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A mutual fund is a pooled investment that collects money from many investors and uses it to buy a portfolio of securities, such as stocks, bonds, and short-term debt. There are thousands of mutual funds available in the U.S., giving investors a wide range of options based on their goals, risk tolerance, and preferred investment strategy.

Mutual funds can be actively managed, meaning a professional manager or team decides which securities to buy and sell, or passively managed, meaning the fund seeks to track a market index. Some mutual funds focus on a particular type of asset, while others combine several asset classes. The main differences among mutual funds generally come down to what they own, what they are designed to accomplish, and how they are managed.

9 Types of Mutual Funds

Before choosing a mutual fund, it helps to understand the different types that are available and how they differ. Some funds seek long-term growth, while others emphasize income, diversification, or preserving capital. Risk can also vary significantly from one fund to another.

It’s important to note that these categories can overlap. For example, an equity fund can also be an index fund, an international fund, or a specialty fund. A target-date fund may invest in several underlying stock and bond funds. Understanding both a fund’s asset class and its investment strategy can help you determine whether it fits your goals and risk tolerance.

1. Equity Funds

•   Goal: Long-term capital growth

•   Asset Class: Stocks

•   Risk level: Moderate to high, depending on the fund

Equity funds, also called stock funds, invest primarily in stocks. They generally seek long-term capital growth, though some may also emphasize income from dividends.

The companies an equity fund invests in depend on its objectives and strategy. For example, some funds may focus on large, established companies, while others may invest primarily in smaller companies or companies expected to grow quickly. Equity funds can also focus on particular industries, geographic regions, or investment styles.

Because stock prices can fluctuate significantly, equity funds generally carry more market risk than funds focused on short-term debt or other relatively stable assets. However, the level of risk can vary widely among equity funds. A diversified large-cap fund, for example, may have a different risk profile from a fund concentrated in small companies or a single industry.

2. Bond (Fixed-Income) Funds

•   Goal: Income, capital preservation, or diversification

•   Asset class: Bonds and other debt securities

•   Risk level: Low to moderate, but varies by fund

Bond funds, also called fixed-income funds, invest primarily in debt securities such as government, municipal, and corporate bonds. They provide a way to gain exposure to a range of bonds without purchasing individual bonds.

Some bond funds invest broadly across the bond market, while others focus on a particular type of bond, such as municipal or corporate bonds. Funds can also vary based on the maturity and credit quality of the bonds they hold.

Bond funds are not risk-free. Their values can be affected by changes in interest rates, credit risk, and other market conditions. In general, bond prices tend to fall when interest rates rise and rise when interest rates fall, although the effect can vary based on a fund’s holdings and maturity. Funds that hold speculative-grade bonds may also have greater credit risk than funds focused on investment-grade debt.

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3. Money Market Funds

•   Goal: Income and capital preservation

•   Asset class: Short-term debt securities, cash, and cash equivalents

•   Risk level: Relatively low

Money market funds are mutual funds that invest in liquid, short-term debt securities, cash, and cash equivalents. They are generally considered lower risk than most other mutual funds, although they are not risk-free.

Money market funds are classified into three main categories: government, tax-exempt, and prime funds. Government money market funds primarily invest in government securities and related assets. Tax-exempt funds generally invest in municipal securities whose income is exempt from federal income tax. Prime funds focus on high-quality, short-term debt issued by corporations, banks, and other entities.

Money market funds are different from money market accounts (MMAs). A money market account is a bank or credit union deposit account that may be eligible for FDIC or NCUA deposit insurance. A money market fund is an investment product and is not FDIC- or NCUA-insured. If held through a SIPC-member brokerage, money market fund shares may receive SIPC protection if the brokerage fails, but SIPC does not protect against a decline in the fund’s value.

4. Index Funds

•   Goal: Track the performance of a market index

•   Asset Class: Stocks, bonds, or both

•   Risk level: Varies based on the index

Index funds are designed to track the performance of a particular market index. For example, an index fund may track the S&P 500 or Russell 2000. The fund may hold all or a representative sample of the securities in the index.

Index funds are generally passively managed. Instead of having a manager select individual securities in an attempt to outperform a benchmark, the fund generally seeks to replicate the index’s performance, before fees and expenses. Much like when you invest in ETFs that track major market benchmarks, passive index mutual funds aim for steady exposure rather than beating the market.

Because index funds generally require less active management, they may have lower expenses than comparable actively managed funds. However, not all index funds have the same costs, so it’s wise for investors to review a fund’s expense ratio and other fees.

Keep in mind that index funds are a strategy rather than a separate asset class. An index fund can be an equity fund, bond fund, international fund, or another type of mutual fund.

5. Balanced Funds

•   Goal: Growth and income

•   Asset class: Stocks, bonds, and sometimes money market instruments

•   Risk level: Moderate, depending on the allocation

Balanced funds, also called hybrid funds, invest in a combination of stocks, bonds, and sometimes money market instruments. The goal is generally to provide both growth and income while spreading risk across different asset classes. A common example is a fund with a 60% stock and 40% bond allocation, although allocations vary by fund.

Balanced funds can provide diversification within a single fund, but they are still subject to the risks of the investments they hold. Unlike target-date funds, balanced funds generally maintain a relatively consistent asset allocation rather than automatically becoming more conservative over time.

6. Income Funds

•   Goal: Generate income

•   Asset class: Bonds, dividend-paying stocks, and other income-producing securities

•   Risk level: Varies

Income funds focus on generating regular income from investments rather than primarily seeking capital appreciation. They may invest in government, municipal, or corporate bonds, dividend-paying stocks, or a combination of income-producing securities.

Some income funds are relatively conservative, while others may take on more risk to pursue higher levels of income. For example, a fund that invests in lower-quality corporate bonds may carry more credit risk than one focused on high-quality government securities.

Income funds can appeal to people who prioritize cash flow, although the amount of income a fund generates can change over time. Income is not guaranteed, and the fund’s share price can also rise or fall.

7. International Funds

•   Goal: Growth, income, or diversification outside the U.S.

•   Asset class: International stocks, bonds, or both

•   Risk level: Varies

International mutual funds invest primarily in securities outside the United States. They differ from global funds, which can invest in both U.S. and international securities. Some international funds focus on developed markets, while others invest primarily in emerging markets. Funds may also focus on a particular region or country.

International funds can provide diversification beyond U.S. markets, but they also have risks that may be less prominent in domestic funds. These can include currency fluctuations, political and economic changes, different regulatory environments, and market conditions in other countries. Emerging-market funds generally may carry additional risks because of the markets in which they invest.

8. Specialty Funds

•   Goal: Focus on a particular sector, industry, theme, or type of asset

•   Asset class: Varies

•   Risk level: Varies

Specialty funds concentrate on a specific sector, industry, geographic area, investment theme, or type of asset. Examples include technology, health care, real estate, commodities, or environmental, social, and governance (ESG)-focused funds.

These funds can provide targeted exposure to an area of the market, but their narrower focus can also reduce diversification. A fund concentrated in one industry, for example, may be more affected by changes affecting that industry than a broadly diversified fund.

Specialty funds can be used as part of a broader portfolio, but it’s important to understand what the fund owns and how concentrated its holdings are before choosing one.

9. Target-Date Funds

•   Goal: Retirement or another long-term goal

•   Asset class: A mix of stocks, bonds, and other investments

•   Risk level: Generally becomes more conservative as the target date approaches

Target-date funds are designed for investors with a particular future goal, such as retirement. They typically hold a mix of investments and automatically adjust their asset allocation over time. For example, someone expecting to retire around 2065 might choose a 2065 target-date fund. The fund would generally start with a larger allocation to stocks and gradually shift toward bonds and other relatively conservative investments as the target date approaches.

Target-date funds are commonly available in employer-sponsored retirement plans such as 401(k)s. They can offer a convenient way to maintain a diversified portfolio without having to rebalance it manually.

However, target-date funds aren’t designed to account for every individual’s financial circumstances. Two people retiring in the same year may have different risk tolerances, savings, and other assets. Target-date funds can also differ significantly in their investment mix, fees, and approach to becoming more conservative, so it’s important to review the specific fund rather than choosing solely based on the year in its name.

The 4 Primary Categories of Mutual Funds

Mutual funds can be grouped into four broad categories based on the types of assets they primarily hold: equity funds, bond funds, money market funds, and balanced funds. Other common types, such as those listed above, describe particular investment strategies or focuses and can overlap with these broader categories.

•   Equity funds: Invest primarily in stocks and generally seek growth, income, or both.

•   Bond funds: Invest primarily in bonds and other debt securities and generally focus on income, diversification, or capital preservation.

•   Money market funds: Invest in liquid, short-term debt securities, cash, and cash equivalents and generally seek to provide income while maintaining relatively low risk.

•   Balanced funds: Invest in a combination of asset classes, such as stocks and bonds, often in a fixed ratio.

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How Mutual Funds Work

When you purchase shares of a mutual fund, your money is pooled with money from other shareholders. The fund uses that money to purchase the securities and other assets outlined in its investment strategy. The value of your share generally rises or falls based on the value of the fund’s underlying holdings.

Most mutual funds are open-end funds, meaning investors can generally buy shares from the fund and redeem them at the fund’s net asset value (NAV). Mutual fund transactions are typically priced once each business day after the market closes. You can typically buy mutual funds shares through a brokerage account, investing app, retirement plan, or, in some cases, directly from the fund company.

One of the main features of mutual funds is diversification. A single fund may hold dozens, hundreds, or even thousands of securities. This can help spread risk compared with holding only a small number of individual securities, although diversification doesn’t eliminate the possibility of losses.

What’s the Difference Between Mutual Funds and ETFs?

Exchange-traded funds (ETFs) and mutual funds have many similarities. Both can pool money from investors, hold diversified portfolios, and invest in stocks, bonds, or other assets. However, there are several important differences. Here’s a look at how they compare:

•   Trading: ETFs trade on stock exchanges throughout the trading day. Mutual fund shares are generally bought and sold at the fund’s next calculated NAV, which is typically determined once each business day.

•   Pricing: ETF shares trade at a market price that can be above or below the fund’s NAV. Mutual fund shares are generally bought or redeemed at the NAV, plus or minus applicable fees.

•   Management: Both mutual funds and ETFs can be actively or passively managed. It’s not accurate to assume that all ETFs are passive or all mutual funds are active.

•   Costs: Costs vary by fund. ETFs have often had lower expense ratios than comparable mutual funds, but investors should compare the specific funds rather than assuming one type is always cheaper.

•   Tax efficiency: ETFs can be more tax-efficient than similar mutual funds in taxable accounts because of differences in how they handle portfolio transactions. However, both types of funds can distribute taxable capital gains. In tax-advantaged accounts such as 401(k)s and IRAs, these differences generally don’t affect the account’s tax treatment.

How to Choose the Right Mutual Funds for Your Portfolio

Choosing a mutual fund starts with understanding what role you want it to play in your portfolio. Here are some factors to consider:

•   Investment goal: Determine whether you’re looking for long-term growth, income, diversification, or another objective.

•   Time horizon: Consider how long you expect to hold the fund and when you may need the money. A longer time horizon may allow you to tolerate more short-term market fluctuations.

•   Risk tolerance: Review how much the fund’s value could fluctuate and whether you’re comfortable with those potential changes.

•   Asset allocation: Look at how much the fund holds in stocks, bonds, cash, or other assets. If you already own other funds, check for overlapping holdings.

•   Management style: Decide whether an actively managed or index fund better fits your preferences and goals.

•   Fees and expenses: Review the fund’s expense ratio and any sales loads, redemption fees, account fees, or other costs. Even relatively small differences in fees can affect returns over time.

•   Fund performance: Look at a fund’s historical performance in context, but remember that past performance doesn’t guarantee future results. Consider how the fund has performed compared with its benchmark and similar funds.

•   Fund holdings: Review the fund’s prospectus and shareholder reports to understand what it owns, how concentrated it is, and whether its strategy matches your expectations.

The Takeaway

Mutual funds pool money from many investors to create a portfolio of stocks, bonds, or other assets. They come in a wide range of types, including equity, bond, money market, balanced, index, international, specialty, income, and target-date funds.

The right type of mutual fund depends on your goals, time horizon, risk tolerance, and the role you want the fund to play in your portfolio. Because many fund types can overlap, it’s important to look beyond a fund’s label and review its holdings, strategy, fees, and risks before choosing one.

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FAQ

What are the four primary categories of mutual funds?

The four broad categories of mutual funds are equity funds, bond funds, money market funds, and balanced funds. Equity funds primarily hold stocks, while bond funds invest mainly in bonds and other debt securities. Money market funds invest in short-term debt and other highly liquid assets. Balanced funds combine multiple asset classes, such as stocks and bonds. Other fund types, including index, international, specialty, and target-date funds, can overlap with these categories.

What is the 7-5-3-1 rule in SIP?

The 7-5-3-1 rule is a general investing guideline sometimes associated with systematic investment plans (SIPs), particularly in India. It suggests assuming a 7-year time horizon, a 5% annual return, 3 investment objectives, and 1 investment strategy. However, it isn’t a formal rule or guarantee, and actual returns can vary significantly. SIPs also aren’t a type of mutual fund; they’re a way of making regular contributions to an investment, such as a mutual fund.

Which type of mutual fund is best?

There isn’t one mutual fund type that’s best for everyone. The appropriate fund depends on factors such as your investment goal, time horizon, risk tolerance, and existing portfolio. For example, someone seeking long-term growth may consider an equity fund, while someone prioritizing income may consider a bond or income fund. A target-date fund may appeal to someone who wants an automatically adjusted portfolio for retirement. It’s wise to compare each fund’s strategy, holdings, fees, and risks before choosing one.

How do open-end and closed-end mutual funds differ?

Open-end funds can generally issue new shares and redeem existing shares on an ongoing basis. Investors typically buy and redeem shares directly through the fund at the next calculated net asset value (NAV). Closed-end funds generally issue a fixed number of shares, which then trade on a stock exchange. As a result, closed-end fund shares can trade at a price above or below the fund’s NAV.

How are capital gains taxed on mutual fund investments?

In a taxable account, you generally owe taxes on capital gains distributed by a mutual fund, even if you reinvest those distributions. According to the IRS, the tax rate can depend on whether the gains are short-term or long-term and on your income and other circumstances. You may also owe capital gains tax when you sell mutual fund shares for more than your adjusted cost basis. Mutual funds held in tax-advantaged accounts, such as traditional IRAs and 401(k)s, generally have different tax treatment.

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This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.
Mutual Funds (MFs): Investors should read and carefully consider the information contained in the prospectus, which contains the Mutual Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or SoFi's customer service at: 1.855.456.7634. Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risks. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may have tax implications.
Investment Risk: Diversification can help reduce some investment risk, but cannot guarantee profit nor fully protect in a down market.
Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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The CPI, or Consumer Price Index, calculates the average change in price over time for a standard array of goods and services that urban consumers pay for each month, including food, energy, housing, transportation, medical care, and other common expenditures.

The CPI is often used as a key indicator of inflation in the U.S. because it enables people to compare the cost of goods and services today to what the same things cost in a previous time period. Notably, the CPI rose 0.6% in September 2026, bringing the 12-month increase to 3.7% (not seasonally adjusted) — signaling a higher-than-anticipated inflation rate. This was alongside a 1.3% monthly (and 6.3% annual) rise in the Producer Price Index (PPI), another key monthly indicator used to gauge inflation, and often viewed in concert with the CPI.

The CPI is produced monthly by the Bureau of Labor Statistics, and is a basic cost-of-living measure for most urban households. In addition to its role as an inflation indicator, the CPI is used to adjust government poverty thresholds, Social Security benefit amounts, and other civil payments. The Federal Reserve also watches the CPI closely, as it can impact interest rates.

What Is the Consumer Price Index (CPI)?

The CPI measures the change in prices that urban consumers paid for a fixed group of goods and services over a certain period, according to the Bureau of Labor Statistics (BLS). The metric tracks the rise and fall of prices, giving economists, consumers, and investors the ability to compare changes over time in the price of eight categories of basic household goods:

•   Housing

•   Food and beverages

•   Apparel

•   Transportation

•   Medical care

•   Entertainment

•   Education and communication

•   Various services, including taxes and insurance fees

Although the CPI is considered a key indicator of cost of living, it doesn’t include factors that can impact both cost and quality of life: e.g., health, crime levels, water safety, and more.

The CPI definition that most people know is that it’s an indicator of inflation, but it plays into many aspects of the economy, including the stock market (which is important to know when trading stocks online or through a traditional broker).

CPI Meaning and Definition

As mentioned, CPI is short for Consumer Price Index, and it’s an often-cited economic indicator because it captures changes in the cost of living across the country.

The BLS produces indexes that cover two populations: CPI-U covers all urban consumers, representing more than 90% of the population, including: wage earners, technical workers, the self-employed, retirees, and so. The CPI-W represents hourly wage earners and clerical workers, representing approximately 30% of the population.

How the CPI Works

Each month, the BLS contacts retailers, service providers, and rental spaces across the country gathering prices for about 80,000 items that generally fall into the eight categories listed above. The BLS then calculates the price changes for each item and averages them, weighting them according to their importance.

The index then compares the current month or year to a prior base month or year to create a percentage change for comparability. This makes periods of inflation or deflation easier to track, as well as to explain what inflation is and what deflation is and its impact on the economy.

CPI Formulas

The BLS uses this data to calculate CPI using the following formula:

CPI = Cost of the Market Basket in a Given Year/Cost of the Market Basket in the Base Year.

The result is multiplied by 100 to express CPI as a percentage.

The BLS uses the period from 1982 to 1984 as its base year. It set the index level during this 36-month period at 100. If the CPI increases, say, to 110, that indicates that prices are 10% higher than the base year period. (This doesn’t mean inflation is at 10%, however; that’s a separate calculation.)

By seeing the change in prices over time, consumers and investors can better understand how their purchasing power has changed.

Annual CPI Calculation

Here’s a hypothetical example of the annual CPI calculation, comparing the base year to the current year:

	Sweatshirt	1 dozen eggs	Movie ticket
Price in the base year	$20	$2.50	$10
Quantity	2	6	5
Total Cost	$40	$15	$50

When you total the price of these goods you get $105.

Now let’s consider the same basket of goods in a subsequent year:

	Sweatshirt	1 dozen eggs	Movie ticket
Current year	$22	$3	$15
Quantity	2	6	5
Total Cost	$44	$18	$75

When you total the prices of these goods you get $131.

Using the CPI formula, you get $137 / $105 X 100 = 130

In this hypothetical calculation, the CPI for the current year is 30% higher than the base year.

Categories Within CPI

The CPI is based on what real people buy, collected from expenditure surveys and personal diaries. Approximately 20,000 consumers are surveyed annually, and the Bureau of Labor Services uses this data to create more than 200 categories of goods and services, clustered in the eight main groups defined above.

In addition to these categories, CPI includes government-charged user fees like water, sewage, tolls, and auto registration fees. It also factors in taxes associated with the price of goods such as sales tax and excise tax. However, it does not include Social Security taxes or income taxes that aren’t directly related to the purchasing of goods and services.

The CPI also does not include the purchase of investments, like stocks and bonds, which investors .

Types of CPI: CPI-U and CPI-W

The two main CPI indexes track the spending of two populations: CPI-U, which covers all urban consumers (about 90% of the U.S. population), and the CPI-W, which includes about 30% of the population, is a subset of CPI-U and represents a slightly different population.

•   CPI-U is the more recent, expanded CPI number. It includes metropolitan and urban-area full-time wage earners and clerical workers; professional, managerial, and technical workers; the self-employed; short-term workers; the unemployed; retirees, and others not in the labor force. Not included in the CPI-U are those who live in rural, farm, or nonmetropolitan households, those in the military, in religious communities, and in prisons or mental health institutions.

•   CPI-W refers to the original measure, which covers wage and clerical workers, and at least one worker in the household was employed for at least 37 weeks in the past 12 months.

Owing to budget cuts and changing priorities, the two populations are no longer surveyed separately. Rather, the CPI-W expenditures are weighted differently to reflect these generally middle- and lower-income households.

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The Consumer Price Index (CPI) in Practice

The CPI is the most common way to measure inflation, and this data has a significant impact on economic policy.

Usage in Economic Policy

The federal government, or the Federal Reserve, more specifically, sets a target inflation rate of 2% annually, and the CPI can help the government understand whether or not its monetary policy is effective in meeting this target.

In recent years, many people have kept a close eye on the CPI and CPI reports, after prices rose dramatically due to the pandemic in 2020. While there were a variety of reasons as to why prices increased, that bout of inflation — the first serious case of inflation since the 1980s — caught many people off guard, and strained consumers’ budgets.

The Federal Reserve’s Utilization

Though it has moderated in the years since, the cost of living and persistent inflation have remained a contentious issue in the U.S. for the last five years.

This ongoing inflationary period also led to the Fed increasing interest rates. Inflation, or the increase in the CPI over the past couple of years, peaked at more than 9% during the summer of 2022. Though inflation decreased, it hasn’t returned to the Fed’s target 2.0% level. As of Q4 2026, the CPI had risen to 3.7%.

The Federal Reserve may look at the CPI to gauge whether or not to raise interest rates, which may cool or heat up the economy, accordingly, by increasing the cost of borrowing. As borrowing costs go up, demand for goods or services tends to fall, lowering prices, and putting downward pressure on the CPI.

Implications for Other Government Agencies

Economists also use CPI as a measure of cost of living, the amount of money you need to cover basic expenses, such as housing, food, and health care. This is important because the government may make cost-of-living adjustments to programs such as Social Security. As the cost of living rises, benefit amounts may be adjusted higher to keep up with the rising costs of goods.

Employers may also look at the cost of living to help them set competitive salaries and determine when to raise wages for employees.

CPI’s Influence on Market Sectors

The CPI can also have an influence on market sectors, like the housing markets, financial markets, and even labor markets. As noted, a lot of it is top-down — depending on how the Federal Reserve reads the CPI and decides to change interest rates, if at all.

Raising rates can temper demand in the housing market, if mortgages become more expensive. It can also slow down sales for some businesses, which are reflected in earnings reports, and in the stock market. That can then spill into the labor market, and potentially raise unemployment as companies look to cut costs.

All told, the CPI’s influence can run deep in an economy, as this survey of investor portfolios indicates.

CPI Versus Other Economic Indicators

The CPI is only one of many economic indicators, as mentioned. Others include unemployment, and the Producer Price Index (PPI).

CPI vs. Unemployment: Understanding the Relationship

As noted, there tends to be a relationship between the CPI and unemployment rate, as the Fed targets 2% inflation, and full employment. As such, the Fed can decide to make changes to monetary policy to try and restore balance or at least get closer to its goals.

CPI vs. PPI (Producer Price Index)

The Producer Price Index or PPI measures the average change over time in the selling prices received by domestic producers of goods and services. In simpler terms, this metric measures wholesale prices for the sectors of the economy that produce goods. Like the CPI, the PPI can help analysts estimate inflation, as higher prices will show up on the wholesale level first before they get passed on to consumers at the retail level.

As key monthly economic indicators, the CPI and PPI may be viewed alongside each other. For example, while the CPI for September 2026 reflected a 3.7% increase over the previous year (not seasonally adjusted), the PPI showed a 6.3% rise over the same 12-month period. Both indicators signal a sharp increase in inflation, though these are not necessarily the only indicators economists may take into account to gauge broader trends.

Analyzing and Critiquing the CPI Methodology

The CPI is a useful measure in many ways, but it does have some limitations.

First, it doesn’t apply to all populations in the United States. CPI considers urban populations alone, so it is not necessarily representative of the costs for those who live outside of those areas.

Also, the CPI calculation does not take into account all of the goods and services available to consumers or new technologies not yet considered consumer staples. What’s more, the metric does not provide any contact into what’s causing prices to move up and down, such as social or environmental trends.

CPI’s Broader Impact and Usage

CPI reports are typically issued monthly by the BLS, and are available to anyone who wants to access them online. They give a broad breakdown of the previous month, and compare price changes year-over-year, and month-over-month.

Breaking Down the Monthly CPI Report

The standard CPI report has an introduction that discusses the changes over the previous month, followed by a table that outlines changes in specific price categories over the past year and several months. It further breaks down food, energy, and “all items less food and energy,” providing additional insight for each category.

Anticipating the Next CPI Report

The BLS publishes the date and time of the upcoming CPI report on its website (www.bls.gov/cpi). It’s typically announced during the second week of the month, at 8:30am ET on the given day. The monthly CPI report reflects the previous month’s data, and can be adjusted seasonally after the announcement.

How the CPI Impacts Your Investments

When the CPI goes up, and investors sense that the Fed will keep interest rates higher for longer to moderate inflation, this typically impacts borrowing costs and the cost of doing business overall. In other words, higher CPI and higher interest rates can put a damper on the stock market.

Conversely, when consumer prices drop, and monetary policy results in lower interest rates, that may boost stock prices.

When it comes to bonds and the bond market, a higher CPI index can result in higher Treasury yields. While some investors may see higher bond rates as a boon, especially if stocks are volatile, bond prices tend to drop when rates rise—which has a negative impact on some bond investors.

Educational Resources for the CPI

There are numerous resources and places to learn more about the CPI, especially after all the attention it has garnered in recent years.

Learning More About Inflation

A simple internet search will net a cornucopia of results, loaded with information and insight into the CPI. You’re also likely to find opinion pieces and other media discussing the CPI’s shortcomings or strengths — it can be a good idea to consider everything, and formulate your own opinion.

But in terms of learning more about the CPI itself, the BLS publishes a handbook discussing the concepts and methods it uses, which can also be helpful if you’re hoping to bolster your CPI IQ.

Where to Find CPI Statistics

The BLS publishes the CPI, and a whole host of data and statistics related to it. With that in mind, it can be a great place to start when hunting down CPI-related data. There are multiple other sources that utilize the BLS’ data to compile charts, graphs, and more, but typically, it’s all sourced back to the BLS.

The Takeaway

Rising inflation decreases the value of individuals’ cash savings over time. Investing in stocks, bonds and other investments that offer inflation-beating returns may help consumers protect the value of their savings. Understanding CPI, and how it’s moving, can help you devise a strategy for your investment portfolio.

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Options involve substantial risk of loss and the possibility an investor may lose the entire amount invested. Before starting options trading, investors should be familiar with the Characteristics and Risks of Standardized Options . TTax implications with options should be considered. Consult your tax advisor to understand any impacts to your taxes.

FAQ

How often is the CPI reported?

The CPI is calculated by the Bureau of Labor Statistics (BLS), a government agency, and is reported monthly ,for the previous month, usually during the second week of each month.

What is the difference between core CPI and headline CPI?

Headline CPI tracks the changes in prices for a basket of goods and services, including food and energy costs; it tends to reflect the day-to-day cost of living. Core CPI excludes the more volatile prices of food and energy, so economists use this number to gauge whether inflation is showing up across the economy.

How does the CPI affect interest rates?

The Fed uses the CPI to see which direction consumer prices are moving. If the CPI keeps going up, signaling inflation, that may spur an interest rate hike to help moderate inflation.

How does the CPI affect my cost of living?

The CPI itself is a backward-looking measure, and doesn’t directly impact a household’s cost of living. Rather, the CPI is meant to reflect what the cost of living is now, and how it has changed over a given period of time.

Can the CPI predict a recession?

No, the CPI is not a predictive measure. But it’s an important indicator of the country’s economic health. And because the CPI can influence monetary policy, this data may be used by economists when evaluating the potential for a downturn.

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This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

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FUD, which stands for fear, uncertainty, and doubt, is a strategy or psychological state where pessimism and emotional manipulation drive investors to make irrational financial decisions.

While the concept of “fear, uncertainty, and doubt” has been in circulation for a century or so, it became popular as the abbreviation FUD in the 1970s — and widely known more recently, thanks to the highly volatile crypto markets. FUD is also used throughout finance and can apply to any asset class.

Here’s what you need to know about FUD now.

What Does FUD Mean in Investing?

Investment strategies based on fear, uncertainty, and doubt are usually not recommended. Sometimes FUD might be justified, but in general, the term is used to describe irrational, overwhelming negative sentiment in the market.

Many investors have concrete or pragmatic fears and doubts. Some investors worry that they’ve invested too little or too late (or both). Others might fear a recession or market slowdown. Some investors worry that an unforeseen factor could impact their investments. These are ordinary, common concerns.

FUD is different, and it’s important to understand what FUD is. When investors talk about FUD, they’re referring to rumors and hype that spread through media (and social media) that drive impulsive and often irrational investor decisions.

The term FUD can also be used in a demeaning way. It’s frequently weaponized by speculative investors to dismiss legitimate, data-driven criticisms as mere “scare tactics.” While the initial manipulation is designed to prevent a sell-off, it frequently acts as the catalyst for an even sharper, more chaotic market panic down the road.

FUD vs FOMO: What Is the Difference?

What is FUD in stocks or the stock market? FUD can be thought of as the opposite of FOMO (fear of missing out). While FOMO tends to inspire people to do what others are doing — often in that they don’t want to miss out on a hot stock and potential gains — FUD can be described as a collective negative effect that spreads like wildfire, typically through social media.

When markets are going up, many people fall victim to FOMO trading, but when markets are going down, FUD can also spread swiftly. At their core, you can look at them as two sides of the same coin: FUD is driven by uncertainty or caution, while FOMO comes from a strong desire to join in.

The two can also be contrary indicators. When FUD seems to be everywhere, some investors may decide to buy assets at reduced prices (aka buying the dip), and when many people are experiencing FOMO, some traders might decide to sell at a premium.

Some crypto enthusiasts offer a counter to FUD by using the term “hodl.” The hodl meaning is interpreted as “hold on for dear life.” Hodl comes from an old Reddit post where an investor posted a rant about having trouble timing the market, while misspelling the word “hold” several times.

What Does FUD Mean in Crypto?

While FUD is often associated with volatile crypto markets, the phrase “fear, uncertainty, and doubt” actually has a much longer history than many people realize.

The History of FUD

The general phrase “fear, uncertainty, and doubt” has been around for decades, and the use of FUD gained traction in marketing, sales, and public relations, through the 1980s and 1990s.

More recently, FUD has taken on a broader connotation in investing circles — particularly in the crypto markets — referring to the potential many investors have to succumb to sudden anxiety or pessimism that changes their behavior.

FUD and Crypto

In crypto, FUD has become a well-known crypto term, and it generally means one of two things:

1.    To spread doubt about a particular token or project in an attempt to manipulate prices downward.

2.    The general skepticism and cynicism about crypto as an asset class, and any related news/events. Even the rumor of a negative event possibly happening can generate FUD.

Again, FUD is not strictly relegated to the crypto space, but in recent years, it has developed a strong association with crypto.

FUD Crypto and Memes

Crypto FUD also tends to involve the spreading of memes that can either amplify or lessen the FUD’s effect. Sometimes FUD being spread by the media is widely seen as trivial, in which case memes making fun of the idea might pop up. Or, if the FUD is perceived as more legitimate, memes making fun of those not taking the threat seriously might start circulating.

When Can FUD Occur?

FUD can occur whenever prices are falling or a big event happens that’s widely thought to be bearish. A company could miss earnings expectations or it could be revealed that an influential investor has taken a short position against a stock. Or the FUD could come from a larger source, like a pandemic, natural disaster, or the threat of a government defaulting on its debt.

The more catastrophic something could theoretically be, and the greater uncertainty surrounding its outcome, the more it may become a suitable subject for people to spread FUD. While financial markets sometimes react swiftly and uniformly to genuine systemic threats, bad actors frequently weaponize this anxiety. By stripping information of context or exaggerating the facts, they generate a “fake news” buzz designed to induce panic-selling.

In equities and other regulated securities, it is illegal to spread false or misleading information with the intent to lower asset prices. Commonly referred to as a “short-and-distort” scheme, this practice is a form of market manipulation. Individuals who engage in it face severe legal action and civil or criminal penalties from regulatory agencies like the SEC, FINRA, or the Department of Justice (DOJ).

FUD Crypto Examples

Here are a few well-known examples of FUD in crypto that demonstrate how minor truths can be exaggerated into market hysteria to suppress asset prices. These instances show how FUD often evolves — while rooted in a sliver of truth, the narrative quickly spins out of control, exaggerating potential risks into full-blown panic.

China Banning Bitcoin

This is one of the most prominent examples of FUD in the crypto world, inspiring countless memes and social media rants.

While headlines have frequently claimed that China has “banned” Bitcoin, a truly comprehensive ban on a decentralized network is rarely a single, definitive event, as the underlying global protocol cannot be turned off by a centralized authority. Instead, the Chinese government has periodically introduced specific restrictions for individuals or financial organizations participating in the crypto market. Media outlets then routinely sensationalize these regulatory updates as a blanket ban.

In 2021, China significantly escalated its stance by declaring all cryptocurrency transactions illegal and heavily cracking down on domestic Bitcoin mining. Despite the severity of these enforcement actions and a sudden dip in prices, global markets adapted relatively quickly. Displaced miners quickly relocated to countries like the United States, fully restoring the global hash rate within months.

Government Regulation

Regulatory concerns coming from any national government can be a big source of fear, uncertainty, and doubt. Because crypto markets are still somewhat new, many countries have yet to adopt regulatory frameworks around crypto that provide specific rules around the use and taxation of cryptocurrencies.

Several countries have tried to make any use of crypto illegal, while others make public statements about harsh restrictions coming down the line. Whether the threat is real or perceived, the mere suggestion of governments cracking down on crypto transactions may inspire fear among participants in the market.

The Fear of Lost Crypto

Few things scare investors like market losses, but cryptocurrency adds a unique risk — permanently losing your assets. This concern is valid: billions of dollars in cryptocurrency have been permanently lost due to users misplacing or failing to back up their private keys — the unique digital passwords needed to access their funds.

Because crypto is decentralized, it generally lacks the safety nets of traditional banking. In a standard bank, your money is protected by strict regulations and institutional recovery options. Even if a bank fails, your deposits are typically backed by FDIC insurance (up to certain limits). With crypto, if you lose your keys, there is generally no manager or institution to help you get your money back.

Influential Crypto Posts

High-profile tweets and social media posts have repeatedly triggered FUD in the cryptocurrency market, causing sharp price swings, panic selling, or sudden regulatory scrutiny.

However, these FUD moments are generally short-lived. The impact of a single influential figure on a specific coin’s price — even if it temporarily roils the market — has generally been temporary.

Corporate Crypto Assets

Over the past few years, several major corporations have attempted to launch their own proprietary cryptocurrencies. However, getting a new digital currency off the ground has proven to be challenging. Recent, high-profile failures of corporate coins have helped fuel fear, uncertainty, and doubt among investors.

Solar Storms

Because crypto is digital, a great deal of FUD stems from technology-based fears that unexpected events could take down electrical grids and disrupt access to digital assets.

One common FUD-inducing concern revolves around the potential for a severe solar storm to strike Earth. While scientists agree that extreme solar activity can cause power disruptions, the fear that it would completely wipe out crypto holdings is highly unlikely due to the globally decentralized nature of blockchain networks.

The Takeaway

Crypto FUD is one of many crypto terms that have become popular, but the underlying concept — that fear, uncertainty, and doubt can influence investor behavior — is not new. In fact, FUD as an actual strategy exists in many spheres, including marketing, sales, public relations, politics, and traditional finance.

FUD can come from anywhere and be focused on just about anything, but speculative or emerging markets can be particularly vulnerable to these tactics. Ultimately, whether dealing with digital assets or traditional stocks, an investor’s best defense against FUD is a disciplined strategy grounded in thorough research rather than emotional reactions to market rumors or celebrity opinions.

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FAQ

Who uses FUD?

While some FUD (fear, uncertainty, and doubt) emerges organically from volatile market shifts, it is frequently weaponized by specific actors. Short sellers, competing project developers, and malicious market manipulators may deliberately engineer disinformation campaigns. Often their primary goal is to trigger panic, depress asset prices, and drive investors into making impulsive, emotional decisions like selling off assets prematurely or switching to rival cryptocurrencies.

Why does FUD matter?

FUD (which stands for fear, uncertainty, and doubt) represents waves of misinformation or negativity designed to trigger market panic. Recognizing this psychological tactic is important to protect your portfolio from emotional, high-cost trading mistakes. Learning to spot FUD can help investors separate short-term market noise from long-term asset fundamentals. Ultimately, staying calm can help filter out the hype and prevent the panic selling that can result in permanent financial losses.

What Counts as FUD?

FUD stands for fear, uncertainty, and doubt. Ordinary concerns about normal market performance or an investor’s personal long-term goals, however, don’t count as FUD. FUD refers to a broader market or crypto phenomenon, where highly negative information goes viral and causes investors to panic.

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Photo credit: iStock/dolgachov

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.

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Cryptocurrencies have created new opportunities to earn passive income, completely separate from standard crypto transactions. Whether you’re interested in crypto staking, DiFi lending, or crypto earn accounts, there are now a few different ways to seek potential crypto income. While very few of these methods are entirely hands off, you don’t necessarily need to be a crypto expert to get started.

That said, navigating this space requires a clear understanding of its inherent risks. High asset volatility means that any accumulated rewards can lose market value faster than they accrue. For crypto enthusiasts willing to navigate these fluctuations, here’s a look at some of the most common crypto passive income strategies.

What Counts as Passive Income in Crypto?

At its core, passive income in crypto refers to generating yields, interest, or rewards on cryptocurrency assets you already hold, rather than attempting to profit through the active buying or selling of cryptocurrencies.

Passive income streams are typically those that require little to no ongoing effort after the initial financing and setup. While such options do exist in crypto, most crypto passive income strategies involve some level of upkeep. After the initial setup, passive crypto income options may require technical maintenance, ongoing risk management, or even the active buying and selling of cryptocurrencies to manage a position. Furthermore, because rewards are often paid out in digital tokens, market volatility means those rewards could convert to less value over time.

However, the expansion of crypto passive income strategies in recent years allows participants to evaluate various options based on their personal goals and circumstances. Factors such as technical expertise, available capital, time commitment, and risk tolerance can help users determine which crypto passive income strategy (if any) is a good fit.

5 Ways to Earn Passive Income With Crypto

From participating in network validation to leveraging decentralized lending protocols, crypto passive income methods may offer varying levels of potential yield, risks, and involvement. Here are six popular crypto passive income strategies used today.

1. Staking

Crypto staking involves locking up digital assets to support a blockchain network with the goal of earning rewards in return. This process relies on a proof-of-stake (PoS) consensus mechanism to verify and secure crypto transactions. It stands in contrast to the proof-of-work (PoW) model, which relies on energy-intensive crypto mining to validate data.

By staking your coins, you act as a validator who helps ensure network transactions are legitimate. In return for this support, you may receive staking rewards that are typically expressed as an annual percentage yield (APY). As a general rule, the larger your initial stake, the higher your potential rewards — or losses — may be.

Staking rewards fluctuate and payouts are never guaranteed. Because cryptocurrencies are highly volatile, your staked principal can lose market value at any time. If the asset’s price drops significantly, those capital losses can easily outweigh any yield you earned.

Liquid Staking and Restaking

To try to minimize the risk of locking up assets, some turn to liquid staking or restaking. Liquid staking allows stakers to receive a 1:1 liquid derivative token — called a liquid staking token (LST) — representing the amount of the native cryptocurrency staked plus any accrued rewards. These LSTs may be used similarly to the original native coins to provide immediate liquidity, or they can be exchanged for native coins on a decentralized exchange (DEX).

Through restaking, stakers may pledge those same staked assets to secure secondary services, such as crypto oracles or other protocols. This allows them to potentially earn rewards from multiple sources simultaneously. Restaking is often done by staking the LSTs earned from liquid staking, which can net the staker a liquid restaking token (LRT).

However, both LSTs and restaking come with heightened risks. First, they add layers of smart contract code, potentially increasing exposure to bugs and related exploits. Second, they introduce systemic risk: Stakers can face penalties from both the base network and secondary services, leaving them vulnerable to slashing events or liquidation issues caused by third-party protocols.

How to Get Started With Staking

To get started with crypto staking, you’ll need to open an account through a platform or wallet that supports staking (or liquid staking). Once your account is set up, fund your crypto wallet with the cryptocurrency you wish to stake. From there, you can follow the specific steps provided by your chosen platform. Keep in mind, however, that crypto staking — like many other digital asset services — is not currently permitted in all countries or U.S. states.

2. Crypto Lending and Earn Accounts

Crypto “earn” accounts offer the potential to generate passive income by rewarding users for storing digital assets on a platform. To generate this yield, platforms may deploy deposited crypto for on-chain staking, liquidity pools, or crypto loans. These accounts feature fixed or variable terms, varying lockup periods, and distinct risk profiles.

Crypto lending is the primary driver behind most earn accounts. Holders deposit idle crypto into a pool for others to borrow, earning a yield funded by borrower interest and distributed as an APY. These transactions operate through either Centralized Finance (CeFi) intermediaries — which manage the loans and enforce Know Your Customer (KYC) regulations — or DeFi platforms using automated smart contracts.

While crypto earn accounts resemble traditional high-yield savings accounts, they lack federal protections like FDIC insurance. Although platforms typically require borrowers to overcollateralize loans, depositors can still face total loss if a borrower or the platform defaults. Furthermore, DeFi smart contracts introduce technical vulnerabilities, while mandatory lockup periods prevent depositors from selling if market values plummet.

To improve consumer protection, some platforms now offer FDIC-insured cash sweep accounts, which store idle assets as USD in traditional banks to earn interest safely. In addition, regulated banking institutions are introducing tokenized deposits, keeping digital assets securely within the traditional, heavily regulated banking network.

Tokenized Deposits

Tokenized deposits are an emerging, ledger-based technology that provides a 1:1 digital representation of a traditional bank deposit. Because these assets are recorded on a blockchain or distributed ledger, they can move almost instantaneously across a bank’s network, enabling rapid, 24/7 transactions. In contrast, traditional bank payments and wire transfers often take hours or days to settle.

At the same time, tokenized deposits allow the underlying fiat funds to remain on the balance sheets of regulated banks. This means holders may earn interest as long as the funds stay within the bank’s network. In contrast, stablecoins issuers are prohibited from offering interest under the Genius Act. Most importantly, as long as the tokenized deposit stays within an insured bank account, it qualifies for standard FDIC insurance limits.

While financial institutions currently utilize tokenized deposits for large institutional clients — with passed-through interest rates varying by bank — retail tokenized bank deposits are already on the horizon.

How to Get Started With an Earn Account

To get started with an earn account, research and select a platform that aligns with your financial goals and risk tolerance. Look for providers that offer clear terms, robust security measures, and transparent yield models. Once you choose a platform, create an account, complete the required identity verification, and deposit or purchase a supported cryptocurrency to start generating potential yield.

3. Providing Liquidity to a Decentralized Exchange

Some crypto holders seek passive income by providing cryptocurrency to a DEX. A DEX allows users to trade digital assets directly peer-to-peer from their own wallets using self-executing smart contracts, bypassing traditional intermediaries.

As a liquidity provider, you deposit tokens into a smart contract-based liquidity pool to facilitate trading on the exchange. You must generally deposit tokens in pairs of equivalent value — for example, 1 Solana and 120 USDC, assuming their market values are equal.

In return for contributing assets, you earn a percentage of the transaction fees, and some platforms may reward you with additional tokens. Some providers attempt to amplify returns through a high-risk strategy called yield farming, which involves redepositing earned rewards into platforms offering the highest yields. While returns can compound over time, total value can fall rapidly due to highly volatile cryptocurrency prices and shifting interest rates.

Providing liquidity carries notable risks beyond standard market volatility. Primary among these is impermanent loss, which occurs when the relative prices of your deposited token pairs diverge, resulting in a lower total value than if you had simply held the assets. Liquidity providers also face exposure to smart contract vulnerabilities, malicious token projects, and rug pulls in unvetted pools.

How to Get Started With DEX Liquidity Pools

To get started with a DEX liquidity pool, research and select a decentralized platform that supports the assets you wish to allocate. Ensure the platform’s reward terms and security features are transparent. Next, connect a compatible, noncustodial crypto wallet to the DEX, ensuring you hold equivalent values of the two tokens you intend to provide. Finally, navigate to the exchange’s pool section, deposit your token pair, and receive liquidity provider (LP) tokens representing your share of the pool.

4. Crypto Airdrops

One of the simplest ways to earn potential passive income is by participating in crypto airdrops. A crypto airdrop is a promotional giveaway where a blockchain project sends free digital tokens directly to users’ crypto wallets. New projects typically use airdrops as a marketing strategy to raise brand awareness, reward early supporters, and distribute token ownership across a wide community.

While some airdrops only require a simple sign-up, others ask users to complete specific tasks beforehand. These tasks might include holding a particular cryptocurrency for a set period, trying out a new decentralized app, or engaging with the project on social media. Once these requirements are met, the new tokens are either deposited automatically into users’ wallets or made available to claim through the project’s platform.

Although receiving free tokens is appealing, airdrops also carry risks. Crypto scammers frequently set up fake airdrops to steal personal information or trick users into connecting their wallets, allowing bad actors to drain their funds. In addition, airdrops can trigger tax liabilities. In the U.S., airdropped tokens are treated as ordinary taxable income based on their market value when dominion and control over the asset is gained, per the IRS. Because newly launched tokens are highly volatile, their prices can plummet shortly after distribution, leaving recipients owing taxes on tokens that are now nearly worthless.

How to Get Started With Crypto Airdrops

You can find upcoming crypto airdrops by monitoring community channels, official social media accounts, and reputable crypto news sites. Always verify links through official sources before connecting your wallet to protect yourself against phishing scams, and carefully weigh the potential risks before participating. Once you qualify, follow the project’s official instructions to claim your tokens.

5. Crypto Mining and Cloud Mining

Crypto mining uses specialized computer hardware to validate transactions and secure PoW blockchain networks, earning newly minted coins in return.

However, rising competition has made block creation and reward collection increasingly difficult for individuals. Individual Bitcoin mining, for example, has become nearly impossible due to competition from large mining corporations. Still, it may be viable to mine smaller PoW cryptocurrencies with lower mining difficulty — meaning they require less computational power. Generally, mining difficulty increases as more miners join a network.

Traditional crypto mining requires technical expertise, significant time, and substantial upfront capital for hardware rigs. High electricity costs are another major factor. In addition, mining a single coin can take months or longer, with no guaranteed payout. While not for everyone, it can appeal to technically sophisticated users ready to put their crypto knowledge to work.

To boost their chances, many individuals join mining pools, which are often run by third parties. Participants combine their computing power to increase their odds of unlocking a coin, then split any rewards based on each miner’s contribution.

Alternatively, cloud mining offers a simpler way to gain exposure without managing physical hardware. Individuals rent computing (hashing) power from established data centers in exchange for a share of the mining payouts. However, cloud mining carries high risks, including the potential for zero payouts, financial losses, and a high prevalence of fraudulent contracts from scammers.

How to Get Started With Cloud Mining

If you’re interested in cloud mining, start by thoroughly researching potential cloud mining service providers and carefully calculate your operating expenses before committing capital. Verify company disclosures, check their service histories, and weigh expected maintenance fees against potential returns. Once you select a provider, create an account, choose a suitable mining contract, and link a secure wallet to receive potential payouts.

Comparing Crypto Passive Income Methods

The potential yield that may be generated from crypto passive income can vary substantially both across and within different models. Keep in mind that the net yield may be lower after fees and expenses and that losses are always a possibility with crypto.

Method	Potential yield range	Effort required	Main risk
Staking Locking proof-of-stake tokens to help validate a blockchain	~1.00–20.0% on major exchanges; potentially higher rates on smaller networks	Low Users simply delegate tokens once using an exchange, wallet, or liquid staking platform, and rewards accrue automatically.	Moderate Crypto price volatility may dwarf the potential yield, and participants may not be able to sell during a pricing downfall.
Crypto lending and earn accounts Supplying assets to a lending market or other earn model for APY	~0.01%–10.0% though potentially higher; can vary dramatically by cryptocurrency, CeFi vs DeFi type, and platform	Low Users deposit assets once, and an APY may accrue continuously.	High These are not bank deposits and lack FDIC, NCUA, or SIPC protection, exposing users to total loss if the platform fails or goes bankrupt.
Tokenized deposits Bank deposits issued on-chain	Typically applicable for institutional clients who may earn varying rates	Low Tokenized deposits are a hands-off passive income option; once your account is set up, any interest is credited automatically.	Low Tokenized deposits are generally secure when they remain within the bank’s network.
Providing liquidity to DEXs Depositing token pairs into a decentralized exchange liquidity pool	~3.00%–15.00% (can reach ~80.00% for high-risk pools). However, final returns depend on trading fees minus “impermanent loss,” which can easily wipe out your profits.	High Requires active management to track price divergences, monitor impermanent loss, and rebalance token ratios to manage risk	High High potential for impermanent loss, which can completely wipe out any fee income earned
Airdrops Free token distributions to early or active protocol users	Highly variable; frequently zero	Varies Ranges from a simple sign-up to active on-chain participation	High New tokens can crash quickly, leaving users with gas fee losses and potential tax bills on value they never realized.
Crypto mining Running mining rig for a share of proof-of-work validation rewards	Highly dependent on energy costs; can be unprofitable unless power rates are below $0.05/kWh	High Generally requires advanced technical skills to set up rigs, maintain hardware, and manage high power usage	High Large upfront hardware costs and high energy bills can lead to net financial losses, potentially worsened by coin price volatility

Risks to Understand Before You Start

Cryptocurrency is a high-risk asset class due to extreme price volatility, smart contract vulnerabilities, and limited regulatory oversight compared to traditional finance. While tokenized bank deposits are beginning to bridge this gap, crypto yield opportunities carry substantial risks that require careful evaluation before you commit capital.

The industry’s 2022–2023 market crash highlights these dangers. A wave of bankruptcies among prominent crypto lenders triggered intense U.S. regulatory scrutiny. Many platforms failed because they hid how they managed customer deposits or offered unregistered securities without standard consumer protections.

While crypto service models have since evolved to improve compliance, regulations are still changing, and passive income options remain highly risky. Key risks include:

•   Price volatility: Cryptocurrency pricing can be highly volatile, experiencing both rapid growth and losses over a relatively short period.

•   Platform insolvency: Crypto exchangesor lenders can go bankrupt, freezing and permanently losing user deposits.

•   Smart contract exploits: Decentralized protocols rely on automated code that may contain bugs or security vulnerabilities, potentially allowing hackers to drain funds from liquidity pools or wallets.

•   Slashing on staking networks: Proof-of-stake networks permanently destroy a portion of staked tokens if a validator goes offline or acts maliciously. This can impact crypto participants who delegate their crypto to a third-party validator.

•   Impermanent loss when providing liquidity: Significant price shifts in a liquidity pool can leave you with less total value than if you had simply held the tokens.

•   Inflation dilution: High yields paid in newly minted tokens can dilute the asset’s purchasing power if supply outpaces demand.

•   Risk of lockup periods: Mandatory waiting periods to unstake tokens can leave you trapped and unable to sell during a sudden market downturn.

•   Risk of stablecoin de-pegs: Stablecoins can lose their 1:1 peg to fiat currencies during severe market stress, potentially resulting in capital losses.

•   Fraud attempts: Fake airdrops, illegitimate cloud mining contracts, and phishing links remain highly prevalent threats.

Recommended: How to Report Crypto Scams and Seek Recovery

How to Choose the Right Crypto Passive Income Method for You

Choosing the best passive crypto income strategy depends on your experience, capital, risk tolerance, and technical comfort with blockchain networks. To help you navigate your options, here is how different methods might align with common user profiles:

•   Complete beginners: Some new crypto users choose options that are lower risk and less hands-on, while providing an opportunity to learn along the way. Centralized exchange staking or FDIC-insured cash earn accounts can minimize technical complexity by managing infrastructure on the user’s behalf.

•   Risk-averse participants: Users who want to avoid cryptocurrency price volatility sometimes focus on yield opportunities using stablecoins or tokenized deposits from traditional financial institutions. While stablecoins themselves do not inherently generate yield, holders can deposit them into third-party, yield-bearing accounts. However, this introduces counterparty risks.

•   Flexibility seekers: Crypto users seeking to avoid locking up their assets sometimes use liquid staking tokens (LSTs) to maintain token liquidity, or opt for exchange earn accounts that feature flexible, anytime-withdrawal terms.

•   DeFi enthusiasts: Participants who are comfortable with self-custody and have a high risk tolerance sometimes explore decentralized lending protocols and yield farming. This involves connecting a noncustodial wallet directly to their preferred DeFi platforms.

•   Long-term capital committers: Some users who are technically sophisticated and ready to invest significant time and capital set up native solo staking or run independent PoW mining operations. However, it’s important for them to weigh the high upfront hardware and electricity expenses against the actual potential for returns.

How Passive Crypto Income Is Taxed

In the U.S., cryptocurrency is taxed as property, generally creating a two-step tax obligation for passive income, according to the IRS. First, tokens earned from staking, mining, or airdrops are generally treated as ordinary income upon acquisition, based on the fair market value at the time you gain dominion and control over the asset.

Second, when you eventually sell, exchange, or spend those tokens, you trigger a capital gain or loss. This is calculated by comparing your final sale price to your original cost basis, which is the token’s price when you first received it.

Because of this two-tier structure, the asset is involved in two distinct tax events, but you do not pay taxes twice on the same dollar amount. You pay ordinary income tax on the initial token price when earned, and you pay capital gains tax only on the subsequent price increase if the token’s market price rises before you sell it.

Because crypto tax laws are complex and require meticulous record-keeping, you may want to consider consulting a tax professional to review your specific situation.

The Takeaway

There are a variety of avenues to explore when seeking crypto passive income opportunities — ranging from staking and lending to tokenized deposits. It’s crucial, however, to weigh the potential yields against inherent risks like price volatility, smart contract vulnerabilities, and platform insolvency. Choosing the right method depends on your risk tolerance, technical comfort, and overall goals, so always do thorough research and consider starting with lower-risk or more established options.

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FAQ

How much can you realistically earn from crypto passive income?

Potential earnings can vary widely based on the strategy, market conditions, and asset chosen. Yields can range from 1% to 5% annually for lower-risk options like tokenized deposits or stablecoin lending, or up to double-digit returns for higher-risk strategies like yield farming or staking volatile tokens. However, these earnings are not guaranteed and high yield opportunities often carry increased risk of price depreciation or loss.

What is the safest way to earn passive income with crypto?

Cryptocurrency is more broadly considered a higher-risk asset, which means losing money is always a risk. Lower-risk approaches generally involve lower counterparty and smart contract risk. Tokenized deposits and FDIC-insured cash accounts are among the lowest-risk methods, as they maintain traditional bank backing. Staking major, well-established proof-of-stake cryptocurrencies through noncustodial wallets or reputable centralized exchanges are often considered relatively safer than complex DeFi protocols, though market volatility remains a factor.

Can you lose money earning passive income with crypto?

Losing money is a major risk across most crypto yield strategies. Price drops in the underlying token can easily outpace any earned interest. Additionally, risks like platform insolvency, smart contract hacks, impermanent loss in liquidity pools, and network slashing can result in a partial or total loss of deposited capital.

How much crypto do you need to start?

Many crypto passive income methods allow you to start with very small amounts, sometimes as little as $1 to $10 on centralized exchanges or yield platforms, though deposits should be enough to cover fees. However, certain strategies — such as running an independent network validator — require substantial capital minimums.

How does crypto passive income compare to high-yield savings accounts?

Crypto passive income through staking or lending offers potentially higher yields but introduces extreme risk, including token price volatility, smart contract vulnerabilities, and regulatory shifts. Conversely, high-yield savings accounts generally provide lower but predictable returns. The fundamental distinction is security. High-yield savings accounts at insured banks are protected by FDIC insurance, eliminating risk to your principal (up to applicable limits), whereas crypto platforms offer no government-backed insurance or protections against devastating loss

Do you need a crypto wallet to start earning?

Not always. A number of centralized service providers offer custodial accounts that allow you to stake, lend, or move cryptocurrency directly from the account. In these cases, the provider holds the keys to the assets, used to manage ownership. However, interacting directly with decentralized finance (DeFi) protocols, liquid staking tools, or self-custodial staking requires a personal crypto wallet.

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Photo credit: iStock/Deklofenak

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.
This article is not intended to be legal advice. Please consult an attorney for advice.

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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.

Futures are contracts between two parties to buy or sell an underlying asset or security — such as commodities, currencies, or even stock indexes — at a specific price on a future date.

Starting in 2026, investors will be able to trade single-stock futures (SSF) contracts as well. Single-stock futures will be offered as standard and micro contracts.

The most commonly traded futures contracts use standardized terms, known as contract specs, which detail the underlying asset, the size of the contract (e.g., bushels of corn or barrels of oil), and the way in which price fluctuations are measured for that asset or commodity.

Every contract also includes an expiration date, by which the contract must be settled with a cash payment or physical delivery of the asset (unless the contract is traded beforehand). Futures contracts can enable traders and other market participants to speculate on market movements, or hedge against future price changes.

What Are Futures?

Futures are derivatives that take the form of a contract in which two traders agree to buy or sell an asset for a specified price on a future date via an online brokerage platform that supports futures trading, or a futures exchange.

Popular underlying assets may include physical commodities like gold, corn, or oil, as well as currencies, financial instruments like stocks, and more.

Futures contracts are priced based on models that factor in the spot price (i.e., the current market price), the risk-free rate of return, the cost of storing the asset (if applicable), and other factors like time to maturity, or the time before the contract expires.

Futures contracts must be settled on the expiration date, traded beforehand, or rolled over, which can contribute to volatility in contract values.

What Is Mark to Market?

An interesting aspect of the definition of futures contracts is that they are marked to market. This means that all open futures contracts are updated according to the price changes each day, with gains and losses credited or debited from the account.

This is in contrast to other assets, like stocks or options, where price changes aren’t settled until the asset is sold or the position is closed.

Futures Exchanges

The most commonly traded futures contracts use standardized terms, and are traded on a futures exchange. For example, if you want to buy or sell corn futures, one contract would equal 5,000 bushels and be traded via the Chicago Board of Trade (CBOT).

Oil is traded on the Chicago Mercantile Exchange (CME), and one oil futures contract equals 1,000 barrels of oil.

Traders buy and sell in increments specified by the contract. To buy 50,000 bushels of corn or 10,000 barrels of oil, you’d buy 10 contracts of each.

Given the quantities and dollar amounts of these trades, investors often use leverage, thereby paying only a fraction of the total cost of the open position.

What Are Micro Futures Contracts?

A micro futures contract is smaller than a standard contract for a given asset. In other words, the standardized amounts are reduced in micro futures contracts. For example, a standard oil contract, which represents 1,000 barrels of oil, might be 1/10th of that in a micro contract.

As such, micro contracts demand less capital to trade, which can be beneficial to retail investors who are learning the ropes of futures contracts.

How Do Futures Contracts Work?

Futures contracts work by obligating buyers and sellers to fulfill their end of the bargain no later than the expiration date.

Mechanics of a Futures Trade

A futures contract obliges the buyer to buy a certain asset, or the seller to sell an asset, at an agreed-upon price, on a certain date. Each party must fulfill the terms of the contract, no matter what the market price or spot price is when the contract expires (or trade the contract before the expiration date).

When trading futures, it’s important to know that these contracts are standardized according to each type of asset, as noted above. Each contract also spells out the contract terms, which includes:

•   The unit of the trade and how much one contract represents. As noted, one oil futures contract is worth 1,000 barrels of oil.

•   The grade or quality of the commodity, where relevant. For example, there are different types of corn, oil, soy, etc.

•   Terms of settlement (e.g., physical delivery or a cash settlement).

•   Expiration date.

•   Currency in which the contract is priced.

A futures contract allows investors to speculate on the direction of the underlying asset, either long or short, using leverage. (Leverage means the trader doesn’t have to put up the full amount of the contract. Instead, futures traders use a margin account.) As such, they’re a tool that allows investors to use leverage and speculation.

Recommended: How Does a Margin Account Work?

Types of Futures Contracts

There are numerous types of futures contracts, including those tied to underlying assets such as equities and various commodities.

Stocks, Commodities, and Currency Futures

Futures contracts allow investors to make bets on the prices of a wide array of assets:

•   Commodity futures, which allow investors to buy or sell physical goods like crude oil, pork bellies, natural gas, orange juice, corn, wheat, and more.

•   Financial futures, including stock index contracts and interest rate or debt contracts.

•   Precious metal futures allow investors to bet on the future prices of gold, platinum, and silver.

•   Currency futures for fiat currencies like the euro, yen, the British pound, and more.

•   U.S. Treasury futures allow investors to make bets on the future value of government bonds.

Single Stock Futures

What are stock futures? Like futures contracts where the underlying is a physical commodity, stock index futures are tied to the price movements of an index like the S&P 500 index or the Russell 2000.

Starting in 2026, the CME Group, the largest derivatives trading marketplace, will launch single-stock futures contracts (SSF). The CME Group manages well-known exchanges like Chicago Mercantile Exchange and the Chicago Board of Trade, among others.

Trading and Speculating with Futures

There are two key aspects to futures trading, which are hedging and speculating. Both play an important role in the markets, and determining whether futures are actually traded or not. There are also trading strategies to keep in mind, too.

There are many strategies for trading futures contracts, just as there are many strategies for trading almost any other type of security on the US stock market or derivative. Investors can consider price pullbacks, breakout trading, or even spread trading — each requires its own gameplan, and some background research to get started.

Hedging vs. Speculating

Hedging is a big reason why investors buy futures contracts: It’s a way to protect against losses resulting from price changes, especially in commodities.

Among the businesses that hedge using futures, the goal is to reduce the risk they face from unexpected price movements, and to guarantee the price they pay or receive for a particular asset.

If a large food manufacturer wants to lock in the price of corn, for example, they might enter into a contract for $10 a bushel. Since corn contracts are typically standardized at 5,000 bushels per contract, the total amount of the futures contract would be $50,000 ($10 x 5,000), to be delivered in six months.

Entering into this futures contract would offer the buyer some protection against the possibility of rising corn prices in the future.

Let’s say the price of corn does rise to $12 a bushel by the time the contract expires. In that case, the buyer still only pays the agreed-upon price of $10 per bushel, even though the spot price is now $12 a bushel.

For the corn producer in this scenario, even though it turned out that the futures contract terms weren’t quite as favorable as the actual market price — the contract guaranteed they would get at least $10 per bushel, which provided a hedge against a potentially bigger loss.

The Use of Speculation

Although it’s possible to settle a futures contract for the physical asset specified in the contract, most futures contracts are cash-settled. That’s because speculation on price movements is one of the main reasons that investors purchase futures contracts. A futures contract gives traders the opportunity to speculate whether a commodity will go up or down and potentially profit from the price change.

If the underlying asset of the futures contract — such as gold, oil, or corn — is above the price specified in the futures contract, then the investor can sell that contract for a profit before it expires. In that case, the contract would sell for the difference between the market price of the underlying commodity and the purchase price as specified in the contract.

In such a transaction, the underlying commodities don’t change hands between the counterparties of the contract. Instead, the trade would be cash-settled in the brokerage account of the investor.

Alternatively, an investor using futures for speculation could lose money if the price of the commodity is lower than the purchase price specified in the futures contract.

Recommended: Stock Market Basics for Beginners

Risks and Benefits of Trading Futures

Futures trading has some significant risks and potential rewards.

The Risks of Futures Trading

Owing to the nature of futures trading, i.e., the binding nature of the contracts and the use of leverage, there are some obvious risks to bear in mind.

In a speculative trade, a futures contract allows you to bet on a commodity’s price movement. If you bought a futures contract, and at expiration the price of the commodity was trading above the original contract price, you’d see a profit. However, you could also lose if the commodity’s price was lower than the purchase price specified in the futures contract.

The potential risks here can be greater than they seem, because margin trading permits a much larger position than the actual amount held by the brokerage. As a result, margin investing can amplify gains, but it can also magnify losses.

Imagine a trader who has $5,000 in their brokerage account and is in a trade for a $50,000 position in crude oil. If the price of oil moves against the trade, the losses could far exceed the account’s $5,000 initial margin amount. In this case, the broker would make a margin call requiring additional funds to be deposited to cover the market losses.

Speculators can also take a short position, as in shorting a stock, if they believe the price of the underlying asset will decline. An investor would realize a gain if the underlying asset’s price was below the contract price, and a loss if the current price was above the contract price.

Again, using leverage or margin to place these bets, long or short, can potentially expose investors to more risk than they intended.

The Benefits of Trading Futures

Some of the potential benefits of trading futures include the fact that investors can use leverage to try and generate outsized returns, the markets are liquid (meaning there’s plenty of trading action) and it offers up a chance to make some relatively quick (and potentially large) returns. That should, of course, be weighed against the risks.

Futures vs Options: What’s the Difference?

There are other financial derivatives with similar characteristics to futures contracts, such as options contracts.

American-style options grant the buyer the right, but not the obligation, to buy or sell the contract’s underlying asset at any time until the contract expires.

Unlike a futures contract, however, trading options doesn’t require the options buyer to purchase or sell the underlying asset. The options buyer can simply let the option expire, losing only the premium.

However, the option seller (or writer), has the obligation to buy or sell the underlying asset at the strike price (the contract price), if the options holder chooses to exercise their contract.

A futures contract, on the other hand, obligates the buyer to purchase the underlying asset, or to pay the seller of the futures contract the cash equivalent of that asset at the time of the contract’s expiration. Likewise, the seller of the asset must fulfill their end of the contract.

The Takeaway

Most investors in futures contracts have no interest in either receiving or having to deliver the physical commodities that underlie these contracts. Rather, they’re interested in the cash profit. The means of doing so is to trade the futures contract before its expiration date.

The standardized nature of most futures makes it so many (but not all) futures contracts will expire on the third Friday of each month. Some commodities are seasonal, and only trade during specific months. High-grade corn trades on the CBOT in March, May, July, September, and December, for example.

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

Get one of the most competitive margin loan rates with SoFi, from 5.00% to 9.75%*

FAQ

What is the main purpose of a futures contract?

Futures contracts enable buyers and sellers to set a price for a certain amount of an asset now, to be paid for (and/or delivered) in the future. These contracts help businesses and producers hedge against price risk, and enable some traders to bet on price fluctuations.

Do you have to buy the asset when a futures contract expires?

The buyer has to pay the agreed-upon price for the underlying asset, no matter what the spot price (or market price) is at the time, or trade the contract before the expiration date.

Are futures contracts safe for beginners?

Futures contracts trading is a high-risk and complex endeavor. Beginners may do better to explore other investing strategies before attempting to trade futures.

How much money do you need to trade futures?

Trading futures can be volatile, and the risk of loss is high when using leverage. To protect yourself from potential losses, it’s important to know the minimum account and margin requirements at your brokerage, as well as other factors.

Can you trade futures on regular stocks?

Starting in 2026, there are plans to launch single stock futures (SSFs) for trading. Each standard contract will represent 100 shares of the underlying stock; micro contracts may also be available. Single stock futures will be cash-settled, as there is no physical delivery of stock assets.

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Photo credit: iStock/hopeist

This content is for educational and informational purposes only. The products, services, or features discussed may not currently be available via the SoFi platform. Any references to third-party products, services, or companies do not constitute an endorsement, recommendation, or solicitation by SoFi. Readers should independently evaluate their options and consider their individual financial needs and circumstances before making any decisions. ©2026 SoFi Technologies, Inc. All rights reserved.
Before investing, carefully consider the investment objectives, risks, charges, and expenses detailed in a Fund’s prospectus. This document contains important information and must be read carefully prior to investing; you can find the current prospectus by clicking the link on the Fund’s respective page.
Alternative investments are highly risky and may not be suitable for all investors. These investments often involve leveraging, speculative practices, and the potential for complete loss of investment. They typically charge high fees, lack diversification, and can be highly illiquid and volatile. Be aware that both registered and unregistered alternative investments, including Interval Funds, are not subject to the same regulatory requirements as mutual funds, and their illiquid nature may restrict your ability to trade on your timeline. Always review the specific fee schedule for Interval Funds within their prospectus.
Options involve substantial risk of loss and the possibility an investor may lose the entire amount invested. Before starting options trading, investors should be familiar with the Characteristics and Risks of Standardized Options . TTax implications with options should be considered. Consult your tax advisor to understand any impacts to your taxes.

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