Nov
19
2025
How to Sell Options for Premium

How to Sell Options for Premium

By | Growing Wealth, invest, Investing | Comments Off on How to Sell Options for Premium

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

Options traders may sell (or write) options with the hope of profiting from the premium they receive in return. Options premiums are the fee that options buyers (or holders) pay to purchase an options contract, giving them the option — though not the obligation — to buy or sell an asset at a specific price by a set date.

Unlike options holders, option writers are obligated to fulfill the terms of an options contract in exchange for the premium they receive, which could expose them to the risk of seeing substantial losses, well beyond losing the premium they receive.

While option writing has the potential to generate profits, it’s an advanced investment strategy typically used by traders experienced with risk management techniques.

Key Points

•   Selling options generates income via writing call or put contracts, collecting upfront payments.

•   Factors affecting option premiums include stock price, time value, and implied volatility.

•   Potential losses if the option is exercised represent a significant risk.

•   Retaining premiums and assets is a benefit if options are not exercised.

•   Financial advice is crucial before trading options due to their complexity and risk.

What Is An Option Premium?

An option premium is the price an option buyer pays to purchase a contract based on its upfront market cost. A seller, conversely, receives the premium upfront as compensation. In other words, it is the current market price of an option contract, and the amount the seller receives when someone purchases the contract.

When investors buy options contracts, they are purchasing a derivative instrument that gives them the right to trade the underlying asset represented by the contract at a specific price within a predetermined period of time. The premium is paid to the option writer at the time of sale, regardless of whether the buyer exercises the option.

The premium amount depends on how much time there is left until the option contract expires, the price of the underlying asset, and how volatile or risky it is.

Recommended: How To Trade Options: A Guide for Beginners

What Is Selling Options Premium?

Many investors may be familiar with the concept of purchasing an option contract, but on the other side of the market are the sellers who generate income through the premiums they receive from buyers.

Selling options is an options trading strategy in which an investor sells a buyer the right to purchase or sell an asset (typically a stock) at a predetermined price by the option’s expiration date. The premium is collected upfront as payment for the seller taking on the risk that the price of the underlying asset may move in the buyer’s favor during the contract’s term. The premium is not refundable.

If the option expires worthless, and the buyer isn’t able to exercise their right to buy or sell the underlying asset, the seller gets to keep the premium as profit, as well as retain ownership of the underlying asset (in the case of call options).

However, if the option ends up “in the money” for the buyer, the seller could incur a loss, since they’ll have to sell the stock for less than (or buy it for more than) its market price.

How Is an Options Premium Calculated?

The main factors that affect an option contract price are its intrinsic value, as determined by the stock price and strike price, implied volatility, and time value. Options sellers receive premiums upfront when a buyer purchases a call or a put option.

When an option buyer looks at options contract prices, they receive a per share quote, but each contract typically represents 100 shares of the underlying stock. Buyers will decide to either buy call or put options, depending on how they expect the stock’s price to perform in the future.

For example, a buyer could decide to purchase a call option. The seller offers it to them for a $4 premium. If the buyer purchases one contract, which represents 100 shares of that stock, they would pay $400 for it. If the buyer never executes the contract (because the price of the stock doesn’t move in their favor before the contract expires), the seller may keep the full $400 premium as compensation.

Stock Price

If an option buyer purchases a call option, they are hoping the underlying stock price increases, whereas if they buy a put option they hope it decreases. When the stock price goes up, the call option premium tends to increase and the put option premium tends to decrease. When the stock price falls, the call premium decreases and the put premium increases.

Recommended: What Makes Stock Prices Go Up or Down?

Intrinsic Value

The intrinsic value of an option is the difference between the current underlying stock price and the option’s strike price. This difference is referred to as the “moneyness” of the option, where the intrinsic value of the option is a measure of how far in the money the option is.

If the price of the underlying asset is higher than the option’s strike price, a call option is in the money, making it worth more and priced higher. If the stock price is lower than the option’s strike price, this makes a put option in the money and worth more. If an option is out of the money, it has no intrinsic value.

Time Value

Time value is the portion of the option’s premium that exceeds its intrinsic value due to time remaining before expiration. If the option has a longer timeframe left until its expiration date, it has more time to potentially move beyond the strike price and into the money. That makes it more valuable because it gives the investor more time to exercise their right to trade for a potential gain. The decrease in time value over time is called time decay.

The closer the option gets to expiring, the more rapidly time value erodes (and time decay increases). The value of the options contract declines over time due to time decay, which can be a risk for buyers. Options buyers want the stock to move enough, and soon enough to increase the option’s value before time decay reduces it. On the other hand, options sellers want the premium to decrease, which happens with every day that goes by.

Time value, sometimes referred to as extrinsic value, is calculated by subtracting intrinsic value from the option’s premium.

Implied Volatility

High premium options often reflect securities with higher volatility. If there is a high level of implied volatility, it suggests the underlying asset may experience larger price swings in the future, making the option more expensive.

A low level of implied volatility can make the option premium lower. It may benefit buyers to consider options with steady or increasing volatility, because this can increase the chance of the option reaching the desired strike price. Those who are selling options may prefer lower volatility because it may reduce the risk of large price swings, and could create an opportunity to buy back the option at a reduced price.

Other Factors

Other factors that influence option premium prices include:

•   Current interest rates

•   Overall market conditions

•   The quality of the underlying asset

•   Any dividend rate associated with the underlying asset

•   The supply and demand for options associated with the underlying asset

Options Premiums and the Greeks

Certain Greek words are associated with types of risks involved in options trading. Traders can look at each type of risk to figure out which options they may consider trading, and how those trades might respond to factors like price changes, volatility, or time decay.

•   Delta: The sensitivity of an option price to changes in the underlying asset

•   Gamma: The expected rate of change in an option’s delta for each point of movement of the underlying asset

•   Theta: The rate at which an option’s price decays over time

•   Vega: A measure of the amount the option’s price may change for each 1% change in implied volatility

•   Rho: The expected change in an option’s price for a one percentage point change in the risk-free interest rate

The Takeaway

Options are one type of derivatives that give the buyer the right, but not the obligation, to buy or sell an asset. To sell options for a premium, options writers must consider several factors that could influence the option’s premium value. Selling options for premium is potentially a strategy that may allow sellers to generate income. However, given that option writing has the potential to result in substantial losses, it should only be undertaken by experienced traders.

While investors are not able to sell options on SoFi’s options trading platform at this time, they can buy call and put options to try to benefit from stock movements or manage risk.

FAQ

How do you sell options to collect premium?

To sell options to collect premium, a trader writes call or put contracts and receives payment upfront from the buyer. This strategy involves agreeing to buy or sell a stock if the buyer exercises the option by expiration. Common strategies include covered calls and cash-secured puts.

What happens to the premium when you sell an option?

When an option is sold, the premium is paid upfront to the seller. If the seller holds the position to expiration and the contract is not exercised, they may keep the full amount. But if they close the position early by buying it back, the final result depends on the repurchase price.

What is the premium when you sell an option?

The premium when selling options is the amount a buyer pays for the contract. It compensates the seller for taking on the obligation to buy or sell the underlying asset if the option is exercised.

How is the premium of an option determined?

An option’s premium is based on intrinsic value, time value, implied volatility, and the price of the underlying stock. The final premium reflects current market expectations of risk and time until expiration.

Photo credit: iStock/sefa ozel

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

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

SOIN-Q325-012

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Nov
13
2025
Two men and a girl on a couch with a laptop, possibly discussing the difference between will and estate planning.

The Difference Between Will and Estate Planning

By | Insurance, Life & Career, money | Comments Off on The Difference Between Will and Estate Planning

Estate planning and creating a will both involve an uncomfortable topic – thinking about what will happen to your money when you die – but they are separate concepts. Broadly speaking, a will is a specific legal document stipulating exactly how your assets will be distributed on your death and who will care for any dependents. Creating that document is what you may hear referred to as will planning.

Estate planning, on the other hand, is an umbrella term that covers all aspects of end of life documentation and decision making, which can include a will. Estate planning also allows you to say how you want your assets divided after your death and can help you transfer those assets in the most tax-advantageous way possible for your loved ones.

Estate planning documents, including power of attorney and living will forms, are often created as part of the estate planning process. These help ensure that your wishes are followed, even if you are medically incapacitated. (You can also access these as part of will planning; we’ll cover that in a minute.)

Creating a will and estate planning may sound complicated, but in some cases, they can be done relatively quickly, often using online templates. In other cases, it may be advisable to have an attorney manage the process.

Key Points

•   A will outlines asset distribution and guardianship for minors and pets.

•   Estate planning encompasses broader end-of-life decisions, including tax strategies.

•   Wills and estate plans can be created online or with legal assistance.

•   Trusts help minimize probate and control asset distribution effectively.

•   Revocable living trusts offer flexibility and control over assets.

What Is Will Planning?

Writing a will usually refers to a very specific task: A will details where you want your assets to go at your death, and who you would like to serve as guardian of your minor children. If you have pets, it may also spell out who will care for them and how. Additionally, a will names an executor. This is the person you are putting in charge of distributing your assets to the right individuals or charities.

In most cases, you’ll be creating what is called a testamentary will, which is signed in the presence of witnesses. This is often considered a good way to protect your decision against challenges from family members and/or business colleagues after you’re gone. While you can write this kind of will yourself, you may want to have it prepared by an attorney who specializes in trusts and estates, to ensure that it complies with your state’s laws. Or look for an online business that customizes its work to your location.

When you are creating a will, you may look into preparing other related documents that are usually part of estate planning. For example, you may be able to add a power of attorney form and a medical directive or living will.

Fast, Secure, and Easy Estate Planning.

Create a complete and customized estate plan online in as little as 15 minutes.

Together, these documents spell out who can handle matters on your behalf if you were to come mentally or physically incapacitated. If you aren’t planning on pursuing estate planning, these are important documents to complete when creating your will. (Even young people have sudden illnesses and accidents, so these forms are an important part of adulthood.)

Many online will templates provide for these additional documents, so that your bases are covered if the worst were to happen. Creating a legal will can cost anywhere from $0 to hundreds or thousands of dollars, depending on whether you do it yourself or if you work with an attorney.

Recommended: How Much Does Estate Planning Cost?

Even if you die with a will in place, it’s likely that the document will go through probate — the legal process in which an executor to the will is formally named and assets are distributed to the beneficiaries you have named in your will. Yes, there are nightmare stories about the probate process, but don’t get too stressed about it. In general, if an executor (an individual appointed to administer the last will and testament of a deceased person) is named in your will and your will is legally valid, the probate process can be relatively streamlined.

Recommended: What Happens If You Die Without a Will?

What Is Estate Planning?

Estate planning can be the umbrella term for all end-of-life decision making, but it’s more often used to describe your plan for how you want your property divided when you die and the financial implications of those decisions. It can involve creating the following:

•   Will/trusts to smooth the transfer of assets/property

•   Durable and healthcare power of attorney

•   Beneficiary designations

•   Guardianship designations

Estate planning aims to make sure that your loved ones receive the maximum proceeds possible from your estate.

Often, estate planning is done with the oversight of an attorney, who can provide strategies for how to minimize tax burdens for your beneficiaries when you die.

Recommended: What Is Estate Planning? A Comprehensive Guide

Who Needs an Estate Plan?

When people talk about estate planning, they may be referring to the decision to create a trust. Trusts can be especially beneficial for high-net-worth individuals who may be worried about tax implications of their heirs inheriting their belongings. But they also have a role in less wealthy families. If your clan has a beloved lake house that you want to stay in the family, for future generations, a trust might be a possibility to investigate.

Recommended: New Parent Estate Planning

These arrangements allow a third party, or trustee, to hold assets on behalf of a beneficiary or beneficiaries and can help avoid the time-consuming process of probate. Trusts may also be beneficial for people who have dependents in their care, as well as those who may worry about how their beneficiaries will spend the money bequeathed to them.

There are two other scenarios in which a trust can be very helpful:

•   People with a pet who have a specific plan of how they wish the pet to be cared for after their death. (Pets can’t own property, so leaving money to pets in a will can cause a legal headache. This can be sidestepped by creating a trust for Fluffy’s care.)

•   Those who want to minimize ambiguity in who gets what, which could be helpful in the case of people who have had multiple marriages.

The most common type of trust within an estate plan is called a revocable living trust. This may also be called a living trust because, while you are alive, you can name yourself a trustee and have flexibility to make changes. These can often be created online, although an attorney can certainly be involved, guiding the process and answering any questions.

In setting up a trust, you will name a trustee. This is a person in charge of overseeing the trust according to the parameters you state. Unlike a will, where an executor will ensure beneficiaries get the property stated, a trust allows the creator to put guardrails around gifts — and for the trustee to ensure the guardrails are followed.

For example, you can specify in a trust that certain assets do not go to a beneficiary until they reach a certain age or milestone.

Recommended: Do I Need a Trust?

Taking the Next Step in Will Writing and Estate Planning

There’s a lot of overlap between “creating a will” and “creating an estate plan,” and that ambiguity can lead to difficulty beginning the process. But creating a legal will, including guardianship documents for minor children, can be a good first step. Also, make sure you have power of attorney forms in place and any advanced directives. These can guide decision-making on your behalf if you were ever mentally or physically incapacitated.

Then, you can have peace of mind and can “ladder up” to creating a more complex plan that encompasses more what-ifs. Estate planning, with the possibility of trusts and transfers, can complete your end-of-life planning.

The Takeaway

Creating a will and an estate plan are two different ways to address your end of life wishes. A will is a document that says who inherits what and how you want minors, dependents, and even pets cared for. It may have additional documents that spell out your wishes if you become incapacitated.

An estate plan, however, is a more comprehensive way to spell out the allocation of your assets after you die. It typically includes finding ways to make the process run more smoothly, quickly, and with lower tax payments for your beneficiaries. Starting the process now, whether with online templates or by consulting with an attorney, is important. While no one likes to think about worst-case scenarios, the sooner you get the paperwork done, the better protected your loved ones will be.

When you want to make things easier on your loved ones in the future, SoFi can help. We partnered with Trust & Will, the leading online estate planning platform, to give our members 20% off their trust, will, or guardianship. The forms are fast, secure, and easy to use.

Create a complete and customized estate plan in as little as 15 minutes.

Photo credit: iStock/AnnaStills

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.

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

SOPRO-Q425-024

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Nov
11
2025
A man and woman sit at an office desk, looking at a screen that displays the initial margin in a margin account.

What Is Initial Margin? Examples and Minimums

By | Growing Wealth, invest, Investing | Comments Off on What Is Initial Margin? Examples and Minimums

Margin is a form of leverage, and initial margin is the amount of cash and/or collateral a qualified investor must deposit in a margin account in order to open a leveraged trade. Initial margin is generally expressed as a percentage.

For example, the Federal Reserve’s Regulation T requires a minimum 50% initial margin deposit for trading stocks on margin. Thus a $7,500 initial margin would be required to open a $15,000 position.

Different securities, such as futures contracts and forex (foreign currency) trades, may have different initial margin requirements. Trading on margin isn’t possible for most retail investors with cash accounts; only qualified investors may open a margin account.

Key Points

•   Initial margin is the amount of cash or collateral an investor must deposit in a margin account to open a leveraged trade, typically expressed as a percentage.

•   Initial margin is calculated by multiplying the investment amount by the initial margin requirement percentage.

•   Regulation T requires a minimum 50% initial margin for trading stocks, though all margin rules can vary depending on the security and the brokerage.

•   Trading on margin carries risks, as borrowed funds must be repaid with interest regardless of trade outcomes, potentially leading to greater losses.

•   Maintenance margin is the minimum amount an investor must keep in their margin account after purchasing securities on margin, with a FINRA-set minimum of 25%.

Using Initial Margin

Qualified investors who want to open a margin account at a brokerage must first deposit the required minimum initial margin amount. They can make that deposit in the form of cash, securities, or other collateral, and the initial margin amount will depend on the securities they’re trading, and whether the brokerage firm has any specific requirements of its own. Note that standard cash trading accounts are not available for margin trading.

Once the investor makes that initial margin deposit as collateral, they can begin margin trading. Margin allows the investor to buy securities with money borrowed from the brokerage, i.e., leverage.

As noted, Regulation T has a 50% minimum initial margin requirement. However, brokerage firms offering margin accounts can set their initial margin requirement higher than 50% based on the markets, their clients, and their own business considerations. But brokerages cannot set the initial margin for their clients any lower than 50%. The level that a brokerage sets for margin is known as the “house requirement.”

Risks of Margin Trading

Trading on margin brings its own unique set of opportunities and risks because margin debt must be repaid, with interest, regardless of the outcome of the trade. Trading on margin can lead to outsized profits if investors buy appreciating stocks. But if an investor’s trade moves in the wrong direction, they can lose even more than if they’d purchased the securities outright because the borrowed funds must be repaid, with interest.

In the unfortunate situation where the securities purchased on margin lose all value, the investor must deposit the full purchase price of the securities to cover the loss. Given these risks, you’re typically not able to trade on margin when investing online in a cash account or in retirement accounts such as an IRA or a 401(k).

Sometimes investors use margin to short a stock, or bet that it will lose value. In that instance, they’d borrow shares from the brokerage firm that holds a position in the stock and sell them to another investor. If the share price goes down, the investor can purchase them back at a lower price.

In general, investors looking for safer investments might want to avoid margin trading, due to their inherent risk. Investors with a higher tolerance for risk, however, might appreciate the ability to generate outsize returns.

How Do You Calculate Initial Margin?

An investor who wants to trade in a margin account, must first determine how much to deposit as an initial margin. While that will depend on how much the investor wants to trade, and how big a role margin will play in their strategy, there are some guidelines.

The New York Stock Exchange and some of the other securities exchanges require that investors have at least $2,000 in their accounts. For day traders, the minimum initial margin is $25,000 (although a proposed FINRA rule change in 2025 may eliminate that requirement, pending SEC approval).

Each brokerage has its own set of requirements for trading stocks on margin in terms of the amount clients need to keep as collateral, and the minimum size of the account necessary to trade on margin.

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Initial Margin Requirement Examples

It’s possible, for example, that a brokerage firm might require 65% initial margin. The initial margin calculation simply requires the investor to multiply the investment amount by the initial margin requirement percentage. For an investor who wants to buy $20,000 of a given security, they will take that purchase price, multiply it by the margin requirement is 65% or 0.65 – to arrive at an initial margin requirement of $13,000.

The advantage for the investor is that they get $20,000 of exposure to that stock for only $13,000. In a scenario where the investor is buying a stock at a 50% margin, that investor can buy twice as many shares as they could if they bought them outright. That can double their return if the stock goes up. But if the stock drops, that investor could lose twice as much money.

If the price falls far enough, the investor could get a margin call from their broker. That means that they must deposit additional funds. Otherwise, the broker will sell the stock in their account to cover the borrowed money.

Initial Margin vs Maintenance Margin

For investors who buy securities on margin, the initial margin is an important number to know when starting out. But once the investor has opened a margin account at their brokerage, it’s important to know the maintenance margin as well.

The maintenance margin is the minimum amount of money that an investor has to keep in their margin account after they’ve purchased securities on margin.

Currently, the minimum maintenance margin, as set by the Financial Industry Regulatory Authority (FINRA,) is 25% of the total value of the margin account. As with the initial margin requirements, however, 25% is only the minimum that the investor must have deposited in a margin account. The reality is that brokerage firms can – and often do – require that investors in margin accounts maintain a margin of between 30% to 40% of the total value of the account.

Some brokerage firms refer to the maintenance margin by other terms, including a minimum maintenance or a maintenance requirement. The initial margin on futures contracts may be significantly lower.

Maintenance Margin Example

As an example of a maintenance margin, an investor with $10,000 of securities in a margin account with a 25% maintenance margin must maintain at least $2,500 in the account. But if the value of their investment goes up to $15,000, the investor has to keep pace by raising the amount of money in their margin account to reach the maintenance margin, which rises to $3,750.

Maintenance Margin Calls

If the value of the investor’s margin account falls below the maintenance margin, then they can face a margin call, or else the brokerage will sell the securities in the account to cover the difference between what’s in their account and the maintenance margin.

With a maintenance margin, the investor could also face a margin call if the investment goes up in value. That’s because as the investment goes up, the percentage of margin in relation by comparison goes down.

The Takeaway

Initial margin requirements and maintenance margins are just two considerations for investors who are looking to trade on margin. They allow investors to understand how much cash they need to hand on hand in order to trade on margin — and when they might be susceptible to a margin call.

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, 10.50%*

FAQ

What is an example of initial margin?

If the initial margin in an account is 50%, and an investor wants to purchase $20,000 of a given security, they will need to deposit $10,000 of initial margin.

Is initial margin refundable?

Not exactly. Margin acts as a deposit on a leveraged position. Once the trade is complete, barring any losses, the investor may recoup their initial margin deposit.

Why is initial margin important?

Initial margin is important because it acts as collateral to cover a loss in the event that the investor loses money while trading on margin. The initial margin can help the lender – or brokerage – recoup some of those losses.

Why is initial margin paid?

Initial margin acts as a deposit or a form of collateral to establish good faith between a an investor and their brokerage.

Who sets the initial margin requirement?

Initial margin requirements are established by the Federal Reserve’s Regulation T. But there can also be other requirements put in place by an individual brokerage, and FINRA’s additional margin rules can also influence the amount.

Does initial margin have to be cash?

Generally, initial margin needs to be in the form of cash deposits, but it’s possible that some brokerages will allow it to take the form of other securities, or cash plus securities.

Is initial margin a cost?

Initial margin is not a cost per se, but a form of collateral. As such, it’s not a typical “cost,” though if a trade goes south the initial margin may be used to cover any losses.

Photo credit: iStock/FG Trade

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest is a trade name used by SoFi Wealth LLC and SoFi Securities LLC offering investment products and services. Robo investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser. Brokerage and self-directed investing products offered through SoFi Securities LLC, Member FINRA/SIPC.

For disclosures on SoFi Invest platforms visit SoFi.com/legal. For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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

Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.

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

This article is not intended to be legal advice. Please consult an attorney for advice.

SOIN-Q425-011

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Nov
07
2025
A person stacking coins into four increasing piles while using a calculator in the background, likely a net worth calculator.

Net Worth Calculator by Age Table with Examples

By | Growing Wealth, money, Tools & Calculators | Comments Off on Net Worth Calculator by Age Table with Examples

When it comes to your money, the more you know, the better equipped you are to make informed financial decisions. One piece of your overall financial picture that you may want to understand is how much you’re “worth.” This information can help you understand where you are with your finances now and what you need to do to reach your goals for the future.

Before we look at a net worth growth calculator table that shows you how you compare against other people your age, let’s dive a bit deeper into what net worth is and why it’s important.

Key Points

•   A net worth calculator helps determine your financial health by calculating your assets and liabilities.

•   It provides insights into your overall financial picture and helps track progress over time.

•   Factors such as age, income, and debt impact your net worth.

•   Regularly updating and reviewing your net worth can help with financial planning and goal setting.

•   Use the calculator to assess your financial situation and make informed decisions about saving and investing.

What Is Net Worth?

Net worth is simply a total of all your assets minus any debts you have.

Those assets can include cash, real estate, intellectual property, and other items like jewelry, stocks, insurance policies, and bonds. The cash may come from a job you have or from unearned income, such as your Social Security payment

Having multiple assets does not necessarily mean you have a high net worth, particularly if you also carry significant debt. For example, you may have a million-dollar mansion, but if you have debts of $500,000, your net worth dwindles rapidly.


💡 Quick Tip: When you have questions about what you can and can’t afford, a spending tracker app can show you the answer. With no guilt trip or hourly fee.

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How Does a Net Worth Calculator Work?

There are many personal net worth calculators available online, though you don’t need one to calculate your net worth. Just take the total amount of all your assets and subtract the total amount of your liabilities:

Net Worth = Assets – Liabilities

Some calculators will also factor in future growth so you can understand what your net worth will be in the future, as the value of your assets grows.

Recommended: What Is Disposable Income?

How to Calculate for Net Worth

As you can see, it’s fairly easy to calculate your net worth, though it may take time to gather the values of all your assets, such as the current value of a piece of high-end jewelry. But once you do, you can add up all your assets and then subtract your liabilities to calculate your net worth.

What Is the Average American Net Worth?

Knowing your own net worth is one thing, but where does it stand against other people in your age bracket? Generally, people see an increase in their net worth the older they get, and it can be helpful to use a net worth percentile calculator by age to see where you stand.

Here’s the average net worth by different age groups, according to the most recent data available from the Federal Reserve.

Age Average Net Worth Median Net Worth
Under 35 $183,380 $39,040
35-44 $548,070 $135,300
45-54 $971,270 $246,700
55-64 $1,564,070 $364,270
65-74 $1,780,720 $410,000
75+ $1,620,100 $334,700

Source: Federal Reserve’s 2022 Survey of Consumer Finances

Why Is Net Worth Important?

Calculating your net worth is smart because it can help you understand where you’re strong financially (maybe you have little debt) and where you’re weak (maybe you’ve overextended your credit to buy your home).

It may also help you make plans for the future. For example, if your net worth is high, you might explore strategies for reducing taxable income, such as contributing more to a tax-deductible retirement account. And if your net worth isn’t where you’d like it, you can take steps to improve it.

💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.

How to Increase Your Net Worth

If you’ve used a liquid net worth calculator, or compared your net worth to the table above and don’t feel like your numbers are as high as you’d like them to be, you can do a few things to increase your net worth.

If your debt levels are high, you can increase your net worth by decreasing that debt. Get a plan for paying off credit cards, student loans, car loans, and home mortgages. Consider increasing the amount you pay on each slightly to shorten your repayment period and decrease the amount of interest you pay on these loans and credit cards.

Creating a budget is one way to keep tabs on your finances as you’re paying off debt. A money tracker app can help make the job easier.

If you don’t have an abnormally high amount of debt but want to increase your assets, you might explore making more money. If you’re still in the workforce and have the ability to make a career change, you might consider cultivating potential high-income skills that could help you command a higher salary.

If you’re retired, you could take on part-time flexible work.

Recommended: Smart Financial Strategies to Reach Your Goals

The Takeaway

You may not be able to match the likes of Jay-Z and Beyoncé when it comes to net worth, but knowing yours can help you make smart financial decisions for the future. To figure out your net worth, you can subtract the total amount of your liabilities from the total amount of your assets. You can also use a personal net worth calculator; some will even factor in future growth.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

How do I calculate your net worth?

Net worth can be calculated by subtracting all your liabilities from your assets. In other words, subtract everything you owe (debts, loans, credit card debts) from everything you have (cash, property, real estate, jewelry, stocks).

What is a good net worth by age?

A “good” net worth depends on your financial goals and age. For example, the average net worth for 35-44 year-olds is $548,070. Yours may be higher or lower than this.

What net worth is considered rich?

According to a 2025 survey conducted by Charles Schwab, Americans need an average net worth of at least $2.3 million to feel wealthy. However, that amount varies based on where you live.

Photo credit: iStock/Kanatip Chulsomlee

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This content is provided for informational and educational purposes only and should not be construed as financial advice.

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

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

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.

Third Party Trademarks: Certified Financial Planner Board of Standards Center for Financial Planning, Inc. owns and licenses the certification marks CFP®, CERTIFIED FINANCIAL PLANNER®

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01
2025
Three white dollar-sign symbols, drawn in chalk, are set against a blue background.

Guide to Liquid Certificates of Deposit (CDs)

By | Family Finances, Investing, money | Comments Off on Guide to Liquid Certificates of Deposit (CDs)

If you’re in search of a low-risk way to grow your money, a liquid certificate of deposit (CD) might be worth a closer look. A liquid CD gives you a fixed, guaranteed rate of interest for a specific term, but unlike standard CDs, you don’t pay a penalty if you withdraw the funds before the maturity date.

Granted, the returns you earn on a liquid CD may not compete with stock market investments, but knowing that your money is earning interest and likely won’t incur any losses can be powerful benefits.

Key Points

•   Liquid CDs allow for flexible withdrawals without penalties.

•   They offer guaranteed, fixed interest rates, generally lower than traditional CDs.

•   Liquid CDs are safe, insured investments up to $250,000.

•   Withdrawal rules can vary, impacting flexibility.

•   Earnings from liquid CDs are federally taxable.

🛈 SoFi does not currently offer certificates of deposit.

What Is a Liquid Certificate of Deposit?

Before you think about investing in a CD, here’s a look at definitions:

•   A certificate of deposit, or CD, is a savings vehicle that usually gives you a bit of interest with virtually no risk, provided you keep the money in place for a certain term. If, however, you withdraw funds before the CD matures (or reaches the end of its term), you are usually penalized. You will likely lose some or all of the interest earned and perhaps even a bit of the principal. In other words, are certificates of deposit liquid? Usually not.

•   A liquid certificate of deposit, on the other hand, gives you flexibility. It allows the account holder to withdraw money from their account prior to the maturity date without incurring penalties. This means you can access funds in the CD should you need them without penalty. However, the rates for liquid CDs tend to be lower than other kinds of CDs.

Understanding a Liquid CD

You may wonder what liquid assets are. In the realm of finance, the concept of “liquid” means that an asset (like money in a checking or savings account) can quickly be converted to cash. A liquid CD is a time-bound deposit account where you can earn interest for a specific period of time. Compared to traditional CD’s however, liquid CDs typically will not charge you early withdrawal penalties. This means you can easily liquidate (turn into cash) your CD without taking a hit in terms of its value.

As noted above, there’s a “but” to this proposition, which you may hear referred to as no-penalty CDs: Liquid CDs typically pay less than traditional CDs. Depending on which financial institution you go to, these products can offer various terms, either as little as a few months or up to several years or longer. Your fixed interest rate will vary according to the length of the term you’ve chosen. Typically, the longer you hold your money in the liquid CD, the higher the rate of return.

What can be a big plus about CD rates is that they are locked in during the full term. This means even if interest rates decrease, your rate would not change. Some financial institutions may require a minimum deposit for these CDs, and they can be significantly higher than traditional CDs; some are at the $10,000 and up level. What’s more, the minimum deposit may go up if you are seeking a higher interest rate, while others don’t have a minimum deposit requirement at all.

How Do You Withdraw Money From a Liquid CD?

If you have decided that you need to withdraw from your liquid CD, here’s what usually happens:

•   Check with your bank about how long it will take to process a withdrawal and whether you need to withdraw a certain percentage at a time. (Some banks may require you to close the account entirely.)

•   When ready, notify your bank of your withdrawal.

•   You will likely have to wait about a week after opening the liquid CD before you can start withdrawing.

•   Wait for your funds. Withdrawal is likely not as quick as withdrawing funds from a checking or savings account; your financial institution might require anywhere from a week to a month to process the transaction.

Recommended: What Happens If a Direct Deposit Goes to a Closed Account?

Liquid CD: Real World Example

Once you have decided a no-penalty CD is right for you, you will need to go to a bank or credit union that offers this account. Once you’ve opened an account, you have to fund it.

How it grows will depend on the principal, your APY (annual percentage yield), and how often the CD compounds the interest, which could be, say, daily or monthly.

•   If you invested $10,000 in a liquid CD with a three-year at a rate of 4.00%, at the end of the three-year period with interest compounded monthly, you will have a total balance of about $11,248.64.

Pros of a Liquid CD

When evaluating liquid CDs, it’s worthwhile to review the benefits of these accounts. Some of the key upsides are:

•   Liquidity. You can access and withdraw your funds prior to the term’s end. Perhaps you’re having an emergency that requires cash, or you decide to move around your money to better meet your financial goals. It’s possible!

•   No penalties. If you dip into the account before it matures, you won’t be assessed a fee.

•   Security. Liquid CDs are safe investments. These accounts are federally insured up to $250,000 per depositor, per account ownership category, per insured institution by the FDIC or NCUA. You’ll know your money is protected when you open a liquid CD with a bank or credit union. Even in the very rare situation of a bank failure, you’re covered as noted.

•   Guaranteed returns. When you start a liquid CD account, you usually know the interest rate upfront. It may not be stratospheric, but it’s a sure thing.

Cons of a Liquid CD

Now that we’ve explored the good things about a liquid CD, we need to give equal time to the potential downsides:

•   Lower rate of return. The interest rates are significantly lower compared to certificate of deposit rates.

•   Withdrawal rules. Yes, these accounts are more accessible, but after your deposit has been in place for a week, your withdrawal guidelines may be quite specific. For instance, you may have to remove all your funds if you want to make a withdrawal, or the amount might be limited to a certain percentage that doesn’t suit your needs. Check before starting a liquid CD investment.

•   Tax implications. Earnings on your liquid CD will be taxed at your federal rate, which is something to keep in mind as that will take your return down a notch.

Recommended: How to Make Money From Home

Alternatives to a Liquid CD

If the idea of a liquid CD doesn’t sound like an appealing low-risk investment option, there are alternatives to also consider.

Traditional CDs

Traditional certificates of deposit require you to stow your money away for a certain period of time. In exchange, you receive a return at the end of that period. The catch is, you are not able to withdraw your funds during this holding period. If you have a financial emergency, for example, and need the money from your CD, you will receive penalties for withdrawing your cash before the period of maturity.

However, this might be a gamble you are willing to take, especially if you have a nice, healthy emergency fund set aside. You’ll earn a better rate of return than with a liquid CD.

Laddering

CD laddering usually involves opening CDs of different term lengths. This strategy allows you to invest long-term CDs which provide higher rates of return, while having the ability to access your funds through a shorter-term CD maturing.

Money Market Account

Another CD alternative is a money market account, which is similar to a savings account with some added benefits. Money market accounts typically require minimum balances and offer rates comparable to savings accounts, which can change over time. While the rates may be lower than a CD, money market accounts typically allow you to withdraw and transfer your money six times per month or more.

Emergency Fund

An emergency fund, or a rainy-day fund, is a savings account that should only be used in times of financial emergencies or unexpected expenses. Depending on your financial position, you can have an emergency fund in a regular savings account, money market account, CD, or liquid CD. It depends on how much you plan to access your emergency fund and how much interest you want to earn in the account.

High-Yield Savings Account

A high-yield savings account can offer a competitive rate of interest, depending on the financial institution offering it (online banks tend to pay more than traditional ones). And you’ll have more liquidity than a CD because you can deposit and withdraw from the account more frequently, though the specifics may vary with each bank. If you want easy access to your funds plus interest, a high-yield bank account may be a good option.

The Takeaway

Liquid CDs are a financial product that offers the safety and guaranteed return of a traditional CD with the bonus of not being penalized if you make an early withdrawal. For those who are comfortable locking their money into a CD but worry an emergency or other need might pop up, this accessibility can be very attractive. Worth noting: Expect lower interest rates from a liquid CD than a standard one. Alternatives to a liquid CD can include a high-yield savings account.

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


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.60% APY on SoFi Checking and Savings with eligible direct deposit.

FAQ

Are CDs liquid investments?

Traditional CDs are not liquid investments. Funds held in a CD cannot be accessed until the account term is reached. If you need to withdraw money from your CD prior to its maturity date, you will have to pay a penalty. A liquid CD, however, offers flexibility to withdraw money from your account prior to its term date without the usual fees.

What is a non-penalty CD?

A non-penalty CD, also known as a liquid CD, is a time deposit that offers interest on your money. However, the rate is usually somewhat lower than the rate for a typical CD (the kind with penalties). The longer the term you choose for your liquid CD, the more you usually can earn.

How much is the penalty for early withdrawal from a CD?

Each financial institution has its own way of calculating this, but it usually involves losing some of all of the interest you have accrued. If you have a two-year traditional CD and withdraw funds early, the fee could vary considerably; it might equal two months’ or a year’s’ worth of interest. If you have a liquid or no-penalty CD, you will of course avoid these fees.

Photo credit: iStock/champc

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

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

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

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

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

See additional details at https://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

We do not charge any account, service or maintenance fees for SoFi Checking and Savings. We do charge a transaction fee to process each outgoing wire transfer. SoFi does not charge a fee for incoming wire transfers, however the sending bank may charge a fee. Our fee policy is subject to change at any time. See the SoFi Bank Fee Sheet for details at sofi.com/legal/banking-fees/.
^Early access to direct deposit funds is based on the timing in which we receive notice of impending payment from the Federal Reserve, which is typically up to two days before the scheduled payment date, but may vary.

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

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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