store X opened, consumers traveled to another store to buy comic books for $15. This $5 difference between the price they were willing to pay and the newly available price is the “consumer surplus”.

In this case, let’s say Store X is able to sell 1,000 comic books, that means the combined producer and consumer surplus is $10,000.

Breakdown:

•  P1 = Producer’s Cost of a Comic Book = $5

•  P2 = Producer’s Price to Sell a Comic Book = $10

•  P3 = Price the Consumer Pays = $10

•  P4 = Price the Consumer Is Willing to Pay = $15

•  Units Sold = 1,000

•  Producer Surplus = (P2 – P1) * Units Sold = ($10 – $5) * 1,000 = $5,000

•  Consumer Surplus = (P4 – P3) * Units Sold = ($15 – $10) * 1,000 = $5,000

•  Total Surplus 1 = Producer Surplus + Consumer Surplus = $5,000 + $5,000 = $10,000

In this theoretical example, there is no deadweight loss because supply and demand are in balance. That would change if another factor entered the picture that caused a market distortion that caused a loss in the number of purchases. Deadweight loss being the value of the trades or transactions that did not occur, owing to a market inefficiency.


💡 Quick Tip: Before opening an investment account, know your investment objectives, time horizon, and risk tolerance. These fundamentals will help keep your strategy on track and with the aim of meeting your goals.

Common Causes of Deadweight Loss

There can be several causes of deadweight loss, but some of the most common are government-mandated changes to markets. Examples include price floors, such as a minimum wage, which can create some inefficiencies in the labor market (there may be workers who would be willing to work for less than minimum wage).

Price ceilings, also can create deadweight loss — an example could be rent control. Finally, taxes can create deadweight loss, too.

How to Calculate Deadweight Loss

To properly calculate deadweight loss, you need to be able to represent the supply and demand of the goods being sold graphically in order to determine prices. According to the laws of supply and demand, the higher a price goes, the fewer of that item will get sold; and vice versa.

Example of Deadweight Loss

Let’s go back to our comic book example and imagine that the town’s government imposes a $2 tax on comic books.

Scenario B — The Impact of Taxes

What happens to the price of comic books and the surplus generated by the sales of comic books? Theoretically, Store X could simply bump up prices $2 and sell 1,000 comic books for $12 each, maintaining a $5 producer surplus on each comic book sold, with $2 going to the government, and consumer surplus of $3.

In this case the combined consumer and producer surplus is lower — $5 × 1,000 + $3 × 1,000 = $8,000. So there’s a missing $2,000 of what economics call “gains from trade.” But, the government is collecting $2,000, so the money does not disappear from the economy.

In other words, the government is collecting $2,000, with which it can buy things, hire people, and literally send money to people via economic stimulus measures. Thus, the tax revenue does not disappear from the economy.

But in reality, if Store X were to increase the price to $12, thus passing on the tax to customers, they may not be able to sell enough comic books to maintain the revenue needed to keep the store open.

If they lower the price to $11, splitting the cost of the tax between the store and consumers, it’s likely fewer consumers would buy comic books: let’s say Store X would now sell 600 comic books instead of 1,000.

The combined consumer and producer surplus is $4,800 ($4 × 600 + 600 × $4) with $1,200 of tax collected (600 × $2) meaning there’s a total of $6,000 of consumer surplus, producer surplus, and government revenue. In this case the deadweight loss is $4,000.

Breakdown:

•  P1 = Producer’s Cost of a Comic Book = $5

•  P2 = Producer’s Price to Sell a Comic Book = $9

•  P3 = Price the Consumer Pays = $11

•  P4 = Price the Consumer Is Willing to Pay = $15

•  Units Sold = 600

•  Tax = $2/Comic Book

•  Producer Surplus = (P2 – P1) * Units Sold = ($9 – $5) * 600 = $2,400

•  Consumer Surplus = (P4 – P3) * Units Sold = ($15 – $11) * 600 = $2,400

•  Gains From Trade (Tax) = $2 * 600 = $1,200

•  Total Surplus 2 = Producer Surplus + Consumer Surplus + Gains From Trade = $6,000

•  Deadweight Loss = Total Surplus1 – Total Surplus2 = $10,000 – $6,000 = $4,000

The higher price, created through taxation, has impacted the equilibrium between supply and demand and created a deadweight loss — the number of sales that evaporated due to fewer transactions happening between the comic book seller and the readers.

While this is a rather extreme example of what happens when taxes force up prices, it’s a good way of thinking about how deadweight losses are more than just items getting more expensive. Rather, the deadweight loss formula can illustrate the evaporation of mutually beneficial economic transactions due to different types of taxes and other policies.

A similar impact can occur when a government imposes price floors or ceilings on items.


💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).

Why Investors Should Care About Deadweight Loss

Deadweight loss can affect investors in a number of ways, and it’s important to consider it when looking at different types of investments. One of the most debated issues in economics is the effects that the tax system has on income, investment, and economic growth in the short and long run.

Some argue that income taxes, payroll taxes (the flat taxes on wages that fund Social Security and Medicare) and capital gains taxes work like the comic book tax described above, preventing otherwise beneficial transactions from happening and reducing the economic gains available to all sides. There’s evidence on all sides of this debate, and the effects of tax rates on overall economic growth are, at best, unclear.

As an investor, deadweight loss might matter when it comes to companies or sectors impacted by specific taxes, such as sales taxes or excise taxes on alcohol or cigarettes.

Deadweight loss shows how taxes on specific items can not only reduce profitability by increasing a company’s tax bill, but also affect revenue by reducing overall sales or driving down prices that businesses can charge or receive from buyers. As an investor, this knowledge and insight can be useful when allocating capital between companies, sectors, or types of assets.

The Takeaway

Deadweight loss is the result of economic inefficiencies, and it can affect an investor’s portfolio if it results in slower sales and revenues for businesses. It’s a large economic concept, and may not have a day-to-day direct impact on the stock market. But it’s still good for investors to know the basics of deadweight loss and how it applies to them.

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FAQ

Why does a monopoly cause a deadweight loss?

A monopoly can cause deadweight loss because competitive markets create competition and fairer prices. A monopoly distorts prices, leading to inefficiencies.

Can deadweight loss be a negative value?

No, deadweight loss cannot be a negative value, but it can be zero. Zero deadweight loss would mean that demand is perfectly elastic or supply is perfectly inelastic.

Is deadweight loss market failure?

Deadweight loss is not a market failure, but rather, the societal costs of inefficiencies within a market. Market failures can, however, create deadweight loss.

Photo credit: iStock/akinbostanci

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.

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

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.

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Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

✝ To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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