A Guide to Financial Securities Licenses

A Guide to Financial Securities Licenses

Before someone can sell securities or offer financial advice they must first obtain the appropriate securities license. The Financial Industry Regulatory Authority (FINRA) is the organization that sets the requirements, oversees the process for earning an investments license, and administers most of the tests.

If you’re considering a career in the financial services industry it’s important to understand how securities licensing and registration works. Investors may also benefit from understanding what the various FINRA licenses signify when selecting an advisor.

What is a securities license and how do you obtain one? Here’s an overview of what the licensing process entails.

What Is a Securities License and Who Needs Them?

A securities license is a license that allows financial professionals to sell securities and/or offer financial advice. The type of license someone holds can determine the range of financial products and services they have authorization to offer to clients. Someone who holds one or more securities or investments licenses is a registered financial professional.

FINRA is the non-governmental agency responsible for overseeing the activities of registered financial professionals. That includes individuals who hold FINRA licenses to sell securities or offer advisory services. Individual investors do not need a license to buy and sell stocks.

Recommended: How to Start Investing in Stocks: A Beginner’s Guide

Under FINRA rules, anyone who’s associated with a brokerage firm and engages in that firm’s securities business must have a license.

Some specific examples of individuals who might need to a license from FINRA include:

• Registered Investment Advisors (RIAs)

• Financial advisors who want to sell mutual funds, annuities, and other investment packages on a commission-basis

Investment bankers

• Fee-only financial advisors who only charge for the services they provide

• Stockbrokers and commodities or futures traders

• Advisors who oversee separately managed accounts

• Individuals who want to play an advisory or consulting role in mergers and acquisitions

IPO underwriters

The North American Securities Administrators Association (NASAA) represents state securities regulators in the United States, Canada, and Mexico. This organization is responsible for licensing investment advisor firms and securities firms at the state level, registering certain securities offered to investors, and enforcing state securities law.

Types of FINRA Licenses

FINRA offers a number of different securities licenses. If you’re considering a career in securities trading, it’s important to understand which one or ones you might need. The appropriate license will depend on the type of securities that you want to sell, how you’ll get paid, and what (if any) other services you’ll provide to your clients.

Here’s a rundown of some of the most common FINRA licenses, what they’re used for and how to obtain one:

Series 6

FINRA offers the Series 6 Investment Company and Variable Contracts Products Representative Exam for individuals who work for investment companies and sell variable contracts products. The types of products you can sell while holding this securities license include:

• Mutual funds (closed-end funds on the initial offering only)

Variable annuities

• Variable life insurance

• Unit investment trusts (UITs)

• Municipal fund securities, including 529 plans

Obtaining this FINRA license requires you to also pass the introductory Securities Industry Essentials (SIE) exam. This 75-question exam tests your basic knowledge of the securities industry. FINRA offers a practice test online to help you study for the SIE. You can also watch a tutorial to learn how the 50-question Series 6 exam works.

Beyond those options you may consider investing in a paid Series 6 study prep course. Series 6 courses can help you familiarize yourself with the various variable products you can sell with this license and industry best practices. You’ll need to obtain a score of at least 70 to pass both the SIE and the Series 6 exam.

Series 7

People who see stocks and other securities must take the Series 7 General Securities Representative Exam. You may consider a Series 7 investments license if you want to sell:

• Public offerings and/or private placements of corporate securities (i.e. stocks and bonds)

• Rights

• Stock warrants

Mutual funds

• Money market funds

• Unit investment trusts

Exchange-traded funds (ETFs)

Real estate investment trusts (REITs)

• Options on mortgage-backed securities

• Government securities

• Repos and certificates of accrual on government securities

• Direct participation programs

• Venture capital

• Municipal securities

• Hedge funds

This securities license offers the widest range, in terms of what you can sell. The only things you’re not allowed to sell are real estate, life insurance products, and commodities futures.

You’ll need to take and pass the SIE to obtain a Series 7 exam. The Series 7 exam has 125 questions in a multiple choice format and 72 is a passing score. FINRA offers a content outline you can review to get a feel for what’s included on the exam. You may also benefit from taking a study course that covers the various securities you’re authorized to sell with the Series 7 license as well as the ethical and legal responsibilities the license conveys.

Series 3

Investment professionals can earn the Series 3 license by completing the Series 3 National Commodities Futures Exam. This test focuses on the knowledge necessary to sell commodities futures. This is a National Futures Association (NFA) exam administered by FINRA. It has 120 multiple choice questions, with 70% considered a passing score.

You have to pass the Series 3 license exam to join the National Futures Association. In terms of what’s included in the exam and how to study for it, the test is divided into these subjects:

• Futures trading theory and basic functions terminology

• Futures margins, options premiums, price limits, futures settlements, delivery, exercise and assignment

• Types of orders

• Hedging strategies

• Spread trading strategies

• Option hedging

• Regulatory requirements

Neither FINRA nor the NFA offer detailed study guides or practice tests for the Series 3 securities license. But you can purchase study prep materials online.

Series 63

The Series 63 Uniform Securities Agent State Law Exam is an NASAA exam administered by FINRA. The test has 60 questions, of which you’ll need to get at least 43 correct in order to pass.

You’ll need this license if you also hold a Series 6 or Series 7 license and you want to sell securities in any state. The NASAA offers a downloadable study guide that offers an overview of what’s included on the Series 63 securities license exam. Topics include:

• Regulation of investment advisors

• Regulation of broker-dealers

• Regulation of securities and issuers

• Communication with customers and prospects

• Ethical practices

Beyond that, the NASAA offers a list of suggested vendors for purchasing Series 63 exam study materials. But it doesn’t specifically endorse any of these vendors or their products for individuals who plan to obtain a Series 63 license.

Series 65

The Series 65 Uniform Investment Adviser Law Exam is another NASAA test that’s administered by FINRA. Holding this license allows you to offer services as a financial planner or a financial advisor on a fee-only basis. The exam has 130 multiple choice questions and you’ll need to get at least 94 questions correct to pass.

As with the Series 63 exam, the NASAA offers a study guide for the Series 65 exam that outlines key topics. Some of the things you’ll need to be knowledgeable about include:

• Basic economic concepts and terminology

• Characteristics of various investment vehicles, such as government securities and asset-backed securities

• Client investment recommendations and strategies

• Regulatory and ethical guidelines

You can review a list of approved vendors for Series 65 study materials on the NASAA website.

Series 66

The Series 66 Uniform Combined State Law Exam is the third NASAA exam administered by FINRA. Financial professionals who want to qualify as both securities agents and investment adviser representatives take this test.

This multiple choice exam has 100 questions and you’ll need a score of 73 correct or higher to pass. If you already hold a Series 7 license, which is a co-requisite, you could choose to take the Series 66 exam in place of the Series 63 and Series 65 exams.

The study guide and the scope of what the Series 66 exam covers is similar to the Series 65 exam. So if you hold a Series 65 license already, you may have little difficulty in studying and preparing for the Series 66 exam.

The Takeaway

Earning a securities license could help to further your career if you’re interested in the financial services industry. Knowing which license you need and how to qualify for it is an important first step.

Fortunately, you don’t need to hold a FINRA license to invest for yourself. You can build a portfolio by opening a brokerage account on the SoFi Invest platform, which has low minimum investments and no hidden fees. SoFi offers DIY trading for active traders and automated portfolios if you prefer more of a hands-off approach.

Photo credit: iStock/jacoblund


SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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 Pay Fewer Fees When Trading Crypto

Cryptocurrency is like any investment that investors trade with the goal of selling later at a higher price. But like other investments, fees, commissions and other trading costs can cut into the profit one makes.

This is true when buying and selling stocks, but even more so with cryptocurrencies, whose fees can vary widely from one form of crypto to another, one exchange to another, and can even change from hour to hour. One reason for the variability in fees is that cryptocurrency exchanges are not regulated like brokerages and stock exchanges.

But while the details of what each exchange charges to trade each of the many types of cryptocurrency will vary, there are a few trends to keep in mind.

Trends in Crypto Trading Fees

Most cryptocurrency exchanges design their fee schedules at most cryptocurrency exchanges to entice traders of large blocks of crypto. So fees tend to decrease as the size of trades increase. Some exchanges try to compete for the largest orders by charging no fees at all on massive trades of $10 million or more.

Exchanges also typically charge fees when an investor wants to cash out into a fiat currency, like U.S. dollars. Those fees can be much higher than the transaction costs of trading one form Bitcoin or altcoins with one another, which is often free. This is one way that crypto exchanges encourage investors to remain on their platforms.

Recommended: What Are Altcoins?

Crypto exchanges don’t always play nice with one another. Even though the Bitcoin or other cryptocurrency or that an investor owns remains in their crypto wallet, some exchanges will charge a fee to import a new wallet with crypto purchased on another exchange. Or they may charge to port over a wallet with crypto purchased on its platform over to another exchange.

Examples of Cryptocurrency Trading Fees

Binance is the world’s largest crypto exchange, and its U.S. exchange charges investors a flat fee of 0.1% of the amount of each spot trade. On top of that, it charges a 0.5% fee if the investor wants the transaction executed instantly. That may not seem like much, but on a $1,000 Ripple trade, for example, an instant trade will cost the investor $6. On $100,000, that rises to $600.

And Binance.US charges a 0.5% fee to trade crypto directly with U.S. dollars. Investors can avoid that fee by depositing cash into their Binance.US account and then placing an order for the cryptocurrency of their choice. That will take longer, however.

The 0.1% standard fee Binance.US is only available for trades using assets on the Binance.US trading platform. Other large exchanges, including Coinbase and Gemini, have similar fee structures.

There are some differences between exchanges. The Global Digital Asset Exchange charges a 0.3% “taker fee” to trade a market order, and Coinbase charges a 4% fee for investments made using a credit card.

Recommended: 12 Factors to Consider When Choosing a Cryptocurrency Exchange

Factoring in Spreads

Investors must understand the spread between the bid and ask prices of a crypto, such as Ethereum, listed on an exchange. Spreads are not fees, strictly speaking, but they are trading costs and they act like fees by eating into the return on the investment.

Seasoned investors in the stock market know about these spreads, which tend to mean that the buyer of an asset will pay slightly more than the average price, while the seller will receive slightly less than the average price quoted on the exchange.

For less-heavily traded forms of crypto, there’s also a chance that a big trade could change its price. When trades move the market, the sale of the crypto can drive down the price, while a big purchase can drive it up. Spreads on crypto trades vary widely from currency to currency and from day to day, but can be as high as 1.5%.

5 Ways to Pay Less for Crypto Trades

While you may not be able to completely trade crypto without fees, there are several strategies that investors can use to lower the cost of their crypto trades.

1. Trade Less Often

One thing that transaction fees and bid/ask spreads have in common is that the more often you trade, the bigger an impact they’ll have on your final return. Each trade comes with a fee, which the exchange deducts from your balance. And each trade also occurs with a spread, which leaves you with a lower return than you might expect when you look at the bid/ask price for the forms of crypto, such as Litecoin, that you’re trading.

For investors who are regularly trading between their crypto accounts and their bank accounts, those transactions are even more costly. So, one simple way to drive down the fees – and the overall trading costs – is to HODL and trade less frequently.

2. Use Lower-Cost Trade Types

Another way an investor can reduce the fees they pay for their crypto trades is to look closely at the type of trade they execute. Limit orders, for instance, often come with lower fees. In a limit order, an investor agrees to buy or sell a stock at a specific price, or better. That means that a buy limit order executes at the limit price or one that’s lower, while a sell limit order executes at the limit price or one that’s higher. But with limit orders, the investor has no certainty of order fulfillment. If the market moves away from the limit price, then no trade occurs.

3. Shop Around

With so many exchanges competing for crypto investments, trading fees are changing on a regular basis. It can pay to do some comparison shopping, especially for investors who trade frequently, or for investors who expect to cash out in the near future. But those fees should be only one consideration. Given the potential for catastrophic security issues with cryptocurrencies, an exchange’s security, and its backing, also deserve close consideration.

You’ll also want to think about which cryptocurrencies, it covers. Many exchanges might offer Bitcoin, for example, but not all of them may support smaller altcoins like Cardano.

Recommended: How to Buy Cardano

4. Rewards and Promotions

Cryptocurrency exchanges are still relatively new, and heavily competitive. There are a steady stream of new competitors offering investors rock-bottom fees, or even fee-free trading to win new accounts. But being one of the first customers of a crypto exchange can be risky.

Still, even some of the biggest players regularly offer low- or no-fee promotions to win new accounts. But beware that those promotions usually have an expiration date. When the promotions expire, the investor has to decide whether to keep on trading at the exchange’s usual rates, or transfer their crypto assets to another exchange, which can often come with additional fees.

5. Turn Your SoFi Credit Reward Points to Crypto

SoFi allows its credit card customers to exchange SoFi Credit Card reward points directly for cryptocurrency via SoFi Invest®.1 Currently, this is the only credit card reward program that allows for cryptocurrency redemption.

The Takeaway

Fees and other trading costs can take a big bite out of crypto investor’s returns. But understanding how fees work and planning your trading strategy to minimize them can reduce their impact on returns.

You can get started investing today by opening a brokerage account on the SoFi Invest platform to purchase cryptocurrency as well as stock, exchange-traded funds, and cryptocurrency. You can use the platform to trade your first cryptocurrency with as little as $10.

Photo credit: iStock/Pekic


1See Rewards Details at SoFi.com/card/rewards.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
The SoFi Credit Card is issued by The Bank of Missouri (TBOM) (“Issuer”) 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.
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Understanding the Yield to Maturity (YTM) Formula

When investors evaluate which bonds to buy, they often take a look at yield to maturity (YTM), the total rate of return a bond will earn over its life, assuming it has made all interest payments and repaid the principal.

Calculating YTM can be complicated. Doing so takes into account a bond’s face value, current price, number of years to maturity and coupon, or interest payments. It also assumes that all interest payments are reinvested at a constant rate of return. Not surprisingly, many investors rely on online calculators to help them determine yield to maturity, but with these figures in hand, they will be better equipped to understand the bond market and which bonds will offer the greatest yield if held to maturity.

Recommended: What is Yield?

What Is Yield to Maturity?

The yield to maturity (YTM) is the estimated rate investors earn when holding a bond until it reaches maturity or full value. The YTM is stated as an annual rate and can differ from the stated coupon rate.

The calculations in the yield to maturity formula include the following factors:

•  Coupon rate: Also known as a bond’s interest rate, the coupon rate is the regular payment issuers pay bondholders for the right to borrow their money. The higher the coupon rate, the higher the yield.

•  Face value: A bond’s face value, or par value, is the amount paid to a bondholder at its maturity date.

•  Market price: A bond’s market price refers to how much an investor would have to pay for a bond on the open market currently. The price buyers pay on the secondary market may be higher or lower than a bond’s face value. The higher the price of the bond, the lower the yield.

•  Maturity date: The date when the issuer repays the principal is known as the maturity date.

The YTM formula assumes all coupon payments are made as scheduled, and most calculations assume interest will be reinvested.

How to Calculate the Yield to Maturity Formula

To calculate yield to maturity, investors can use the following YTM formula:

yield to maturity formula

Where:

C = Interest or coupon payment
FV = Face value of the investment
PV = Present value or current price of the investment
t = Years it takes the investment to reach the full value or maturity

Example of YTM Calculation

Here’s an example of how to use the YTM formula.

Suppose there’s a bond with a market price of $800, a face value of $1,000, and a coupon value of $150. The bond will reach maturity in 10 years, with a coupon rate of about 14%.

By using this formula, the estimated yield to maturity would calculate as follows:

example of yield to maturity formula

The Importance of Yield to Maturity

Knowing a bond’s YTM can help investors compare bonds with various maturity and coupon rates. For example, consider two bonds of varying maturity: a five-year bond with a 3% YTM and a 10-year bond with a 2.5% YTM. Investor’s can easily see that the five-year bond is more valuable.

YTM is particularly useful when attempting to compare older bonds sold in a secondary market, which can be priced at a premium or discounted — meaning they cost more or less than the bond’s face value. Understanding the YTM formula also helps investors understand how market conditions can impact their portfolio based on the investment they select. Since yields rise when prices drop (and vice versa), investors can forecast how their investment will perform.

Additionally, YTM can help investors understand how likely they are to be affected by interest rate risk — the danger that the value of a bond may be adversely affected due to the changes in interest rate. Current YTM is inversely proportional to interest rate risk. That means, the higher the YTM, the less bond prices will be affected should interest rates change.

Yield to Maturity vs. Yield to Call

With a callable, or redeemable bond, issuers can choose to repay the principal amount before the maturity date, halting interest payments early. This throws a bit of a wrench into the YTM calculation. Instead, investors may want to use a yield to call (YTC) calculation. To do so, they can use the YTM calculation, substituting the maturity date for the soonest possible call date.

Typically a bond issuer will call a bond only if it will result in a financial gain. For example, if the interest rate drops below a coupon rate, the issuer may decide to recall the bond to borrow funds at a lower rate. This situation is similar to when interest rates drop and homeowners refinance their home loans.

For investors that use callable bonds for income, yield to call is significant. Suppose the issuer decides to call the bond when the interest rates are lower than when the investor purchases it. If an investor decides to reinvest their payout, they may have a tough time finding a comparable bond that offers the yield they need to support their lifestyle. They may feel it necessary to take on more risk, looking to high-yield bonds.

Limitations of Yield to Maturity

It’s important to note that YTM calculations exclude taxes. While some bonds, like municipal bonds and U.S Treasury bonds, may be tax exempt on a federal and state level, most other bonds are taxable. In some cases, a tax-exempt bond may have a lower interest rate but ultimately offer a higher yield once taxes are factored in.

As an investor, it can be especially helpful to consider the after-tax yield rate of return. For example, suppose an investor in the 35% federal tax bracket who doesn’t pay state income taxes is considering investing in either Bond X or Bond Y. Bond X is a tax-exempt bond and pays a 4% interest rate, while Bond Y is taxable and pays 6% interest.

While the 4% yield for Bond X remains the same, the after-tax yield for Bond Y is 3.8%. While it seemed like the less lucrative of the two options up front, Bond X should ultimately yield a higher return after taxes.

Frequently Asked Questions

What is a bond’s yield to maturity (YTM)?

A bond’s yield to maturity is the total return an investor can anticipate receiving if the bond is held to its maturity date. YTM calculations assume that all interest payments will be made by the issuer and reinvested by the bondholder at a constant rate of interest.

What is the difference between a bond’s coupon rate and its YTM?

A bond’s coupon, or interest, rate is fixed from the moment an investor buys it. However, the same bond’s YTM can fluctuate over time depending on the price paid for it and other interest prices available on the market. If YTM is lower than the coupon rate, it may indicate that the bond is being sold at a premium to its face value. If it’s lower, it may be that the bond is priced at a discount to face value.

Is a higher YTM better?

A higher YTM may be better under certain circumstances. For example, since a higher YTM may indicate a bond is being sold for less than its face value, it may represent a valuable opportunity to invest. However, if the bond is discounted because the company that offered it is in trouble or interest rates offered by other investments are more appealing, then a high YTM might not be such a good thing. Investors must research investments carefully and understand the full story before they buy.

The Takeaway

Using the yield to maturity formula can help investors compare bond options with different coupon and maturity rates, market and par values, and determine which one offers the potential for a higher yield. But calculating the YTM is not an exact science, especially when you’re gauging the return on a callable bond, say, or adding the impact of taxes to the mix. YTM is just one tool investors can use to determine which bond may best serve their financial needs and goals.

One alternative to choosing individual bonds is to invest in bond mutual funds or bond exchange-traded funds (ETFs).

The SoFi Invest® investment platform offers affordable access to a wide range of investment selections, including bond funds. The Active Investing platform lets investors choose from an array of stocks, ETFs, or fractional shares. For a limited time, opening an account gives you the opportunity to win up to $1,000 in the stock of your choice. All you have to do is sign up, play the claw game, and find out how much you won.

Find out how SoFi Invest can help you reach your financial goals.


Claw Promotion: For the full terms and conditions of SoFi’s Claw Promotion, click here. Probability of a customer receiving $1,000 is 0.028%.
SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.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. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
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.
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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Should I Buy a New or Used Car in 2021?

Should I Buy a New or Used Car in 2021?

A witches brew of COVID-related lockdowns, renewed demand after those initial lockdowns were lifted, ensuing shortages of semiconductors, and other auto supply issues have thinned out inventory for vehicles. All of the above combined to force car prices higher in 2021.

How high? Data from Cox Automotive pegs the average price of a new vehicle at $41,000, which represents a 5.5% upward spike in price compared to 2020. Used vehicle prices are on the rise this year, as well, with the average cost of a used vehicle with 67,000 miles on it standing at $24,414, compared to $19,646 in 2020.

Higher car prices make auto-buying decisions more difficult to make in 2021, and that’s especially the case with the time-honored dilemma of buying a new or used car this year. This year, it’s not an easy choice, but with the right information, you can make the choice that works for you.

Benefits of Buying a New Car

Besides the luster and pride in a brand new set of wheels, a new vehicle purchase has additional benefits.

You don’t have to kick as many tires. New vehicles arrive on dealer showroom floors (and at online auto sales platforms) in pristine condition with very few miles on the odometer, so you don’t have to spend time checking for vehicle inefficiencies and maintenance or repair issues.

Multiple auto financing choices. With a new car, it’s easier to get a good financing deal compared to financing a used car. That’s because the vehicle hasn’t been driven, has no structural problems, maintenance, or repair issues, and should hold its value if the new owner takes good care of the vehicle. That’s important to auto loan financers, who place a premium on avoiding risk.

The newer, the better. The auto industry is doing wonders with new vehicle construction, with features like electric-plug-in models, better gas mileage and technology advancements that improve vehicle performance in a wide range of upgrades. Those upgrades come most notably in car safety, cleaner emissions, and digital dashboards that improve driving enjoyment.

Warranty and service benefits. New car owners are typically offered a manufacturer’s warranty when they buy a new car, which typically grades out better than third-party warranty coverage on a used car. Additionally, auto dealers are more likely to offer services like free roadside assistance or free satellite radio to lock down a new car sale. Those services and features are harder to get with used vehicles.

Recommended: How to Save Up for a Car 

Drawbacks of Buying a New Car

Some disadvantages of a new car purchase might sway a buyer’s decision.

Immediate depreciation. The moment you drive a new car off the dealer lot, it loses several thousand dollars and an estimated 15% to 20% in the first year of ownership.

You may owe a lot of money on the vehicle. As car costs escalate, buyers who borrow 80% or more to purchase a new car, truck, or SUV may owe tens of thousands of dollars in auto loans before they’re free and clear. According to data from Lending Tree®, the average monthly payment for a new car loan stands at $563 in 2021.

Higher insurance costs. Auto insurers typically deem new cars as being more valuable than used cars and assign auto insurance premiums accordingly. According to Bankrate.com™, the average cost of minimum auto insurance in 2021 is $565 per year. Since new cars cost more, auto insurers prefer to see new auto drivers get full coverage and not minimum coverage. The price for full coverage, Bankrate reports, stands at $1,674 annually.

Benefits of Buying a Used Car

Used cars offer buyers value and savings, which are attractive benefits to drivers who may not have a big budget, but still want to drive a quality vehicle.

You’ll probably save money. No doubt about it, most used cars sell for significantly less than a new car with the same make and model. Case in point. The National Automobile Dealers Association (NADA) notes the average American owns 13 vehicles over the course of their life, with each vehicle valued at $30,000, on average. If a buyer waited three years to buy the exact same vehicles, NADA stated, that buyer would save $130,000 by not paying for the cars when they were brand new.

Slower depreciation rate. New cars tend to lose value quickly, especially if they’re not properly cared for. But used cars tend to depreciate more slowly, especially if they’ve had regular maintenance, and their sustained value makes them a good resale candidate if the owner wants another vehicle, but still wants to make a good deal when selling the vehicle.

A large down payment goes further with a used car. Buyers who can manage a robust down payment on a used vehicle can bypass a good chunk of the debt incurred in purchasing the vehicle. It comes down to simple math—if a buyer purchases a $20,000 used vehicle with a down payment of $10,000, there’s only $10,000 left to pay on the vehicle. If a buyer purchases a new vehicle for $40,000, and puts $10,000 down, that buyer still owes $30,000 on the auto loan.

Recommended: 9 Tips For Buying A Used Car

Drawbacks of Buying a Used Car

When deciding whether to buy a new or used car, these issues may be worth considering.

Reliability is a big deal. With a used car, an owner may be getting a quality vehicle—but maybe not. A used car may have spent years on the roads and highways, incurring a fair share of dings, dents, and general wear and tear that may have aged it prematurely, particularly if it hasn’t been maintained well.

You may not get the exact make and model you want. The options can dwindle when it comes to buying a used car. Whereas auto dealers can offer a wide range of make, model, and color for a new vehicle, those choices can be significantly limited with a used car, truck, or SUV. That could mean that a used vehicle buyer may have to compromise on different factors, in contrast to a new car buyer who can usually get their vehicle of choice.

You may pay more for vehicle maintenance. Consumer Reports found that auto repair costs double every five years, so the longer you own a used car, the more money you’re likely to pay in maintenance and repairs.

Other Car Purchasing Options

Auto consumers don’t have to be limited to a “buy new or used car” purchase decision. There are other valid options that go beyond the question of “should I buy a new or used car”: buying a pre-owned car or leasing a vehicle.

Certified Pre-Owned Cars

Car buyers who want to know that a vehicle is ship-shape, but who don’t want to spend a great deal of cash on a new set of wheels can compromise with a certified pre-owned vehicle.

A certified pre-owned vehicle means just what it says—it provides buyers with a vehicle that has low mileage, has no significant damage, has passed a battery of auto shop maintenance and performance tests, offers a new warranty, and likely costs thousands of dollars less than a new car. While you won’t be getting a brand-new car, you are likely getting a vetted and trustworthy vehicle at a decent price, which fits the bill for legions of would-be car owners.

Recommended: Smarter Ways to Get a Car Loan

Leased Cars

By leasing a car, you’re not buying it, you’re just renting it for a fixed period of time, usually with the option to buy the vehicle after the lease period is over.

Most auto leases average three or four years, and upfront costs are typically less than purchasing a new car (lease owners pay an upfront fee plus regular monthly payments for the duration of the lease period.) Once the lease period is over, the driver has the option to return the vehicle to the dealer, who may either lease it again or sell it outright as a used vehicle.

Car leases do come with restrictions on key performance elements like mileage, and also require that the vehicle is returned in sterling condition when the lease period ends. Ignoring those issues can lead to hefty fees charged by the lease provider and owed by the leasing customer.

Typically, about 26% of auto consumers decide to lease their vehicles, with an average monthly price of $460 per vehicle.

The Takeaway

Like any major purchase decision, auto buyers are advised to shop around, check the book value of favored vehicles, and look at the car’s maintenance and repair history to ensure it’s in good condition, and (if it’s a used car) make sure it’s inspected by a trusted mechanic.

By doing these things, the choice between a new and used car can get easier and enhance your chances of driving away in the vehicle that best fits your auto needs.

Saving for your next used car purchase or down payment on a new car can be challenging, but with a cash management account like SoFi Money®, the savings can add up, helping to reach a financial goal as quickly as possible. SoFi Money account holders pay no account fees, have free Allpoint® Network ATM availability, and the ability to earn interest on the money in their account. They can also save for other goals in addition to that future new or used car purchase by setting up Vaults in their SoFi Money account—no need to have separate accounts for separate savings goals.

Learn more about saving for your financial goals with SoFi Money.

Photo credit: iStock/Ivanko_Brnjakovic


SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi Money Debit Card issued by The Bancorp Bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
As of 6/9/2020, accounts with recurring monthly deposits of $500 or more each month, will earn interest at 0.25%. All other accounts will earn interest at 0.01%. Interest rates are variable and subject to change at our discretion at any time. Accounts opened prior to June 8, 2020, will continue to earn interest at 0.25% irrespective of deposit activity. SoFi’s Securities reserves the right to change this policy at our discretion at any time. Accounts which are eligible to earn interest at 0.25% (including accounts opened prior to June 8, 2020) will also be eligible to participate in the SoFi Money Cashback Rewards Program.
The SoFi Money® Annual Percentage Yield as of 03/15/2020 is 0.20% (0.20% interest rate). Interest rates are variable subject to change at our discretion, at any time. No minimum balance required. SoFi doesn’t charge any ATM fees and will reimburse ATM fees charged by other institutions when a SoFi Money™ Mastercard® Debit Card is used at any ATM displaying the Mastercard®, Plus®, or NYCE® logo. SoFi reserves the right to limit or revoke ATM reimbursements at any time without notice.
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.
Third Party Brand Mentions: No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third party trademarks referenced herein are property of their respective owners.
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Do I Need a Long Term Savings Account?

Do I Need a Long Term Savings Account?

A long-term savings account, as the name implies, is one opened to deposit and hold money for a longer period of time. They can be contrasted to checking accounts used to pay monthly bills or regular savings accounts that might earn interest, but maybe not much. A long-term savings plan might be set up for a child’s college education, for large purchases such as a home, or for retirement, for example. In general, they’re used to save up for a goal that is years away.

Different types of savings accounts qualify as long term, and here’s an overview of options, along with information about setting long-term financial goals and more.

Long Term Savings Options

Here are five options, along with some pros and cons of each of them.

High Interest Savings Accounts

This type of savings account can provide some of the flexibility of a standard checking account while offering higher interest rates than the average savings account. It’s generally just as easy to access a high-interest savings account as it is a standard checking account, although there may be limits on the number of withdrawals you can make per month with this type of savings account. They often offer ATM access, sometimes with fee reimbursement, mobile check deposit, and online account management via an app. Financial institutions that offer these accounts include regional banks, local credit unions, and online banks.

To open and maintain this type of account, there are often certain requirements that need to be met. This could include setting up a direct deposit, maintaining a minimum balance, or limiting the number of withdrawals per month. Some high-interest savings accounts also offer tiered interest rates for different balance ranges. For instance, a bank might offer a base tier of .25% on balances up to $25,000, and an upper tier of .40% on balances greater than $25,000.

One item to check for in the fine print: the balance cap on interest earned. If that’s included, this means that there’s a limit to the balance on which interest can be earned. For example, if the interest rate is 3%, but the balance cap is at $2,500, then the interest rate is only earned on money up to the cap. Any amount above the balance cap will not earn a high interest rate.

Recommended: Is a High Interest Savings Account Right for You?

Money Market Accounts

A money market account is similar to a high-interest savings account, but will likely have more requirements for keeping it open. For example, some accounts require initial deposit minimums, and a certain minimum balance may be required to prevent monthly fees from being charged.

With both high-interest savings accounts and money market accounts, funds can typically be deposited and withdrawn fairly easily.

Certificates of Deposit

A certificate of deposit (CD) is a deposit account that typically offers higher interest rates than a regular savings account and pays compounding interest. In other words, interest is paid on the interest.

One challenge with a CD, though, is that the account holder must agree to keep the funds in the account for a predetermined amount of time. So this may not provide the liquidity—the ability to quickly turn the account into cash—that some people want and need. If funds are withdrawn before the maturity date, a penalty is typically assessed.

Interest rates on CDs are typically structured in tiers, based upon how long a person agrees to keep the money in the account. A two-year CD, then, will likely pay a bit more in interest than a one-year CD.

Recommended: What Is a Certificate of Deposit?

Retirement Accounts

Retirement accounts have one thing in common: they are investment vehicles designed to help people save for their post-working years. They typically have tax advantages. Here are three of the types.

1. Traditional Individual Retirement Accounts (IRAs)

The account holder opens this account and makes contributions on their own instead of through an employer. There may be an income tax deduction allowed on contributions made, and the funds are tax-deferred, meaning the contributions aren’t taxed but the withdrawals are. As of 2021, the maximum allowable contribution amount is $6,000 annually or $7,000 if age 50 or older. If funds are withdrawn before the account holder is 59 and a half, there is a 10% penalty levied on the amount withdrawn in addition to the usual tax on the withdrawal. Contributions aren’t tax deductible if the account holder also has a retirement plan through work and has an adjusted gross income (AGI) above a certain dollar amount.

2. Roth IRA

This is also another type of individual retirement account that a person opens and funds without the involvement of an employer, this time using after-tax money to contribute. This means that account holders cannot deduct contributions on their income tax. However, the balance grows tax-free, and when funds are withdrawn during retirement, they are also tax free. Annual contribution caps are the same as a traditional IRA.

To contribute to a Roth, the account holder must be earning an income. Once that person’s AGI reaches a certain level—for the 2021 tax year, this is $198,000—then the ability to continue to contribute will begin to phase out. If the account holder is filing joint federal income taxes, then the amount is $208,000 for the 2021 tax year.

This type of account is typically best for someone who appreciates the ability to withdraw funds in retirement without paying taxes, and a Roth IRA can work especially well for people currently earning a lower income than they expect to earn in the future.

Recommended: What is a Roth IRA and How Do They Work?

3. 401(K) Retirement Account

This is a retirement plan offered by an employer to qualifying employees. Contributions are made with pre-tax money, which means they will reduce the person’s taxable income. The money grows tax-free, with taxes paid when funds are withdrawn in retirement.

For the 2021 tax year, the maximum annual contribution amount is $19,500; an additional catch-up contribution of up to $6,500 can be made by account holders over the age of 50. These contributions are taken from the employee’s paycheck, and some companies provide matching funds up to a certain amount. Sometimes these accounts have fees that must be paid.

Although these are not the only kinds of retirement accounts available, they are among those most commonly used.

So, returning to this post’s original question, do you need a long-term savings account? The specifics depend upon personal financial goals.

Recommended: Back to Basics: What Is a 401k?

Long Term Financial Goals

By setting long term financial goals, people can create a plan for a more comfortable future and make a commitment to stay on track with savings goals. The reality is that 40% of Americans would find an unexpected expense of $400 challenging for them to pay, a figure that shows how many people are currently living month by month, focusing on the immediate expenses.

Creating a long-term financial plan and focusing on that plan can help people reach financial goals. Steps include setting goals with these five components:

• Clarity

• Challenge

• Commitment

• Complexity

• Feedback

These components are included in “A Theory of Goal Setting and Task Performance,” published by Edwin Locke and Gary Latham.

First, be clear about what, specifically, you want to accomplish—and don’t be afraid to dream big. What challenges might you face? Break your goals into smaller parts to simplify the journey. Prioritize them and make a commitment to follow shorter-term goals, one step at a time, which also helps to gain momentum on the longer-term ones. The excitement that may be felt about this process can help to solidify a sense of commitment.

For some people, it can help to partner with another person and share goals, keeping one another accountable. Or perhaps a mentor can be helpful. Other people may find it more effective to reward themselves when certain goals are met. Whichever method is chosen, it typically works best when progress is regularly reviewed and adjusted, as needed.

Emergency Savings Account

Although saving for long-term goals is wise, it can make sense to prioritize creating and funding an emergency savings account if one doesn’t already exist. It’s usually wise to choose an account type that offers liquidity because this is one where you’ll want quick access if an emergency occurs. A typical recommendation is to keep three to six months’ worth of living expenses in this account. That way, if someone in the household loses a job, an emergency home repair seems to come out of nowhere, or medical bills need to be paid, money in these funds can help to keep all on track or at least mitigate the impact of the expenses.

The Pivot

If using separate savings accounts for different financial goals isn’t something you want or need to do, consider using one main account that lets you save for your financial goals, spend money, and earn money, all in one place instead of keeping track of your money in multiple accounts.

SoFi Money® is a cash management account that offers those things, in addition to other benefits including:

• No account fees.

• No fees with in-network ATMs.

• Mobile check deposit.

• A mobile app for ease of accessing and managing your money.

Save for your financial goals with SoFi Money®.

Photo credit: iStock/AndreyPopov


SoFi Money®
SoFi Money is a cash management account, which is a brokerage product, offered by SoFi Securities LLC, member FINRA / SIPC .
Neither SoFi nor its affiliates is a bank. SoFi Money Debit Card issued by The Bancorp Bank. SoFi has partnered with Allpoint to provide consumers with ATM access at any of the 55,000+ ATMs within the Allpoint network. Consumers will not be charged a fee when using an in-network ATM, however, third party fees incurred when using out-of-network ATMs are not subject to reimbursement. SoFi’s ATM policies are subject to change at our discretion at any time.
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.
Update: The deadline for making IRA contributions for tax year 2020 has been extended to May 17, 2021.
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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