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The definition of a U.S. Savings Bond is an investment in the federal government that helps to increase your money. By purchasing a savings bond, you are essentially lending money to the government which you will get back in the future, when the bond matures, with interest. Because these financial products are backed by the federal government, they are considered to be extremely low-risk. And, in certain situations, there can be tax advantages.

Here’s a closer look at these bonds, including:

•   What are savings bonds?

•   How do savings bonds work?

•   What are the different types of savings bonds?

•   How do you buy and redeem savings bonds?

•   What are the pros and cons of buying savings bonds?

Savings Bond Definition

First, to answer the basic question, “What is a savings bond?”: Basically, it is a loan issued by the U.S. Treasury and made to the U.S. government. Purchase a savings bond, and you are loaning the money you pay to the government. At the end of the bond’s 30-year term, you receive your initial investment plus the compounded interest.

You may withdraw funds before then, as long as the bond has been held for at least five years.

How Do Savings Bonds Work?

Savings bonds are issued by the U.S. Treasury. You can buy one for yourself, or for someone else, even if that person is under age 18. (That’s why, when you clean out your closets, you may find a U.S. Savings Bond that was a birthday present from Grandma a long time ago.)

You buy a savings bond for face value, or the principal, and the bond will then pay interest over a specific period of time. Basically, these savings bonds function the same way that other types of bonds work.

•   You can buy savings bonds electronically from the U.S. Treasury’s website, TreasuryDirect.gov . For the most part, it’s not possible to buy paper bonds anymore but should you run across one, you can still redeem them. (See below). Unlike many other types of bonds (say, some high-yield bonds), you can’t sell savings bonds or hold them in brokerage accounts.

How Much Are Your Savings Bonds Worth?

If you have a savings bond that has been tucked away for a while and you are wondering what it’s worth, here are your options:

•   If it’s a paper bond, log onto the Treasury Department’s website to find out the value.

•   If it’s an electronic bond, you will need to create (if you don’t already have one) and log onto your TreasuryDirect account.

Savings Bonds Interest Payments

For U.S. Savings Bonds, interest is earned monthly. The interest is compounded semiannually. This means that every six months, the government will apply the bond’s interest rate to grow the principal. That new, larger principal then earns interest for the next six months, when the interest is again added to the principal, and so on.

3 Different Types of Savings Bonds

There are two types of U.S. Savings Bonds available for purchase — Series EE and Series I savings bonds. Here are the differences between the two.

1. Series EE Bonds

Introduced in 1980, Series EE Bonds earn interest plus a guaranteed return of double their value when held for 20 years. These bonds continue to pay interest for 30 years.

Series EE Bonds issued after May 2005 earn a fixed rate. The current Series EE interest rate for bonds issued May 1, 2023 through October 31, 2023 will earn an annual fixed rate of 2.50%.

2. Series I Bonds

Series I Bonds pay a combination of two rates. The first is the original fixed interest rate. The second is an inflation-adjusted interest rate, which is calculated twice a year using the consumer price index for urban consumers (CPI-U). This adjusted rate is designed to protect bond buyers from inflation eating into the value of the investment.

When you redeem a Series I Bond, you get back the face value plus the accumulated interest. You know the fixed rate when you buy the bond. But the inflation-adjusted rate will vary depending on the CPI-U during times of adjustment.

The current composite rate for Series I Savings Bonds is 4.30% for I bonds issued from May 1, 2023 through October 31, 2023.

3. Municipal Bonds

Municipal bonds are a somewhat different savings vehicle but are worth a quick overview here, if only as a point of comparison. They are issued by a state, municipality, or country to fund capital expenditures. By offering these bonds, projects like highway or school construction can be funded.

Akin to loans that investors make locally to improve their area, these bonds (sometimes called “munis”) are exempt from federal and the majority of local taxes, making them perhaps more enticing to some investors. The market price of bonds will vary with the market, and they typically require a larger investment of, say, $5,000. Municipal bonds are available in different terms, ranging from relatively short (say, two to five years) to longer (the typical 30-year length).

How To Buy Bonds

You can buy Treasury Bonds directly through the United States Treasury Department online account system called TreasuryDirect, as noted above. This is a little bit different than the way you might buy other types of bonds. You can open an account at TreasuryDirect just as you would a checking or savings account at your local bank.

You can buy either an EE or I Savings Bond in any amount ranging up to $10,000 in penny increments per year. So, if the spirit moves you, go ahead and buy a bond for $49.99. The flexible increments allow investors to dollar cost average and make other types of calculated purchases.

That said, there are annual maximums on how much you may purchase in savings bonds. The electronic bond maximum is $10,000 for each type. You can buy up to $5,000 in Series I Bonds using a tax refund you are eligible for. Paper EE Series bonds are no longer issued.

If you are due a refund and you want to buy I Bonds, be sure to file IRS Form 8888 when you file your federal tax return. On that form you’ll specify how much of your refund you want to use to buy paper Series I bonds, keeping in mind the minimum purchase amount for a paper bond is $50, and the increments rise by $50. The IRS will then process your return and send you the bond that you indicate you want to buy.

The Pros & Cons of Investing in Savings Bonds

Here’s a look at the possible benefits and downsides of investing in savings bonds. This will help you decide if buying these bonds is the right path for you, or if you might prefer to otherwise invest your money or stash it in a high-yield bank account.

The Pros of Investing in Savings Bonds

Here are some of the upsides of investing in savings bonds:

•   Low risk. U.S. Savings Bonds are one of the lowest risk investments you could ever make. You are guaranteed to get back the entire amount you invested, known as principal. You will also receive interest if you keep the bonds until maturity.

•   Tax advantages. Savings bond holders don’t pay state or local taxes on interest at any time. You don’t have to pay federal income tax on the interest until you cash in the bond.

•   Education exception. Eligible taxpayers may qualify for a tax break when they use U.S. Savings Bonds to pay for qualified education expenses.

•   No fees. Unlike just about every other type of security, you won’t pay a fee, markup or commission when you buy savings bonds. They’re sold at face value, directly from the Treasury, so what you pay for is what you get. If you buy a $50 bond, for example, you’ll pay $50.

•   Great gift. Unlike most securities, people under age 18 may hold U.S. Savings bonds in their own names. That’s what makes them a popular birthday and graduation gift.

•   Patriotic gesture. Buying a U.S. Savings Bond helps support the U.S. government. That’s something that was important and appealed to investors when these savings bonds were first introduced in 1935.

The Cons of Investing in Savings Bonds

Next, consider these potential downsides of investing in savings bonds:

•   Low return. The biggest disadvantage of savings bonds is their low rate of return, as noted above. A very low risk investment like this often pays low returns. You may find you can invest your money elsewhere for a higher return with only slightly higher risk.

•   Purchase limit. For U.S. Savings Bonds, there’s a purchase limit per year of $10,000 in bonds for each series (meaning you can invest a total of $20,000 per year), plus a $5,000 limit for paper I bonds via tax refunds. For some individuals, this might not align with their investing goals.

•   Tax liability. It’s likely you’ll have to pay federal income tax when you cash in your savings bond, unless you’ve used the proceeds for higher education payments.

•   Penalty for early withdrawal. If you cash in your savings bond before five years have elapsed, you will have to pay the previous three months of interest as a fee. You are typically not allowed to cash in a bond before the one-year mark.

Here, a summary of the pros and cons of investing in savings bonds:

Pros of Savings Bonds	Cons of Savings Bonds
•   Low risk •   Education exception •   Possible tax advantages •   No fees •   Great gift •   Patriotic gesture	•   Low returns •   Purchase limit •   Possible tax liability •  Penalty for early withdrawal

When Do Savings Bonds Mature?

You may wonder how long it takes for a savings bond to mature. The EE and I savings bonds earn interest for 30 years, until they reach their maturity date.

Recommended: Bonds or CDs: Which Is Smarter for Your Money?

How to Cash in Savings Bonds

Wondering how and when to redeem a savings bond? These bonds earn interest for 30 years, but you can withdraw penalty-free after five years.

•   If you have a paper bond, you can cash it in at your bank or credit union. Bring the bond and your ID. Or go to the Treasury’s TreasuryDirect site for details on how to cash it in.

•   For electronic bonds, log into your TreasuryDirect account, click on “confirm redemption,” and follow the instructions to deposit the amount to a linked checking or savings account. You will likely get the money within two business days.

•   If you inherited or found an old U.S. Savings Bond, you may be able to redeem savings bonds through the TreasuryDirect portal or via Treasury Retail Securities Services.

Early Redemption of Bonds

If you cash in a U.S. Savings Bond after one year but before five years, you’ll pay a penalty that is the equivalent of the previous three months of interest. Keep in mind that for EE bonds, if you cash in before holding for 20 years, you lose the opportunity to receive the doubled value of the bond that accrues after 20 years.

The History of US Savings Bonds

America’s savings bond program began under President Franklin Delano Roosevelt in 1935, during the Great Depression, with what were known as “baby bonds.” This started the tradition of citizens participating in government financing.

The Series E Saving Bond contributed billions of dollars to financing the World War II effort, and in the post-war years, they became a popular savings vehicle. The fact that they are guaranteed by the U.S. government makes them a safe place to stash cash and earn interest.

The Takeaway

U.S. Savings Bonds can be one of the safest ways to invest for the future and show your patriotism. These bonds can be especially great gifts for minors. But they can also add a risk-free guaranteed return to your portfolio. While the interest rates are typically low, for some investors, knowing that the money is being securely held for a couple of decades can really enhance their peace of mind.

Another way to help increase your peace of mind and financial well-being is finding the right banking partner.

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 4.60% APY on SoFi Checking and Savings.

FAQ

What is a $50 savings bond worth?

The value of a $50 savings bond will depend on how long it has been held. You can log onto the TreasuryDirect site and use the calculator there to find out the value. As an example, a $50 Series I bond issued in 2000 would be worth more than $183 today.

How long does it take for a $50 savings bond to mature?

The full maturation date of U.S. savings bonds is 30 years.

What is a savings bond?

A savings bond is a very secure way of investing in the U.S. government and earning interest. Basically, when you buy a U.S. Savings Bond, you are loaning the government money, which, upon maturity, they pay back with interest.

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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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You probably have things you want to do with your money down the road: buy a house, save for retirement, fund college for your kids, maybe even go on a big trip or do a major remodel. And you may be wondering if investing can help you achieve those goals.

It’s never too early or too late to start investing. There are a number of different ways you can put your money to work, including choosing different investment types.

9 Types of Investments

Before deciding on your investments, ask yourself what your financial goals are. Then try to build a portfolio that achieves those goals, balancing risk with return and maintaining a diverse mix of assets.

Having different types of investments, as well as short term vs long term investments can help you achieve portfolio diversification.

1. Stocks

When you think of investing and investment types, you probably think of the stock market. They are, essentially, investment fund basics. A stock gives an investor fractional ownership of a public company in units known as shares.

Only public companies trade on the stock market; private companies are privately owned. They can sometimes still be invested in, though the process isn’t always as easy and open to as many investors.

A stock makes money in two ways: It could pay dividends if the company decides to pay out part of its profits to its shareholders, or an investor could sell the stock for more than they bought it.

Some investors are looking for steady streams of income and therefore pick stocks because of their dividend payments. Others may look at value or growth stocks, companies that are trading below their true worth or those that are experiencing revenue or earnings gains at a faster pace.

Pros and Cons of Stock Investments
Pros	Cons
If the stock goes up, you can sell it for a profit.	There are no guaranteed returns. For instance, the market could suddenly go down.
Some stocks pay dividends to investors.	The stock market can be volatile. Returns can vary widely from year to year.
Stocks tend to offer higher potential returns than bonds.	You typically need to hang onto stocks for many years to achieve the highest potential returns.
Stocks are considered liquid assets, so you can typically sell them quickly if necessary.	You can lose a lot of money or get in over your head if you don’t do your research before investing.

2. Bonds

Bonds are essentially loans you make to a company or a government — federal or local — for a fixed period of time. In return for loaning them money, they promise to pay it back to you in the future and pay you interest in the meantime.

When it comes to bonds vs. stocks, the former are typically backed by the full faith and credit of the government or large companies. Because of this, they’re often considered lower risk than stocks.

However, the risk varies, and bonds are rated for their quality and credit-worthiness. Because the U.S. government is less likely to go bankrupt than an individual company, Treasury bonds are considered to be some of the least risky investments. However, they also tend to have lower returns.

Different Types of Bonds

Treasurys: These are bonds issued by the U.S. government. Treasurys can have maturities that range from one-month to 30-years, but the 10-year note is considered a benchmark for the bond market as a whole.

Municipal bonds: Local governments or agencies can also issue their own bonds. For example, a school district or water agency might take out a bond to pay for improvements or construction and then pay it off, with interest, at whatever terms they’ve established.

Corporate bonds: Corporations also issue bonds. These are typically given a credit rating, with AAA being the highest. High-yield bonds, also known as junk bonds, tend to have higher yields but lower credit ratings.

Mortgage and asset-backed bonds: Sometimes financial institutions bundle mortgages or other assets, like student loans and car loans, and then issue bonds backed by those loans and pass on the interest.

Zero-coupon bonds: Zero coupon bonds may be issued by the U.S. Treasury, corporations, and state and local government agencies. These bonds don’t pay interest. Instead, investors buy them at a great discount from their face value, and when a bond matures, the investor receives the face value of the bond.

Pros and Cons of Bond Investments
Pros	Cons
Bonds offer regular interest payments.	The rate of returns with bonds tends to be much lower than it is with stocks.
Bonds tend to be lower risk than stocks.	Bond trading is not as fluid as stock trading. That means bonds may be more difficult to sell.
Treasurys are considered to be safe investments.	Bonds can decrease in value during periods of high interest rates.
High-yield bonds tend to pay higher returns and they have more consistent rates.	High-yield bonds are riskier and have a higher risk of default, and investors could potentially lose all the money they’ve invested in them.

💡 Quick Tip: Investment fees are assessed in different ways, including trading costs, account management fees, and possibly broker commissions. When you set up an investment account, be sure to get the exact breakdown of your “all-in costs” so you know what you’re paying.

3. Mutual Funds

A mutual fund is an investment managed by a professional. Funds typically focus on an asset class, industry or region, and investors pay fees to the fund manager to choose investments and buy and sell them at favorable prices.

Pros and Cons of Mutual Fund Investments
Pros	Cons
Mutual funds are easy and convenient to buy.	There is typically a minimum investment you need to make.
They ate more diversified than stocks and bonds so they carry less risk.	Mutual funds typically require an annual fee called an expense ratio and some funds may also have sales charges.
A professional manager chooses the investments for you.	Trades are executed only once per day at the close of the market, which means you can’t buy or sell mutual funds in real time.
You earn money when the assets in the mutual fund rise in value.	The management team could be poor or make bad decisions.
There is dividend reinvestment, meaning dividends can be used to buy additional shares in the fund, which could help your investment grow.	You will generally owe taxes on distributions from the fund.

4. ETF

Exchange traded funds can appear to be similar to a mutual fund, but the main difference is that ETFs can be traded on a stock exchange, giving investors the flexibility to buy and sell throughout the day. They also come in a range of asset mixes.

Pros and Cons of ETF Investments
Pros	Cons
ETFs are easy to buy and sell on the stock market.	The ease of trading ETFs might tempt an investor to sell an investment they should hold onto.
They often have lower annual expense ratios (annual fees) than mutual funds.	A brokerage may charge commission for ETF trades.This could be in addition to fund management fees.
ETFs can help diversify your portfolio.	May provide a lower yield on asset gains (as opposed to investing directly in the asset).
They are more liquid than mutual funds.

5. Annuities

An annuity is an insurance contract that an individual pays upfront and, in turn, receives set payments.

There are fixed annuities, which guarantee a set payment, and variable annuities, which put people’s payments into investment options and pay out down the road at set intervals. There are also immediate annuities that begin making regular payments to investors right away.

Pros and Cons of Annuity Investments
Pros	Cons
Annuities are generally low risk investments.	Annuities typically offer lower returns compared to stocks and bonds.
They offer regular payments.	They typically have high fees.
Some types offer guaranteed rates of return.	Annuities are complex and difficult to understand.
Can be a good supplement investment for retirement.	It can be challenging to get out of an annuities contract.

6. Derivatives

There are several types of derivatives but two popular ones are futures and options. Futures contracts are agreements to buy or sell something (a security or a commodity) at a fixed price in the future.

Meanwhile, in options trading, buyers have the right, but not the obligation, to buy an asset at a set price.

A derivatives trading guide can be helpful to learn more about how these investments work.

Pros and Cons of Derivative Investments
Pros	Cons
Derivatives allow investors to lock in a price on a security or commodity.	Derivatives can be very risky and are best left to traders who have experience with them.
They can be helpful for mitigating risk with certain assets.	Trading derivatives is very complex.
They provide income when an investor sells them.	Because they expire on a certain date, the timing might not work in your favor.

💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

7. Commodities

A commodity is a raw material — such as oil, gold, corn or coffee. Trading commodities has a reputation for being risky and volatile. That’s because they’re heavily driven by supply and demand forces. Say for instance, there’s a bad harvest of coffee beans one year. That might help push up prices. But on the other hand, if a country discovers a major oil field, that could dramatically depress prices of the fuel.

Investors have several ways they can gain exposure to commodities. They can directly hold the physical commodity, although this option is very rare for individual investors (Imagine having to store barrels and barrels of oil).

So many investors wager on commodity markets via derivatives — financial contracts whose prices are tied to the underlying raw material. For instance, instead of buying physical bars of precious metals to invest in them, a trader might use futures contracts to make speculative bets on gold or silver. Another way that retail investors may get exposure to commodities is through exchanged-traded funds (ETFs) that track prices of raw materials.

Pros and Cons of Commodity Investments
Pros	Cons
Commodities can diversify an investor’s portfolio.	Commodities are considered high-risk investments because the commodities market can fluctuate based on factors like the weather. Prices could plummet suddenly.
Commodities tend to be more protected from the volatility of the stock market than stocks and bonds.	Commodities trading is often best left to investors experienced in trading in them.
Prices of commodities are driven by supply and demand instead of the market, which can make them more resilient.	Commodities offer no dividends.
Investing in commodities can help hedge against inflation because commodities prices rise when consumer prices do.	An investor could end up having to take physical possession of a commodity if they don’t close out the position, and/or having to sell it.

8. Real Estate

Owning real estate, either directly or as part of real estate investment trust (REIT) investing or limited partnerships, gives you a tangible asset that may increase in value over time.

If you become invested in real estate outside of your own home, rent payments can be a regular source of income. However, real estate can also be risky and labor-intensive.

Pros and Cons of Real Estate Investments
Pros	Cons
Real estate is a tangible asset that tends to appreciate in value.	Real estate is not liquid. You may have a tough time selling it quickly.
There are typically tax deductions and benefits, depending on what you own.	There are constant ongoing expenses to maintain a property.
Investing in real estate with a REIT can help diversify your portfolio.	Owning rental property is a lot of work. You have to handle managing it, cleaning it, and making repairs.
By law, REITs must pay 90% of their income in dividends.	With a REIT, dividends are taxed at a rate that’s usually higher than the rate for many other investments.
REITs offer more liquidity than owning rental property you need to sell.	REITs are generally very sensitive to changes in interest rates, especially rising rates.
REITs don’t require the work that maintaining a rental property does.	REITs can be a risky short-term investment and investors should plan to hold onto them for the long term.

9. Private Companies

Only public companies sell shares of stock, however private companies do also look for investment at times — it typically comes in the form of private rounds of direct funding. If the company you invest in ends up increasing in value, that can pay off, but it can also be risky.

Pros and Cons of Investing in Private Companies
Pros	Cons
Potential for good returns on your investment.	You could lose your money if the company fails.
Lets investors get in early with promising startups and/or innovative technology or products.	The value of your shares in the company could be reduced if the company issues new shares or chooses to raise additional capital. Your shares may then be worth less (this is known as dilution).
Investing in private companies can help diversify your portfolio.	Investing in a private company is illiquid, and it can be very difficult to sell your assets.
	Dividends are rarely paid by private companies.
	There could be potential for fraud since private company investment tends to be less regulated than other investments.

Investment Account Options

An investor can put money into different types of investment accounts, each with their own benefits. The type of account can impact what kinds of returns an investor sees, as well as when and how they can withdraw their money.

401(k)

A 401(k) plan is a retirement account provided by your employer. You can often put money into a 401(k) account via a simple payroll deduction, and in a traditional 401(k), your contribution isn’t taxed as income. Many employers will also match your contributions to a certain point. The IRS puts caps on how much you can contribute to a 401(k) annually.

Pros and Cons of 401(k)s
Pros	Cons
Contributions you make to a 401(k) can reduce your taxable income. The money is not taxed until you withdraw it when you retire.	There is a cap on how much you can contribute each year.
Contributions can be automatically deducted from your paycheck.	Most withdrawals before age 59 ½ will incur a 10% penalty
Your employer may provide matching funds up to a certain limit.	You must take required minimum distributions from the plan (RMDs) when you reach a certain age.
You can roll over a 401(k) if you leave your job.	You may have limited investment options.

IRA

IRA stands for “individual retirement account” — so it isn’t tied to an employer. There are IRS guidelines for IRAs, but, essentially, they’re retirement accounts for individuals. IRAs allow people to set aside money pre-tax for retirement without needing an employer-backed 401(k).

Pros and Cons of 401(k)s
Pros	Cons
Contributions are tax deferred. You don’t pay taxes until you withdraw the funds.	Low contribution limits ($6,500 in 2023).
You can choose how the money is invested, giving you more control.	There is a 10% penalty for most early withdrawals before age 59 ½.
Those aged 50 and over can contribute an extra $1,000 in catch-up contributions.

Brokerage Accounts

A brokerage account is a taxed account through which you can buy most of the investments discussed here: stocks, bonds, ETFs. Some brokerage firms charge fees on the trades you make, while others offer free trading but send your orders to third parties to execute — a practice known as payment for order flow. Investors can be taxed on any realized gains.

You might also consider enlisting the help of a wealth manager or financial advisor who can provide financial planning and advice, and then manage your portfolio and wealth. Typically, these advisors are paid a fee based on the assets they manage.

There are even a number of investment options out there not listed here — like buying into a venture capital firm if you’re a high-net-worth individual or putting funding into your own business.

Pros and Cons of 401(k)s
Pros	Cons
Offer flexibility to invest in a wide range of assets.	You must pay taxes on your investment income and capital gains in the year they are received.
Brokerage accounts provide the potential for growth, depending on your investments. However, all investments come with risks that include the potential for loss.	Investments in brokerage accounts are not tax deductible.
You can contribute as much as you like to a brokerage account.	There is a risk that you could lose the money you invested.

Investing With SoFi

It might still seem overwhelming to figure out what kinds of investments will help you achieve your goals. There are different investment strategies and finding the right one can depend on where you are in your career, what your financial goals are and how far away retirement is.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

Invest with as little as $5 with a SoFi Active Investing account.

FAQ

What is the most common investment type?

Stocks are one of the most common and well-known types of investments. A stock gives an investor fractional ownership of a public company in units known as shares.

How do I decide when to invest?

Some prime times to start investing include when you have a retirement fund at work that you can contribute to and that your employer may contribute matching funds to (up to a certain amount); you have an emergency fund of three to six months’ worth of money already set aside and you have additional money to invest for your future; there are financial goals you’re ready to save up for, such as buying a house, saving for your kids’ college funds, or investing for retirement. Please remember you need to consider your investment objectives and risk tolerance when deciding the “right” time to start investing.

Should I use multiple investment types?

Yes. It’s wise to diversify your portfolio. That way, you’ll have different types of assets which will increase the chances that some of them will do well even when others don’t. This will also help reduce your risk of losing money on one single type of investment. In short, having a diverse mix of assets helps you balance risk with return. However, diversification does not eliminate all risk.

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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.

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.

SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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