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Thrift Savings Plans (TSPs) are retirement plans for federal employees and members of the uniformed services. They offer the same kinds of benefits and tax advantages that private employers can offer their employees through a 401(k).

Like 401(k)s, TSPs allow savers to take out loans from their own savings. Borrowing against your retirement can be risky business, so it’s important to understand the ins and outs of TSP loans before you make a decision.

What Are Thrift Savings Plan Loans?

A TSP loan allows federal workers to borrow from their retirement savings. They must pay interest on the loan; however, that interest is paid back into their own retirement account. In 2022, interest rates were 3%, typically lower than the rate private employees pay on 401(k) loans.

Before you can borrow from your account the following must be true:

•  You have at least $1,000 of your own contributions invested in the account.

•  You must be currently employed as a federal civilian worker or member of the uniformed services.

•  You are actively being paid, as loan repayments are deducted from your paycheck.

•  You have not repaid a TSP loan in full within the last 30 days.

How Do Thrift Savings Plan Loans Work?

There are two types of TSP loans. General purpose loans may be used for any purpose, require no documentation, and have repayment terms of 12 to 60 months.

Primary residence loans can only be used to buy or build a primary residence. They must be repaid in 61 to 180 months, and they require documentation to qualify. You cannot use primary residence loans to refinance or prepay an existing mortgage, add on to or renovate your existing home, buy another person’s share in your home, or buy land only.

Recommended: A Guide to Personal Loans to Buy Land

Pros and Cons of a Thrift Savings Plan Loan

As you weigh whether or not it’s a good idea to borrow from your retirement savings, consider these pros and cons.

Pros of a TSP Loan

Chief among the advantages of borrowing from a TSP are the relatively low interest rates compared to most other loans. Consider that the average interest rate for personal loans is 9.41% according to the St. Louis Federal Reserve.

What’s more, repayment is simple, coming from payroll deductions. There is no penalty for paying back the loan early. And you don’t need to submit to a credit check to qualify for the loan.

Cons of a TSP Loan

Despite the benefits, borrowing from a TSP is often considered a last resort due to certain disadvantages.

First and foremost, when you borrow from your retirement you are removing money from your account that would otherwise benefit from tax-advantaged compounding growth.

If you leave your job with an unpaid loan, you will have 90 days to repay it. Fail to meet this deadline and the entire loan may be reported as income, and you’ll have to pay income taxes on it.

TSP loans are not reported to the credit reporting bureaus, so they don’t help you build credit.

Does a Thrift Savings Plan Loan Affect Your Credit?

TSP loans are not reported to the three major credit reporting bureaus — TransUnion, Equifax, and Experian — so they do not affect your credit score.

Recommended: How Do I Check My Credit Score Without Paying? 

How Long Does a Thrift Savings Plan Loan Take to Get?

Applying for a TSP is a relatively simple process. You can fill out an application online on the TSP website . There is a $50 processing fee for general purpose loans and a $100 fee for primary residence loans. Borrowers who are married will need spousal approval before taking out a loan.

Once the application is approved, borrowers receive the loan amount via check within eight to 13 days.

How Much Can You Borrow From a Thrift Savings Plan?

The minimum you have to borrow with a TSP loan is $1,000. Rules for determining your maximum are rather complicated. You’ll be limited to the smallest among the following:

•  Your own contributions and their earnings in your TSP.

•  $50,000 minus your largest loan during the last 12 months, if any.

•  50% of your own contributions and their earnings, or $10,000, whichever is greater, minus your outstanding loan balances.

According to these rules, $50,000 is the most you can borrow, and you may be limited to as little as $1,000.

Should You Take Out a Thrift Savings Plan Loan?

Because a TSP loan can have a lasting effect on your retirement savings, be sure to exhaust all other loan options before deciding to apply for one. If you are experiencing financial hardship or poor credit has made it hard for you to qualify for another type of loan, a TSP may be worth exploring.

Thrift Savings Plan Loan Alternatives

Before choosing a TSP loan, take the time to research other alternatives.

Credit Card

Credit cards typically carry very high interest rates. The average interest rate is around 14.56%, according to the St. Louis Federal Reserve. That said, if you use a credit card to make a purchase and pay off your debt on time and in full at the end of the billing cycle, you will not have to pay interest on your debt.

Credit cards only get expensive when you carry a balance from month to month, in which case you’ll owe interest. What’s more, the amount of interest you owe will compound. In order to carry a balance, you must make minimum payments or risk late penalties or defaulting on your debt.

Recommended: Differences and Similarities Between Personal Lines of Credit and Credit Cards

Passbook Loan

Passbook loans allow you to borrow money at low interest rates, using the money you have saved in deposit accounts as collateral. That money must remain in your account over the life of the loan. And if you default on the loan, the bank can use your savings to recoup their losses.

Signature Loan

Unlike passbook loans, signature loans do not require that you put up any items of value as collateral. Also known as “good faith loans,” signature loans require only that you provide your lender with your income, credit history, and your signature. Signature loans are considered to be a type of unsecured personal loan.

Personal Loan

A personal loan can be acquired from a bank, credit union, or online bank. They are typically unsecured loans that don’t require collateral, though some banks offer secured personal loans that may come with lower interest rates.

Loan amounts can range from a few hundred dollars to $100,000. These amounts are repaid with interest in regular installments.

Personal loans place few restrictions on how loan funds can be spent. Common uses for personal loans range from consolidating debt to remodeling a kitchen.

The Takeaway

For borrowers in a financial pinch, TSP loans can provide a low-interest option to secure funding. However, they can also have a permanent negative impact on retirement savings, so it makes sense for borrowers to explore other options as well.

SoFi offers low fixed interest rates on personal loans of $5,000 to $100,000. There are no fees required, and borrowers only pay principal and interest.

FAQ

What does TSP loan stand for?

TSP stands for Thrift Savings Plan, a retirement account the federal government offers to its civilian employees and members of the uniformed services.

What is a TSP loan?

A TSP loan allows Thrift Savings Plan holders to borrow from their retirement account. Loans are repaid automatically through payroll deductions, and interest payments are made back to the account.

How long does it take to get a TSP loan?

It takes eight to 13 days to receive a TSP loan from the time of application.

Photo credit: iStock/SDI Productions
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The primary benefit of Bitcoin and most other cryptocurrencies based on blockchain technology is that many of them lack a central authority, payment processor, or company owner. From this stems several other benefits, such as ease of transactions, potential for higher return for traders, and even relatively good network security.

Since crypto networks tend to be peer-to-peer, meaning that people can transact directly with one another. Let’s look at some of the advantages of cryptocurrency in this crypto guide.

Benefits of Owning Crypto in 2023

1. Easy Transactions

Crypto transactions can be made easily, generally at a low cost, and in a relatively private manner. Using a smartphone app, hardware wallet, or exchange wallet, almost anyone can send and receive a variety of cryptocurrencies.

Some types of cryptocurrencies, including Bitcoin, Litecoin, and Ethereum, can be purchased with cash at a Bitcoin ATM. A bank account isn’t always required to use crypto, so it’s possible that someone could buy Bitcoin at an ATM using cash, then send those coins to their digital wallet or phone. This may be a huge advantage for people who might lack access to the traditional financial system.

2. Relatively Secure

Because cryptocurrencies are rooted in cryptography and blockchain security, decentralized cryptocurrencies tend to make for secure forms of payment. As such, the relative security of cryptos may be one of the biggest benefits for users.

Crypto security, in large part, is determined by hash rate. The higher the hash rate, the more computing power is required to compromise the network. Bitcoin is considered to be the most secure cryptocurrency, as it tends to have a higher hash rate than other networks.

Note, though, that using a crypto exchange is only as secure as the exchange itself, however. Most incidents of crypto being hacked involve exchanges being hacked or users making mistakes, like falling for phishing scams.

3. Short Settlement Times and Low Fees

While some people may only want to invest in cryptocurrency to take advantage of (prospective) price appreciation, others might find benefit in the ability to use crypto as a medium of exchange.

Bitcoin and Ether transactions can range from a few cents, to several dollars or more. Other cryptocurrencies, like Litecoin, XRP, and others, might be able to be sent for less. Payments for most cryptos settle within minutes, and some within seconds. Conversely, wire transfers at banks can cost significantly more, and often take three to five business days to settle.

4. Exponential Industry Growth

The cryptocurrency industry has been one of the fastest-growing markets that most of us have seen in our lifetimes, especially since the industry got its start with the debut of Bitcoin back in 2009. The total market cap of the cryptocurrency market in 2013 was about $1.6 billion. By September 2022, it’s worth more than $930 billion. That, too, is including the so-called “crypto winter” that the crypto markets experienced for much of 2022.

So, while the industry as a whole has seen incredible growth over the past decade, it’s important to keep in mind that markets ebb and flow.

5. The Possibility of Outsized Returns

Bitcoin has been one of the best-performing assets of the last 13 years. When it debuted in 2009, Bitcoin essentially had no value, but in the following years, it would rise to a fraction of a penny, and then eventually to tens of thousands of dollars. This represents millions of percentage points’ worth of gains. By comparison, the S&P 500 index of stocks returns an average of about 8% per year.

💡 Recommended: Bitcoin Price History: 2009-2023

Some altcoins have outperformed Bitcoin by wide margins at times, although many of those later saw their prices collapse. Gains like these might be among the most well-known cryptocurrency benefits. The losses, on the other hand, may be among the most well-known drawbacks. And that’s important to note, as crypto prices have fallen quite a bit, as of late. For example, during 2022, Bitcoin’s price has fallen by more than 60% as of September.

That type of volatility has characterized prices in the crypto space, which has been one of the key benefits of cryptocurrency for day traders and speculators, too. Taking advantage of the fluctuations in price can help traders earn returns, even if prices fall.

6. More Private Transactions

Privacy can be a big benefit of cryptocurrency, but crypto isn’t always as private as some people might think. Blockchains create a public ledger that records all transactions forever. While this ledger only shows wallet addresses, if an observer can connect a user’s identity to a specific wallet, then tracking transactions becomes possible.

While it’s worth noting that most crypto transactions are pseudonymous, there are ways to make more anonymous transactions. Coin mixing services group transactions together in a way that makes it hard to pick them apart from one another, which can make it difficult to track for outside observers. Individuals who run a full node also make their transactions more opaque because observers can’t always tell if the transactions running through the node were sent by the person running the node or by someone else.

Methods like these are for more advanced users and could prove difficult for those new to crypto. So while absolute privacy is really not one of the main positives of cryptocurrency, transactions are still generally more private than using fiat currency with third-party payment processors.

7. Portfolio Diversification

Cryptocurrency has become known as a non-correlated asset class. Theoretically, crypto markets largely function independently of other markets, and their price action tends to be determined by factors other than those affecting stocks, bonds, and commodities. Though that theory has been tested this year, as assets of all types of slipped, including cryptocurrencies. It’s worth noting, though, that during the last few years, cryptos have begun to sometimes trade in tandem with stocks for short periods of time.

So, in terms of diversification, cryptocurrencies offer investors another vehicle with which to try and grow their money outside of stocks, ETFs, or bonds. Crypto has its own unique risks, but it is another avenue for potential returns for investors.

8. Potential Inflation Hedge

Mineable cryptocurrencies with a limited supply cap, like Bitcoin, Litecoin, and Monero, to name a few, were traditionally thought to be good hedges against inflation. Because monetary inflation can occur when central banks and governments print more money (increasing the supply), things that are more scarce tend to appreciate in value.

With more and more new dollars chasing fewer and fewer coins, the price of these fixed-supply coins as measured in dollars has a higher chance of going up. Additionally, the Bitcoin protocol, for example, is also designed to keep those coins scarce regardless of what happens with monetary policy.

The potential of cryptos to stand up to inflation has been yet another test this year, as we’ve experienced higher rates of inflation than in several decades. As mentioned, crypto prices have fallen, but it’s hard to say how much of that has to do with inflation. Crypto may still serve as a hedge, but it may not be as ironclad of a concept as it once was.

9. Cross-Border Payments

Cryptocurrencies have no regard for national borders. An individual in one country can send coins to someone in a different country without any added difficulty. With traditional financial services, getting funds across international borders can take a long time and come with hefty fees. In some cases, doing so might not even be possible due to regulations, sanctions, or tensions between specific countries.

But again, cryptocurrency gets around all of that, as users can engage in peer-to-peer transactions from anywhere in the world.

10. A More Inclusive Financial System

Some of the benefits of cryptocurrency extend to people who don’t have access to, or perhaps don’t trust, the traditional financial system. Due to its decentralized and permission-less nature, one of the benefits of cryptocurrency is that anyone can participate outside of that system.

People don’t need permission from any financial authority or government to use the crypto ecosystem. (Though it’s worth noting that Bitcoin mining is banned in China, and that there may be other local rules and regulations to take not of.) Participants also don’t necessarily need to have a bank account. There are billions of people today who are “unbanked,” meaning they have no access to the financial system, including bank accounts. With crypto, however, the only thing those people need is a smartphone, and they can essentially become their own bank.

11. Transactional Freedom

One of the great benefits of crypto is that it can be used to exchange value between two parties. This can be done independently of any third-party, making the transaction about as free as it can get. It’s similar to handing a dollar bill to a friend on the street.

Banks, or other payment processors, can choose to cut off services to anyone for any reason. This can make things difficult for some journalists, political dissidents, or other individuals working in nations with oppressive government regimes. Because there is no central authority governing Bitcoin or most other cryptocurrencies, it’s very difficult to stop anyone from using them.

12. Always-Open Markets

Stock markets, like the New York Stock Exchange (NYSE), are only open on weekdays during the regular business hours of 9:30 am to 4:30 pm Eastern Time. During nights, weekends, and on holidays, most traditional financial markets are not open for business.

Crypto markets, on the other hand, operate 24 hours a day, seven days a week, without exception. Some of the only things that could interrupt a person’s ability to trade cryptocurrency would be a power outage, internet outage, or centralized exchange outage.

13. Adaptability

Some cryptocurrency projects take measures to become more efficient or resource-intensive. That’s a big difference between, say, the traditional banking system, which is often stuck utilizing outdated technologies and protocols.

One example: “The Merge,” which involved Ethereum moving from a Proof-of-Work model to a Proof-of-Stake model, effectively ending mining operations, and instead, adopting a much more efficient operating model. The ability of cryptos to change things up in a big way, and on a widespread, operating level, means that it has another advantage over traditional systems.

14. Specialization

Some cryptos can be designed specifically for certain projects or uses. Some cryptos, for instance, are designed to work with metaverse projects or games, and can be used to help create in-game assets or tokens.

The Takeaway

Transactional freedom, security, and ease of transaction are among the most important advantages of cryptocurrency. Many cryptos are designed to have unique advantages over fiat currencies or the traditional banking system, even if they don’t have widespread use or adoption yet.

Of course, there are potential flaws as well — volatility being a major downside. As with anything, though, those interested in buying, selling, and trading crypto would be wise to do their research before getting involved in the crypto market.

FAQ

Is cryptocurrency a good investment?

Cryptocurrency can be a worthwhile investment, and has numerous benefits for investors. It is, however, a speculative investment, and there are lots of risks unique to the crypto markets. As such, investors should do their homework before getting in the market.

What should you know before trading cryptocurrency?

There are many considerations to take into account before trading crypto, including the fact that there are numerous exchanges, ways to trade, and coins on the market. Prospective traders should also know that fees may be involved, and that crypto is a highly volatile asset class.

How do I weigh up the pros and cons of each cryptocurrency?

Many cryptocurrencies are similar, but most are their own, individual projects. As such, researching how they each work, what their intended use is, and what the potential drawbacks are for each crypto is a good place to start when weighing pros and cons.

Photo credit: iStock/insta_photos

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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.

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.

²Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.