Feb
19
2025
Options Pricing: How Options Are Priced

Guide to Options Prices: How are Options Priced?

By | Growing Wealth, invest, Investing | Comments Off on Guide to Options Prices: How are Options Priced?

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

Options are derivative financial instruments that give buyers the right (but not the obligation) to buy or sell an underlying security, such as a stock, at a predetermined price (the strike price) within a set time frame. The price of an option, known as the premium, is determined by factors like the underlying asset’s market price, intrinsic value, time until expiration, and volatility.

Understanding how options are priced can help investors decide when to enter or exit a trade, manage risk, or evaluate potential returns.

Key Points

•   Option pricing may be based upon factors including market price, intrinsic value, time value, and volatility.

•   The Black-Scholes model is used for European options, factoring in stock price, strike price, interest rates, time to expiration, and volatility.

•   The binomial model suits U.S. options, valuing an option based on whether the underlying asset’s price moves up or down at each step before expiration.

•   The trinomial model extends the binomial model by adding an unchanged price outcome, suitable for complex options.

•   Options are high-risk investments that allow traders to seek profit from the price movements of stocks, or to hedge against potential losses.

How is an Option Price Determined?

There are two main types of options: call options and put options. An investor who buys a call option acquires the right to buy the underlying asset at the strike price price, while, conversely, an investor who buys a put option acquires the right to sell the option’s underlying asset at the strike price.

Options traders analysts take many factors into account to determine the price, or premium, of call options and put options. The most widely known method for determining the value of an option is the Black-Scholes model. But other models — such as the binomial and trinomial options pricing models — are more commonly used to determine stock option prices.

All of those options pricing models are complex, but they all draw on a few primary factors that drive the investment value of an options contract:

• The market price of the stock that underlies the option

• The current intrinsic value of the option

• The time until the option expires

• Volatility

Market Price and Intrinsic Value

Market price first is easy to understand — it’s the price at which the underlying stock is trading. The second factor — the intrinsic value of the option — is the value of the option would be worth if sold at that moment. This only applies if the price of the underlying stock has moved to where the option is “in the money,” meaning the owner of the option would make a profit by exercising it.

Recommended: Popular Options Trading Terminology to Know

Time Value

The time until expiration is more complex. This so-called time value reflects the amount of time before expiration of a contract in options trading. It represents the possibility that an out-of-the-money option could eventually become profitable.

It’s the one part of an option’s value that only goes down — and which goes at an increasingly rapid rate as the options contract approaches expiration. As the expiration date approaches, larger price movements in the underlying stock are required to create significant changes in the option’s price.

💡 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.

Volatility

Time value reflects the potential for price movement from the underlying asset, influenced by factors such as volatility and market expectations of future price fluctuations. As a general rule, stocks with a history of high volatility underlie options with a higher likelihood to be in-the-money at the time of their expiration.

Volatility, in many pricing models, is represented by a measure of price fluctuations of the underlying asset. Beta, on the other hand, measures the asset’s volatility versus the volatility of the overall market. Options on stocks with higher historic or expected volatility typically cost more than options contracts on stocks that have little reputation for dramatic price swings.

Recommended: Understanding The Greeks in Options Trading

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

*Check out the
OCC Options Disclosure Document.

What Are the Different Option Pricing Models?

There are several models that investors and day traders consider when figuring out how to price an option. Here’s a look at a few of the most common:

The Black-Scholes Merton (BSM) Model

The best-known options pricing method is the Black-Scholes model. The model consists of a mathematical formula that can be daunting for people without a math background. That’s why both institutional and retail investors employ online options calculators and analysis tools.

The economists who created the formula published their findings in 1973, and won the 1997 Nobel Prize in economics for this new method for arriving at the value of financial derivatives.

Also known as the Black-Scholes Merton (BSM) model, the Black-Scholes equation takes the following into account:

• The underlying stock’s price

• The option’s strike price

• Current interest rates

• The option’s time to expiration

• The underlying stock’s volatility

In its pure form, the Black-Scholes model only works for European options, which investors can not exercise until their expiration date. The model doesn’t work for U.S. options, because U.S. options can be exercised before their expiration date.

The Binomial Option Pricing Model

The binomial option pricing model is less well-known outside of financial circles, but it’s more widely used. One reason it’s more popular than the Black-Scholes Model is that it can work for U.S. options. Invented in 1979, the binomial is based on the assumption that, in any pricing scenario, an underlying asset’s price will move either up or down. As a method for calculating an option’s value, the binomial pricing model uses the same basic data inputs, such as the underlying asset’s price, strike price, time to expiration, the interest rate, and volatility, and its equation may be updated as new information emerges.

In comparison with other models, the binomial option pricing model is very simple at first, but it becomes more complex as investors take multiple time periods into account. For a U.S. option, which the owner can exercise at any point before it expires, traders often use the binomial model to decide when to exercise the option.

By using the binomial option pricing model with multiple periods of time, the trader has the advantage of being able to better visualize the change in the price of the underlying asset over time, and then evaluate the option at each point in time. It also allows the trader to update those multi-period equations based on each day’s price movements and emerging market news.

Recommended: What Is a Straddle in Options Trading?

The Trinomial Option Pricing Model

The trinomial option pricing model is similar to the binomial model but it allows for three possible outcomes for an option’s underlying asset within a given period. Its value can go up, go down, or stay the same. As they do with the binomial model, traders recalculate the trinomial pricing model over the course of an option’s life, as the factors that drive the option’s price change, and as new information comes to light.

Its simplicity and acknowledgement of a static price possibility makes it more widely used than the binomial option pricing model. When pricing exotic options, or any complex option with features that make it harder to calculate than the common calls and puts on an exchange, many investors favor the trinomial model as a more stable and accurate way of understanding what the price of the option should be.

The Takeaway

Options pricing isn’t just about a single number — it’s the result of multiple factors, from market price and volatility to the passage of time. Investors rely on models like Black-Scholes, binomial, and trinomial pricing to estimate an option’s value, each offering different insights depending on the type of contract.

Although these calculations can seem complex, the core idea remains the same: an option’s price reflects both current conditions and future possibilities. Understanding these mechanics can help traders make more informed decisions, whether they’re managing risk or seeking new opportunities in the market.

Investors who are ready to try their hand at options trading despite the risks involved, might consider checking out SoFi’s options trading platform offered through SoFi Securities, LLC. The platform’s user-friendly design allows investors to buy put and call options through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.

Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors. Currently, investors can not sell options on SoFi Active Invest®.


Explore SoFi’s user-friendly options trading platform.

Photo credit: iStock/ljubaphoto

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.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.
Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

SOIN-Q125-118

Read more
Feb
13
2025

Silver Certificate Dollar Bills: What Are They Worth?

By | Growing Wealth, invest, Investing, Terminology, Tools & Calculators | Comments Off on Silver Certificate Dollar Bills: What Are They Worth?

Silver certificates are a type of money, or paper bill, issued by the United States government between the years 1878 and 1964.

Although they resemble ordinary currency, and can still be used as legal tender, silver certificate bills are generally worth more than their face value. How much more depends on the type, the size, and several other factors. The rarer the certificate, the higher its likely value. In some cases, certain unusual or historic silver certificates may be worth large sums at auction.

Silver certificates are more like collectibles, in that their value can also fluctuate based on demand or trend factors. There is also the risk of fraud, and it’s wise to consult a professional before buying or trading silver certificates.

Key Points

•   Silver certificates, issued from 1878 to 1964, are a unique form of U.S. currency that could, at one time, be exchanged for silver.

•   They can now be used as legal tender, and are typically worth above face value, sometimes a lot more, depending on rarity.

•   Two types of silver certificates exist: large (pre-1929) and small (1929-1964) certificates, differing in size and production period.

•   Value depends on condition, age, denomination, serial number, design, with some rare certificates fetching thousands at auction.

•   Preservation involves using protective sleeves and storing in cool, dry, dark places to maintain condition.

What Are Silver Certificates?

Silver certificates, which were issued only between the years 1878 and 1964, could at one time be redeemed for their designated amount in silver: either coins or silver bullion.

History of Silver Certificates

Silver certificates are no longer printed or produced by the U.S. Mint, and haven’t been since the mid-1960s. As such, they’re somewhat rare, and may be worth more than their face value. Each series of silver certificates displays its own combination of design flourishes and security elements that also reflect artistic trends of the day, as well as technological developments.

The Mint stopped producing silver certificates in 1964 after Congress passed a law repealing the Silver Purchase Act — which had allowed certificates to be exchanged for silver. They were gradually replaced by Federal Reserve notes, which solidified the era of fiat currency: legal tender not backed by a precious metal, but rather the U.S. government’s guarantee.

Uses for Silver Certificates

Silver certificates can, however, still be used as cash even today. Depending on the type of silver certificate, they may vary slightly in appearance from other bills, but they are considered legal tender.

For collectors or investors, silver certificates may be considered a type of alternative investment, similar to collectibles like art, rare books, and antique sports cards. While they aren’t necessarily high-risk investments, silver certificates are beholden to certain risk factors, like potential fraud from counterfeit certificates, as well as a lack of transparency in the market for these items.

At this time, SoFi does not offer silver certificates.

💡 Quick Tip: How do you decide if a certain online trading platform or app is right for you? Ideally, the online investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

Types of Silver Certificates

Generally speaking, there are two types of silver certificates: Large and small silver certificates. The description actually refers to when the certificates were produced, as well as the difference in their physical dimensions. Because silver certificates are basically a type of collectible — in that their value isn’t derived from their face value — they fall under the rubric of alternative assets.

Large-Size Silver Certificates (pre-1929)

Large silver certificates are, as the name suggests, physically larger than small silver certificates, and measure around seven inches long by three inches wide. These certificates were produced between 1878 and 1923, and came in nine denominations, ranging from $1 to $1,000.

Small-Size Silver Certificates (1929-1964)

Small silver certificates conform to modern bill sizes, measuring at a bit more than six inches long, and two-and-a-half inches wide. They were produced beginning in 1928, after the Mint redesigned bills, and were printed until 1964. They come in only three denominations: $1, $5, and $10. And, like their modern standard counterparts, they feature portraits of either George Washington, Abraham Lincoln, or Alexander Hamilton.

Recommended Comprehensive Guide to Alternative Investments

Factors Affecting the Value of Silver Certificates

There are quite a few variables that ultimately determine the value of a silver certificate today, just as there are a range of factors that impact the value of various types of stocks.

Perhaps the most important is the physical condition of the silver certificate itself, or “grading,” as numismatics would say. Similar to collecting rare coins, there are professionals who assess the condition of paper money and bills, and give them a specific grade to convey that condition.

The grade includes a number between one and 70 (70 indicates that the bill is in mint condition), and a letter, signifying that it is either in good, very good, very fine, extremely fine, about uncirculated, or gem uncirculated condition. The absolute best condition you could hope for would be a “70 Gem Unc.”

Beyond the condition and grade of a silver certificate, the value can be affected by its age, its denomination, and even its serial number, or whether or not it contains a minting error (bills with errors are rarer than those without errors, increasing their value to collectors). Further, where a bill was produced can affect its value, as can its specific design — again, some are more scarce than others.

Recommended: Alternative Investments, Explained

Common Silver Certificate Denominations and Their Worth

The most common silver certificate denominations on the market are $1, $5, and $10 varieties, although older bills may come in a wider range of denominations. And while their values depend on some of the factors discussed (most importantly, their grading), potential investors or collectors may want a ballpark figure of what they might pay to get their hands on one — or what they could reap if they were to sell it.

It’s likely worth it to speak with a specialist or numismatist to get a more accurate valuation of a specific bill.

•   $1 silver certificates: Depending on the certificate (grading, year, etc.), $1 silver certificates may be worth a bit more than their face value, or they could be worth hundreds of dollars.

•   $5 silver certificates: For the more common $5 silver certificates on the market, values are likely to be somewhere between 10% and 30% above face value. But again, some may be worth much more, into the hundreds of dollars, for rarer bills.

•   $10 silver certificates: Values for common $10 silver certificates are similar to $5 varieties, typically 10% to 30% above face value. For specific, rare certificates, the values could be much higher.

Owing to the wide range of factors that come into play regarding the actual current value of a silver certificate, it may be best to consult with a professional before buying, trading, or investing in silver certificates.

💡 Quick Tip: Because alternative investments tend to perform differently than conventional ones, even under the same market conditions, alts may help diversify your portfolio, mitigate volatility, and provide a hedge against inflation.

Rare and Valuable Silver Certificates

As mentioned, there are some rare and more valuable silver certificates out there, too. While the more common certificates are not worth much more than their face value, these hard-to-find bills can fetch hundreds, or even perhaps thousands of dollars from the right buyer. Here are a few examples.

•   1896 $1 Silver Certificate Educational Series: Featuring an elaborate design and portraits of George and Martha Washington, this rare bill has sold for as much as $10,000.

•   1886 $5 Silver Certificate (Ulysses S. Grant): This certificate, featuring a portrait of Ulysses S. Grant on the front, is another old, rare bill. These specific certificates often sell for as much as $50,000 at auction, and sometimes more.

•   1891 Series $20 Silver Certificate: This bill has a portrait of Daniel Manning, and there are only a handful of them that still exist. Given its rarity, these bills can sell for as much as $50,000 at auction.

How to Determine the Value of Your Silver Certificate

Determining the value of a silver certificate isn’t easy, and may best be left up to professional numismatists to ensure you’re getting an accurate estimate. But you could begin by trying to assess the grade yourself — that is, determining the overall condition of the bill. Again, this may not be easy to do, but if the bill is damaged in specific ways, you may be able to use a grading guide to help you figure things out.

Beyond that, you can also look up the specific mintage or production information to get a sense of how rare a certificate is. That may also help you get a ballpark idea of the value of your certificate. But again, you may want to go to a professional — perhaps at a local coin shop or auction house — to get a professional appraisal, or more information.

Collecting vs. Investing in Silver Certificates

Perhaps the primary difference between collecting and investing in silver certificates is that investors are actively trying to generate a positive return. So, while a collector may be willing to pay higher prices, or even lose some money in order to get their hands on a specific silver certificate, an investor looking at various types of alternative investments likely won’t be willing to do the same, owing to the lack of transparency and liquidity.

Recommended: Why Alternative Investments?

Where to Buy and Sell Silver Certificates

Whether you’re collecting or investing in silver certificates, there are many online stores or retailers that sell silver certificates, and there are even auction houses that may offer the chance to buy rarer bills. Many physical coin or bullion stores may have silver certificates available for purchase, too, and be willing to buy them as well.

Preserving Silver Certificates

In order to keep silver certificates safe and their condition intact, it’s best to try and put them in some sort of protector, and control the environment in which they’re stored. That means likely purchasing currency sleeves — which can be purchased from many retailers — made of rigid plastic. That will help protect the bill from physical damage.

But you’ll also want to aim to keep your silver certificates in a place that is relatively cool, dry, and dark. Heat, humidity, and direct sunlight can and will damage paper bills, so if you can find a safe spot to keep them, it should help keep their integrity for longer.

The Takeaway

Silver certificates are paper bills that, at one time, could be exchanged for silver coins or silver bullion. They have not been produced since the mid-1960s, and as such, are something of a rarity on the market today — although they can still be used as legal tender to make purchases. Some are rarer than others, naturally, and can have higher values, and that’s made them attractive to investors and collectors alike.

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

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

🛈 SoFi does not offer silver certificate dollar bill investments, but it does offer alternative investment funds, which may provide access commodities, venture capital, real estate assets, and more.

FAQ

Can silver certificates still be redeemed for silver?

No, silver certificates can no longer be redeemed for silver coins or bullion, but can be used as legal tender to conduct transactions — or bought as a collectible.

What makes some silver certificates more valuable than others?

The primary variables that determine the value of a silver certificate are its denomination, grade, age, and mintage or production information — in general, the rarer a bill, the higher its value.

How do you determine if a silver certificate is genuine?

The best thing to do in order to determine whether a silver certificate is genuine or not is to take it to a professional numismatist.

Photo credit: iStock/svetikd

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.


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

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

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

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.

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

SOIN-Q424-049

Read more
Feb
13
2025

How to Invest in Platinum

By | Growing Wealth, invest, Investing, Terminology, Tools & Calculators | Comments Off on How to Invest in Platinum

Platinum is one of several precious metals, including silver and gold, that tend to have high relative values, which can make them attractive to investors. Investing in platinum, likewise, isn’t all that different from investing in other precious metals, and investors can generally add platinum to their portfolios by purchasing bullion (or, the metal itself), purchasing stocks that are involved in the mining or production of platinum, or through funds that may offer exposure to the precious metals market.

Investors may turn to platinum for a number of reasons, such as the potential to see gains or as a possible hedge against inflation. But, as with any alternative investment, there are additional risks and considerations investors should take into account before adding platinum to their portfolios.

Key Points

•   Platinum can be added to investment portfolios through physical purchases, mining stocks, or funds offering exposure to precious metals.

•   The metal’s value is influenced by supply, demand, and economic factors, including its use in vehicles and electronics.

•   Investing in platinum can offer diversification and potential protection against inflation, but involves risks due to price volatility.

•   Physical platinum requires secure storage and may be harder to sell compared to stocks or funds.

•   Tax implications vary, with physical platinum classified as a collectible, potentially incurring a 28% capital gains tax rate.

Understanding Platinum as an Investment

Platinum is a precious metal, which has a shiny metallic appearance, similar to silver. In fact, the moniker “platinum” comes from the Spanish word “platina,” which translates to “little silver.” It’s been mined and traded for hundreds of years, too, particularly in pre-Columbian South America, and was initially taken to European markets in the mid-1700s. It’s even been found in ancient Egyptian tombs, too. Today, a majority of platinum is mined in South Africa.

It’s commonly used to produce jewelry — again, because of its striking visual appeal — but is also used to produce some auto parts like catalytic converters, in chemical production, and to create computer and electronics components. Additionally, it’s used to produce a host of other products, including wind turbines and even dental fillings. It’s a versatile metal, but it’s largely due to its visual aesthetics that it carries a lot of value.

And that value is mostly tied to the fact that it’s scarce – scarcer even than gold, in fact. Since the mid-1700s, roughly 10,000 cubic tons of platinum have been mined, out of an estimated 70,000 total. So, platinum’s relative scarcity — meaning that it could go up in value in the future (or not, of course!) — is what primarily makes it attractive to investors as an alt investment.

Ways to Invest in Platinum

For investors who are interested in investing in platinum, there are a few primary ways to do it: By purchasing physical platinum, buying shares of funds that may add exposure to platinum to their portfolios, or by purchasing shares of mining companies that may be involved in platinum production. It’s not much different, really, from the types of assets you might consider when determining how to invest in gold or another alternative investment.

In addition, some investors may choose to invest in the precious metal through platinum futures, derivative contracts to buy or sell an asset at a future date for a set price. (Note that SoFi does not offer futures trading at this time.)

Read more: Guide to Alternative Investments

Physical Platinum

Purchasing physical platinum can include buying bullion, examples of which may be bars or coins. Effectively, platinum bullion is solid (or near solid) platinum, valued for its weight, rather than an assigned monetary value (such as a quarter from a mint that’s used for transactions) or its numismatic value (i.e., its value to collectors based on factors such as its rarity and condition).

Bullion coins can be purchased in different sizes, such as one ounce, one-half ounce, and one-quarter ounce . Bars, too, are generally sold by the ounce – one ounce, ten ounces, etc. – and can be purchased through the United States Mint, at coin and bullion dealers’ online shops or stores, and at certain retailers such as Walmart and Costco. Investors may also buy platinum jewelry from jewelers or other retailers.

Platinum ETFs and Mutual Funds

If buying physical platinum isn’t exactly what investors are looking for, they may look at fund options — that can include exchange-traded funds (ETFs) or mutual funds that are focused on or concentrated in the platinum market. There are numerous platinum-focused funds on the market, though each will vary in terms of costs, risks, price-per-share, and individual holdings or allocations. As such, investors should do their due diligence and research the particular funds they’re considering before investing.

💡 Quick Tip: How do you decide if a certain online trading platform or app is right for you? Ideally, the online investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

Platinum Mining Stocks

Investing in stocks of companies that are involved in platinum mining or production is another option for investors. Like platinum-focused funds, there are many companies that mine platinum, each with their own individual risks and potential upsides. It’s up to investors to do their homework to weigh the pros and cons and consider how these stocks fit within their overall investment strategy before making a choice.

Alternative investments,
now for the rest of us.

Start trading funds that include commodities, private credit, real estate, venture capital, and more.

Factors Affecting Platinum Prices

Platinum prices are subject to numerous factors, like other precious metals. The largest, however, is supply and demand — as simple as it is, the more that platinum is in demand, the higher its value tends to be. Supply and demand, of course, is influenced by a large set of variables that include how much and often platinum is being used by manufacturers, or even if platinum jewelry experiences a moment of popularity.

In recent years, platinum has seen an increase in demand due to an uptick in electric and hybrid vehicle production, for example. But it’s also been influenced by power outages in South Africa, where most mining takes place, as well as military conflicts and wars in Europe.

Economic factors can also play a role. For instance, some investors crowd into precious metals investing if they feel that a recession is on the horizon or if inflation becomes an issue. That’s because precious metals are often seen as a powerful store of value and a hedge against inflation — though whether or not that’s true is, itself, dependent on other factors.

Advantages of Investing in Platinum

There can be potential advantages of investing in platinum, as noted. For one, adding platinum or other precious metals to your portfolio can add an element of diversification. That is, if your portfolio already contains a good mix of other investment types — which may include stocks, bonds, ETFs, mutual funds, and more — precious metals may be yet another asset class that can help diversify it even further.

Additionally, as mentioned, it’s possible that investing in platinum or other precious metals may help a portfolio retain value if the markets see a dip, or if inflation goes up. Likewise, there’s always the possibility that platinum prices could rise in the future, helping a portfolio’s overall value increase as well — but there are no guarantees.

Read more: What are Alternative Investments?

Risks and Challenges

While there are some advantages to investing in platinum and precious metals, there are risks and other considerations that investors need to take into account to determine if precious metals may be a good investment choice for them.

For example, precious metal values — including platinum — are notoriously volatile. That means that one day platinum prices may look like they’re heading to the moon, and the next, they’re cratering. Investors who don’t have much of an appetite for risk may want to consider whether they can handle wild price swings.

On top of that, if investors are buying physical platinum, they’ll need a safe place to actually store it, where it won’t be affected by environmental conditions, or even tempt thieves. It could also be a bit more of a chore to sell physical platinum, as well, as it’d require at the very least a trip to a trusted coin store or finding a reputable buyer online.

How to Buy Physical Platinum

Buying physical platinum is fairly easy. Investors can find numerous online retailers that sell platinum and other precious metals, and buy through those channels. That includes the United States Mint, which produces and sells platinum coins. Investors can also visit coin or bullion shops in their local markets to see what platinum options are available.

Investing in Platinum Through the Stock Market

Investing in platinum through the stock market is likewise fairly straightforward, as it involves simply selecting the company or fund you want to buy shares in, and executing a trade. But the important part of the trade is doing due diligence before investing.

That means looking at a stock or fund’s financial statements and history of returns, where it’s being operated and by whom, and much more. It’s effectively the same process as investing in any other asset — doing some initial research and analysis of the fundamentals in order to make a choice that aligns with your investment strategy.

Tax Implications of Platinum Investments

Figuring out tax liabilities generated from platinum investments generally boils down to calculating any capital gains on those investments. If you invest in physical platinum, the IRS considers or classifies it as a collectible. So, if you sell it after holding it for more than a year, you may be subject to a 28% capital gains tax rate.

However, if you’ve invested in platinum-focused funds or stocks, there may be other tax implications, and potentially, a different capital gains tax rate. As such, it may be best to touch base with a financial professional to help you figure out exactly what the tax implications of your platinum investment might be.

Comparing Platinum to Other Precious Metals

Platinum is just one of several precious metals that investors often set their sights on, the others being gold, silver, and palladium. They each have their own unique properties, uses, and potential upsides and risks.

Their prices vary over time and, at times in the past, platinum has actually been more expensive than gold, given its rarity. Typically, however, gold is the most expensive per ounce of the four, while investing in silver is typically the cheapest — platinum and palladium lie somewhere between the two.

It may help to review the gold/silver ratio to better understand the pricing differences. Again, depending on an investor’s strategy and how much risk they’re willing to take on, looking at options for each precious metal may be worth the effort.

The Takeaway

Platinum is one of four main precious metals that investors typically focus on. The rare metal has a number of industrial uses, and is valued for its use in jewelry, given its aesthetic and physical qualities.

Platinum investments may be advantageous in that they can diversify a portfolio and act as a hedge against inflation, but precious metal values are typically volatile, and investors would do well to do their research before buying physical assets, or investing in related funds or stocks.

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

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

FAQ

What are the different forms of platinum investments available?

Investors can buy physical platinum — such as bars or coins — or invest in funds that focus on platinum. It’s also possible to invest in companies that operate in or around platinum mining and production.

How does platinum pricing compare to gold and silver?

Gold is typically the most expensive precious metal per ounce, while silver is generally the least expensive. Platinum (and palladium) prices are often between the two, with platinum prices, as of mid-February 2025, around $1,001 per ounce.

What factors influence the platinum market?

Platinum values and the overall market can be influenced by a number of factors, including general supply and demand, industrial need, economic strength, and more.

Photo credit: iStock/Zinkevych

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.


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

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

Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

SOIN-Q424-051

Read more
Feb
13
2025
Investment, financial report statistic concept, close-up of black pen on printed stock exchange data price number or valuation table with green and blue yearly graph

What Is a Certificate of Deposit?

By | Growing Wealth, money, Terminology | Comments Off on What Is a Certificate of Deposit?

A certificate of deposit (or CD) is considered a type of savings account, but a CD locks up your money for a fixed time period in exchange for a higher rate of interest than a standard savings account.

While a savings account allows you to access your cash at any time, you typically purchase a CD for a set period of time during which you can’t withdraw the funds without paying a penalty. Typical CD terms can vary from one month to five years, but can be even longer.

Here’s a closer look at how CDs work, how they compare to other savings vehicles, and their pros and cons.

Key Points

•  CDs require you to lock your money up for a set period of time and offer higher interest rates compared to standard savings accounts.

•  CDs are insured by the FDIC, ensuring the safety of the deposited funds.

•  Withdrawing funds from a CD before maturity typically results in financial penalties.

•  If not withdrawn at maturity, CDs typically auto-renew, continuing the investment.

•  High-yield savings and money market accounts serve as flexible alternatives to CDs.

Is a Certificate of Deposit Just a Savings Account?

A CD has some similarities to a savings account, but several differences. It’s a financial product designed to help consumers save their money, and because CDs typically pay a fixed rate of interest, they can offer savers a predictable return over time.

However, unlike a savings account, CD holders aren’t able to access the funds in their account whenever they feel like it — at least not without paying an early withdrawal penalty, (in most cases). CD holders are also not allowed to deposit more money into an existing CD, generally speaking, although they can buy another CD.

In exchange for giving up the ability to freely withdraw the money in a CD, the institution rewards CD holders with higher interest rates than they’d see in a typical savings account.

What Is APY vs Interest Rate?

An annual percentage yield, or APY, on a CD or savings account tells you how much interest you’ll earn on your money over one year. It includes the interest on the initial deposit, plus the interest on the interest that accumulates, which is called compound interest. An interest rate, on the other hand, only accounts for interest earned on the original amount.

An APY helps you avoid complicated calculations and compare different savings options to find the best yield. Longer term CDs generally pay higher APYs. However, that is not always the case, so it’s important to shop around and compare APYs and terms to find the best CD for your needs.

What Is a Jumbo CD?

A jumbo CD requires a higher minimum deposit than that required by regular CDs, typically $100,000 or more. In return for tying up a large sum of money, jumbo CDs tend to pay higher rates.

Like regular CDs, jumbo CDs are considered risk-free investments, as they’re typically insured up to $250,000 by the Federal Deposit Insurance Corp. (FDIC). CDs offered by credit unions have the same protection under the National Credit Union Administration (NCUA).

Recommended: Are Certificates of Deposit Worth It?

How Does a Certificate of Deposit Work?

When a customer goes to open a CD they’ll be asked to put down a lump sum, often a minimum of $500 to $1,000.

The initial deposit placed in a CD is called the principal, because it is essentially a loan the consumer is offering to the bank. The interest the customer collects is what the bank pays for the privilege of borrowing their money.

Certificates of deposit also carry a “term,” much like a loan does; the term is the amount of time the funds must be left in the CD in order to glean the advertised interest rate. The term might be as short as a few months or as long as a decade. The day the term is over is also known as the CD’s maturity date.

Long story short: When opening a CD, a customer deposits a set amount of money for a set amount of time and agrees to leave it untouched in return for a relatively high fixed APY they’ll earn on the principal once the CD matures.

But how high, exactly, are the rates we’re talking about?

Certificate of Deposit Rates

Certificates of deposit are attractive savings options because they usually offer higher rates than the traditional savings accounts, but are also a lower-risk option than, for example, investing in the stock market.

Since funds in CDs are FDIC-insured, account holders can rest with some assurance that their cash won’t simply disappear (as it might when invested in shares of a company).

As of February 2025, the national average rate for a normal savings account is 0.61% APY, whereas the national average rate for a 12-month CD is 1.83% APY. The national average rate for a 60-month CD is about 1.53%. Online banks typically offer higher rates for savings accounts, and it’s possible to find CDs with higher than the average rates by shopping around.

But it’s possible to find CDs with even higher rates than that by shopping around.

Certificate of Deposits: Fine Print

There are a few more things it’s important to know about CDs before deciding to open one.

Generally, CDs automatically renew once the term is up if the account holder doesn’t take the money out. The bank will typically roll over the existing CD into a new CD with the same term, though the APY may be different. (For example, a one-year CD whose funds aren’t collected on the maturity date would be rolled over into a new one-year CD.)

Most financial institutions offer CD holders a grace period, or a fixed amount of days after the maturity date, during which the account holder can decide whether to withdraw the funds, transfer them to a new account or CD, or allow them to roll over.

Finally, but importantly, most CDs are generally subject to an early withdrawal penalty, which is incurred if the money is accessed prior to the maturity date. Early withdrawal penalties are determined by each financial institution. Depending on the policy, account holders could lose out on interest, or even lose some of their principal deposit.

Recommended: Reasons Why It’s So Hard to Save Money Today

Certificates of Deposit: Pros and Cons

CDs can play an important role in an overall savings strategy because they balance growth and risk management. But as with any financial product, CDs have both drawbacks and benefits, which should be considered carefully before opening one.

Pros of CDs

•   Because CDs are FDIC-insured, they’re a relatively low risk account. The FDIC insures up to $250,000, which means if an FDIC-insured institution goes out of business, account holders with a CD would receive their principal and interest, up to $250,000.

•   Higher interest rates are available for CDs than for traditional savings accounts, making it easier to see a higher return on investment.

•   For savers who are worried about spending down their savings, a CD provides a safe place to place cash, where it’s locked up for a certain period of time.

Cons of CDs

•   Although CDs carry higher interest rates than some other types of savings vehicles, they don’t have the same kind of earning potential that stock market investments can have. By investing your money in a CD you’re losing out on potentially much higher market returns (but you’re also protected from market risk).

•   CD holders generally don’t have the ability to withdraw their money at any time, at least without being subject to a penalty. That makes a certificate of deposit a poor choice for certain savings goals, like an emergency fund, which should be readily available.

•   Savers will owe taxes on the earnings in the account, which effectively lowers the amount you earn. Be sure to take this into consideration shopping around for the best APY.

Where to Open a Certificate of Deposit

Certificates of deposit are available from a wide variety of financial institutions, including national and regional banks, credit unions, and some online-only financial institutions.

Shopping around can help ensure consumers find the best rates and most favorable terms for their needs.

That said, there are also some alternatives to opening a certificate of deposit that are worth considering carefully.

Alternatives to Opening a Certificate of Deposit

Although CDs can be a great way to earn interest, they’re far from the only high-interest account option out there. Here are a few options to mull over.

High-Yield Savings Accounts

Although typical savings accounts offer a relatively low interest rate, high-yield savings accounts are available from some banks. This option helps consumers combine growth potential with the ability to access their money as they need it, and can be a good alternative to CDs for those who aren’t ready to lock away their money for many months or years.

Certain high-yield accounts may offer a higher APY. However, there may be fine print involved requiring that savers meet certain terms in order to maintain that rate, such as making a minimum number of transactions per month or maintaining a minimum account balance.

It’s a good idea to review all the account terms carefully before opening any kind of financial account.

Money Market Accounts

Money market accounts are another option which, similarly to CDs, tend to offer higher interest rates than your typical savings account does. And unlike CDs, money market account holders are generally allowed to write checks or process debit transactions against their funds, which are still covered by FDIC insurance.

While money market accounts can earn higher interest rates than traditional savings accounts, there may be monthly restrictions on the number of deposits and withdrawals. Money market accounts may also require a high minimum balance in order to avoid monthly fees.

Stock Market Investments

Finally, for consumers focused on growing their money in the long-term, investing in the stock market can provide a lot of potential for growth. Historically, the S&P 500 — an index tracking 500 of the largest corporations in the U.S. — has seen an average annual return of 11.7% over the last decade.

Of course, an investment account is very different from a savings account or CD in that there is no FDIC insurance on the funds. Investments in the stock market are vulnerable to market fluctuation, and there’s no guarantee that investments will be safe and make money. It is important to remember that investments have no guarantee and are subject to potential losses.

That said, many financial professionals and advisors still recommend long-term investing as one of the best ways to grow wealth over time and as a part of an overall plan for long-term financial goals like retirement.

The Takeaway

A CD is a type of savings account that pays a fixed interest rate on money held for an agreed-upon period of time. Investing in a CD can be a good choice if you’re looking to put aside money for a set period of time and earn more than you could in a regular savings account. If you’d prefer to have more access to your funds, however, a money market account or high-yield savings account could be a better choice.

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

🛈 While SoFi does not offer Certificates of Deposit (CDs), we do offer alternative savings vehicles such as high-yield savings accounts.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

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 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

*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 Checking & Savings Fee Sheet for details at sofi.com/legal/banking-fees/.
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.

 
SOBNK-Q125-011

Read more
Close modal

See what SoFi can do for you and your finances.

Select a product below and get your rate in just minutes.

Student Loan
Refinancing

Personal
Loans

Online
Investments

Other

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.

©2025 Social Finance, LLC All rights reserved.
TLS 1.2 Encrypted
Equal Housing Lender