MoneyHL Archives

Apr

2025

7 Places to Put Your Cash

By Ashley Kilroy | Budgeting & Goals, money | Comments Off

If you’ve racked up a nice sum of cash or recently came into a windfall (such as a work bonus or tax refund), you may wonder where to put that money. Should you just keep it in checking? Open a high-yield savings account? Invest it all in the stock market?

The answer will depend on how soon you think you’ll need the money and how much risk you’re willing to take. Here’s a look at seven places you might consider storing your extra cash.

Key Points

• Checking accounts are designed for spending, and offer easy access to funds through checks, ATMs, debit cards, and unlimited withdrawals.

• Savings accounts are designed for saving toward shorter-term goals; they offer higher interest rates than checking, but typically limit accessibility as well.

• Money market accounts combine features of checking and savings accounts, offering higher interest rates as well as checks and debit cards, but typically limit the number of transactions permitted.

• High-yield savings accounts offer higher interest rates than standard savings accounts, often with low or no fees.

• Stocks, bonds, ETFs, and mutual funds are higher-risk options often suited for long-term investments — they may provide higher returns over time than other accounts.

Low-Risk Places to Put Cash

What follows are four types of bank accounts that provide safety, convenience, and (in some cases) a competitive interest rate.

Checking Account

If you want easy and regular access to your cash, you might consider keeping it in a checking account at a bank or credit union. These accounts keep your money safe, since they are typically federally insured up to $250,000 per depositor, per institution. They’re also highly liquid — they provide check-writing privileges, ATM access, and debit cards, and there’s no limit on how many withdrawals you can make per month. These accounts are popular: According to SoFi’s April 2024 Banking Survey of 500 U.S. adults, 88% of people with a bank account have a checking account.

Since checking accounts are designed for spending (not saving), however, they generally pay little to no interest. As a result, these accounts aren’t ideal for storing extra money you plan to use later — say a few months or years from now. Some checking accounts also charge monthly fees.

Savings Account

A savings account is an interest-bearing bank account that is designed for saving (and growing) your money rather than spending it. You can open a savings account at the same bank or credit union as your checking account, or explore many of the online-only banks now available. Seventy-one percent of the people with a bank account in SoFi’s survey have a savings account.

Interest on a savings account is expressed as an annual percentage yield (APY). This is the rate you can earn on an account over a year and it includes compound interest (which is the interest you earn on interest added to your account throughout the year).

Like a checking account, the funds in a savings account are liquid. However, they are generally less accessible than the money in a checking account. You can’t write checks or use a debit card to draw money from your savings account. And, often, you are limited to six withdrawals per month. While the federal rule that limited savings account withdrawals to six per month was lifted in April 2020, many institutions still enforce this limit for electronic and online transactions and will charge you a fee if you exceed the cap.

A traditional savings account may provide a little more interest than a checking account. However, rates are generally low.

Money Market Account

A money market account is a type of savings account that comes with some of the features of a checking account, such as check-writing privileges and debit cards. You can find money market accounts at credit unions and traditional and online banks.

These hybrid accounts typically pay a higher APY than you can get with a checking account or traditional savings account. However, they often come with higher initial deposit requirements, along with higher ongoing balance requirements to avoid fees. Like other savings accounts, your money is typically insured and you may be limited to six withdrawals per month.

High-Yield Savings Account

High-yield savings accounts, typically offered by credit unions and online banks, are accounts that typically pay a substantially higher APY than the national average of traditional savings accounts. They generally also have low or no fees.

Other than that, these accounts function like regular savings accounts. They are typically federally insured up to $250,000 per depositor, per institution, should the bank or credit union fail. They also allow you to make withdrawals and transfers as needed, though your bank may limit you to six withdrawals per month.

While 59% of people in SoFi’s survey know about high-yield savings accounts, only 23% have one.

Higher-Risk Places to Put Cash

First, make sure you have a solid emergency fund — 45% of the SoFi survey respondents said they have less than $500 in emergency savings, which is far below the recommended three to six months worth of savings. Once you have enough emergency savings and you’ve paid down any high-interest debt and are contributing to your 401(k) at work (at least up to any employer match), you may want to consider longer-term, higher-risk investment options with your extra cash.

Stocks

Stocks are a type of security that gives you a share of ownership in a specific company. When you buy stock, you have the potential to grow your money in two different ways. One is through appreciation of the stock’s price (or value). In addition, you may be able to earn dividends if the company distributes a portion of its earnings to stockholders.

While stocks offer a great potential for growth, they also come with significant risk. Stock prices can drop significantly in a short time, so it’s possible to lose money by investing in stocks.

Bonds

Bonds are generally considered a lower-risk investment than stocks. With bonds, the company (or government agency or organization) issuing the bond acts as a borrower and you act as a lender, providing the issuer with money to fund projects or expansion efforts. In exchange, the issuer promises to pay you a rate of interest on top of the bond’s principal (your initial investment).

There are several kinds of bonds:

• Corporate. These are issued by private and public companies.

• Municipal. These are issued by states, cities, and counties.

• Treasury. These are issued by the U.S. Department of the Treasury on behalf of the federal government.

When you invest in bonds, you generally get a predictable stream of income through interest payments. If you hold onto the bond until it matures, you also get back the entire principal, so there’s minimal risk involved. However, typical returns for bonds tend to be much lower than typical returns for stocks. Many investors will use bonds to balance out higher-risk investment options, such as individual stocks.

Exchange-Traded Funds and Mutual Funds

Exchange-traded funds (ETFs) and mutual funds offer a pool of securities, such as stocks and bonds, in one investment. You can pick and choose a few mutual funds and/or EFTs to create your own portfolio, or you can choose to go with a target date fund.

Target date funds offer an all-in-one solution by investing in a mix of stocks, bonds, and other investments that suit your goals and risk tolerance. Typically, these funds automatically become more conservative as the fund approaches its target date (such as your retirement age) and beyond. Keep in mind, however, that the principal you invest in an EFT or mutual fund is not guaranteed.

The Takeaway

Where to put a stash of cash? A lot depends on how soon you’ll need the money and your tolerance for risk.

If you plan to use the money right away, you may want to go with a checking account. If you’re saving for a goal that is a few months or years away, you might consider putting the money in a high-yield savings account or a money market account. For longer-term savings goals (at least five years off), investing in the market could make sense.

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 3.80% APY on SoFi Checking and Savings.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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.

SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. 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 during a 30-day Evaluation Period (as defined below).

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 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, 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 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY 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, 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 members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% 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 1/24/25. There is no minimum balance requirement. Additional information can be found at http://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.

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.

SOBK0523057U

Mar

2025

Understanding the Different Types of Mutual Funds

By Rebecca Lake | Growing Wealth, invest, Investing | Comments Off

A mutual fund is a portfolio or basket of securities (often stocks or bonds) where investors pool their money. Globally, there are more than 125,000 regulated funds investors can choose from, and they come in many different flavors — from equity funds to government bond funds, as well as growth funds, sector funds, index funds, and more.

While most mutual funds are actively managed (i.e. there is a team of portfolio managers that run the fund), many are passively managed and track an index.

How these types of funds differ typically comes down to their investment objectives and the strategies employed to achieve them.

Mutual Funds Recap

A mutual fund is an investment vehicle that pools money from many investors in order to invest in different securities. For example, mutual funds may hold any combination of stocks, bonds, money market instruments, or cash and cash equivalents. They may also include alternative investments, such as real estate, commodities, or investments in precious metals.

A mutual fund is considered an open-end fund, because its shares are available continuously, versus a closed-end fund which sells a set number of shares at once during an initial public offering.

Mutual fund shares can be purchased through the fund company, from a bank, a brokerage account or through a retirement plan at work. For example, you might hold mutual funds inside a taxable investment account or within an individual retirement account (IRA) with an online brokerage. Or you may invest in mutual funds through your 401(k) at work.

Investing in different types of mutual funds can help with diversification and managing risk in a portfolio. If one investment in a mutual fund underperforms, for example, the other investments in the fund are there to help balance that out.

Alternative investments,
now for the rest of us.

Start trading funds that include commodities, private credit, real estate, venture capital, and more.

9 Types of Mutual Funds

It’s important to understand how and why a mutual fund’s type matters before adding it to your portfolio. Some types of funds may be designed for growth, for example, while others are designed to generate income through dividends. Certain mutual funds may carry a higher risk profile than others, though they may yield the potential for higher rewards.

Knowing more about the different mutual fund options can make it easier to choose investments that align with your goals and risk tolerance.

1. Equity Funds

• Structure: Open-end

• Risk Level: High

• Investment Goals: Growth or income, depending on the fund

• Asset Class: Equity (i.e. stocks)

Equity funds or stock funds primarily invest in stocks, with one of two goals in mind: capital appreciation or the generation of regular income through dividends. The types of companies an equity fund invests in can depend on the fund’s objectives.

For example, some equity funds may concentrate on blue-chip companies that offer consistent dividends while others may lean toward companies that have significant growth potential. These are often referred to as growth funds. Sector funds, meanwhile, may focus on companies from a single stock market sector. Equity funds can also be categorized based on whether they invest in large-cap, mid-cap or small-cap stocks.

Investing in equity funds can offer the opportunity to earn higher rewards but they tend to present greater risks. Since the prices of underlying equity investments can fluctuate day to day or even hour to hour, equity funds tend to be more volatile than other types of funds overall.

2. Bond Funds or Fixed-Income Funds

• Structure: Typically open-end though some bond funds may be closed-end

• Risk Level: Low

• Investment Goals: To provide fixed income to investors

• Asset Class: Fixed income/bonds

Bond funds or fixed-income funds are mutual funds that invest in bonds or other investments that are designed to provide consistent income. A bond is a type of debt instrument that pays interest to investors. Like equity funds, bond funds may target a specific type of investment. For example, there are funds that focus exclusively on government bonds while others hold municipal bonds or corporate bonds.

Generally speaking, bonds tend to be lower risk compared with other types of funds. But they’re not 100% risk-free and it’s still possible to lose money on bond fund investments. That’s because bonds tend to be sensitive to interest rate risk and credit risk.

For that reason, it’s important to compare credit ratings when choosing bonds for a portfolio. It’s also helpful to understand the inverse relationship between interest rates and bond yields when choosing different types of funds to invest in.

Recommended: How Do Bonds Work?

3. Money Market Funds

• Structure: Open-end

• Risk Level: Low

• Investment Goals: Income generation

• Asset Class: Short-term fixed-income securities

Money market funds or money market mutual funds invest in short-term fixed-income securities. For example, these funds may hold government bonds, municipal bonds, corporate bonds, bank debt securities (i.e. certificates of deposit, bankers’ acceptances, etc.), cash and cash equivalents.

Money market funds can be labeled according to what they invest in. For example, Treasury funds invest in U.S. Treasury securities, while government money market funds invest in government securities.

In terms of risk, money market funds are considered to be some of the safest types of mutual funds and some of the safest investments overall. That means, however, that money market mutual funds tend to produce lower returns compared to other mutual funds.

It’s also worth noting that money market funds are not the same thing as money market accounts (MMAs). Money market accounts are deposit accounts offered by banks and credit unions. While these accounts can pay interest to savers, they’re more akin to savings accounts than investment vehicles.

💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.

4. Index Funds

• Structure: Open-end

• Risk Level: Moderate

• Investment Goals: To replicate the performance of an underlying market index

• Asset Class: Available in all asset classes

Index funds are a type of mutual fund that has a very specific goal: To match the performance of an underlying market index. For example, an index fund may attempt to mirror the returns of the S&P 500 Index or the Russell 2000 Index (or any other of the many market indices). The fund does this by investing in some or all of the securities included in that particular index.

Index funds are considered passively managed or unmanaged because there is no active portfolio manager at the helm. Also, the underlying shares of the companies in the fund rarely change, unlike an active fund, where the portfolio manager and management team may make frequent trades.

An index fund that tracks the S&P 500 index, for instance, primarily invests in large-cap U.S. companies represented in the index itself.

Market capitalization is a commonly used metric for determining the makeup of equity index funds. Market cap measures a company’s size based on the number of shares it has outstanding and the price of those shares. Mega-cap and large-cap companies have higher market capitalization or value than mid- or small-cap companies.

Investing in index funds might appeal to investors who prefer passive investments. These funds often have lower expense ratios, as they are unmanaged and tend to have lower turnover. While they’re not free from risk, index funds can be less risky than actively managed equity funds, where tracking error and underperformance can affect overall returns.

5. Balanced Funds

• Structure: Open-end

• Risk Level: Moderate

• Investment Goals: Balancing risk and reward

• Asset Class: Equity, fixed income, cash

Balanced funds, sometimes referred to as hybrid funds, include a mix of different asset classes. For example, balanced funds can hold stocks, bonds, and cash investments. The goal in doing so is to create balance between risk and reward. Specifically, these funds aim to provide above-average return potential while mitigating risk to investors as much as possible.

Balanced funds can be growth funds or income funds. Growth balanced funds focus on capital appreciation. Income balanced funds, on the other hand, aim to provide investors with steady income through dividends and/or interest.

Investing in balanced funds could appeal to investors who want to generate potentially higher returns without exposing themselves to more risk than they’re capable of tolerating. They can also be useful for adding diversification to a portfolio that may be stock or bond heavy.

6. Income Funds

• Structure: Open-end

• Risk Level: Low to moderate

• Investment Goals: To provide income to investors

• Asset Class: Bonds, income-generating assets

Income funds have a singular goal of providing income to investors. While they can sometimes be grouped with bond funds, income funds are their own mutual fund type. While these funds can invest in bonds, they can also hold a wide range of investments, including dividend-paying stocks, money market instruments and preferred stock.

Like bond funds, income funds are subject to many of the same risks including interest rate risk and credit risk. Those apply specifically to bond holdings. Investments in dividend stocks, preferred stock, and money market instruments carry separate risks.

For that reason, income funds are somewhere in the middle between bond funds and fixed-income funds and equity funds in terms of risk. While they can offer potentially higher returns and steady income to investors, it is still possible to lose money if underlying investments in the fund are affected by changing market conditions.

7. International Funds

• Structure: Generally open-end, though some may be closed-end

• Risk Level: High

• Investment Goals: Capital appreciation or income, depending on the fund

• Asset Class: Equity, though some international funds can include bonds or fixed-income securities

International mutual funds hold investments from securities markets around the world, excluding the United States. So, for example, an international mutual fund may invest in European companies, Asian companies or in companies from emerging markets. The key hallmark of these funds is that U.S. companies are not represented here. (Global funds, on the other hand, can hold a mix of both U.S. and international securities.)

Adding international funds to a portfolio can increase diversification if you’ve primarily invested in U.S. companies or bonds so far. But keep in mind that international funds can carry unique risks. For example, investing in an international fund that holds real estate could be tricky if the real estate market in a particular country experiences a downturn.

For that reason, investing experts often recommend limiting how much of your portfolio you commit to international funds.

8. Specialty Funds

• Structure: Open or closed-end

• Risk Level: Varies by fund

• Investment Goals: Varies by fund

• Asset Class: Equity, bonds, fixed-income, cash, alternatives

Specialty fund is a catch-all term to describe types of mutual funds that are built around a specific theme. For example, hedge funds are considered to be a specialty fund since they rely on hedge fund trading strategies to achieve their investment objectives. Sector funds could also fall under the specialty fund umbrella since they invest in securities from individual market sectors.

Investing in specialty funds can help diversify a portfolio because it offers an opportunity to look beyond stocks or bonds. Specialty funds can offer exposure to things like real estate, commodities, or even cryptocurrency. You could also use specialty funds to pursue specific investing goals, such as investing with environmental, social, and governance (ESG) principles in mind.

In terms of risk, specialty funds can be all over the spectrum, with some posing less risk and others carrying higher risk. That also translates to wide variations in the return potential of specialty funds. It’s important to do your research to understand what kind of risk/return profile a particular fund may have.

9. Target Date Funds

• Structure: Typically a fund of funds

• Risk Level: These funds are designed to become more conservative (i.e. less risky) over time.

• Investment Goals: To provide returns and risk that align with a target retirement date

• Asset Class: Equity, bonds, fixed-income

Target date funds are mutual funds that adjust their asset allocation automatically over time, based on a predetermined glide path. The glide path is simply an automated plan for how the fund will become more conservative over time.

Say you plan to retire in 2050. You could invest in a 2050 target date fund, and as you get closer to retirement the fund will automatically shift its asset allocation to become less aggressive (i.e. dialing back on equities) and more conservative as the target date approaches.

Like mutual funds, target date funds are offered by nearly every investment company. In most cases, they’re recognizable by the year in the fund name.

If you have a 401(k) at work, it’s likely you may have access to various target date funds for your portfolio. These funds have become increasingly popular among 401(k) plan administrators due to their simplicity. Workers can select a target date fund based on when they plan to retire, and the fund’s asset allocation will adjust over time to become more conservative. But there is still the possibility a target fund could lose money.

Also, because the mix of investments in a target fund is predetermined, it’s important to know you cannot change the underlying assets. That’s why it’s best to be cautious when combining target date funds with other mutual funds in your portfolio; you don’t want to inadvertently make your portfolio overweight in a certain asset class, or even a specific security, if there’s an overlap between funds.

What’s the Difference Between Mutual Funds and ETFs?

It might be easy to confuse exchange-traded funds or ETFs with mutual funds, but they are different animals.

• ETFs are considered funds yet in many ways they behave more like stocks. ETFs trade on an exchange, like stocks, and investors buy and sell shares of the ETF throughout the day, which can cause the share price to fluctuate. By contrast, mutual funds are priced at the end of the day.

• Some investors prefer ETFs because they are more liquid than mutual funds.

• Though you can buy actively managed ETFs, the majority of these funds track an index and are passively managed. The reverse is true of mutual funds, where the majority are actively managed (though that balance is shifting toward passive strategies, which have been shown generally to deliver higher returns).

• Because ETFs are largely passive (i.e. unmanaged), they are often cheaper than mutual funds.

Like mutual funds, though, ETFs provide investors with many different ways to invest in the market. Investors can choose between equity and bond ETFs, sustainable ETFs, ETFs that invest in foreign currency, precious metals ETFs, and more. Some ETFs are also known for using “themed” strategies that allow investors to invest in hyper-specific market segments, e.g. semiconductors, clean water technology, infrastructure, robotics, cloud computing, and so on.

Recommended: A Closer Look at ETFs vs Mutual Funds

The Takeaway

With tens of thousands of mutual funds available to investors, how do you choose the ones that suit your financial goals? Fortunately, mutual funds are among the most versatile and affordable investments, offering investors the ability to incorporate a range of asset classes in their portfolio: from equities and bonds to more specialized assets like dividend-paying stocks or foreign securities.

Investing in mutual funds may provide investors with the potential for higher returns or steady income — or even emerging market opportunities. Of course, all investments also carry the potential for risk, but here investors can also decide whether to invest in lower-risk funds, like bond funds and money market funds — or use a variety of mutual funds to create a well-balanced portfolio.

Ready to expand your portfolio's growth potential? Alternative investments, traditionally available to high-net-worth individuals, are accessible to everyday investors on SoFi's easy-to-use platform. Investments in commodities, real estate, venture capital, and more are now within reach. Alternative investments can be high risk, so it's important to consider your portfolio goals and risk tolerance to determine if they're right for you.

Invest in alts to take your portfolio beyond stocks and bonds.

About the author

Rebecca Lake

Rebecca Lake has been a finance writer for nearly a decade, specializing in personal finance, investing, and small business. She is a contributor at Forbes Advisor, SmartAsset, Investopedia, The Balance, MyBankTracker, MoneyRates and CreditCards.com. Read full bio.

Photo credit: iStock/simonapilolla

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.

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.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

Exchange Traded Funds (ETFs): Investors should carefully consider the information contained in the prospectus, which contains the Fund’s investment objectives, risks, charges, expenses, and other relevant information. You may obtain a prospectus from the Fund company’s website or by email customer service at https://sofi.app.link/investchat. Please read the prospectus carefully prior to investing.
Shares of ETFs must be bought and sold at market price, which can vary significantly from the Fund’s net asset value (NAV). Investment returns are subject to market volatility and shares may be worth more or less their original value when redeemed. The diversification of an ETF will not protect against loss. An ETF may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.
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.

SOIN0723071

Mar

2025

Wash Trading: What Is It and How Does It Work?

By Rebecca Lake | Growing Wealth, invest, Investing | Comments Off

Wash trading is a practice which involves entering into securities transactions for the express purpose of giving the appearance that a trade has taken place although their portfolio has not substantially changed. Also referred to as round-trip trading, wash trading is a prohibited activity under the Commodity Exchange Act (CEA) and the Securities Exchange Act of 1934.

In some cases, wash trading is a direct attempt at market manipulation. In others, wash trading may result from a lack of investor knowledge. This may be the case with wash sales, in which an investor sells one financial instrument then replaces it with a similar one right away. It’s important to understand the implications of making a wash trade and what one looks like in action.

Key Points

• Wash trading involves investors engaging in the simultaneous buying and selling of securities to create the illusion of trading activity.

• Wash trading involves the simultaneous buying and selling of the same or similar securities.

• This practice can be a form of market manipulation or result from a lack of investor knowledge.

• The goal of wash trading is to influence pricing or trading activity, often through collaboration between investors and brokers.

• Wash trading is illegal and can result in penalties, including the disallowance of tax deductions for losses.

What Is Wash Trading?

Wash trading occurs when an investor buys and sells the same or a similar security investment at the same time. The Internal Revenue Service (IRS) also refers to this as a wash sale, since buying the same security cancels out the sale of that security. It’s also called round-trip trading, since you’re essentially ending where you began — with shares of the same security in your portfolio.

Wash trades can be used as a form of market manipulation. Investors can buy and sell the same securities in an attempt to influence pricing or trading activity. The goal may be to spur buying activity to send prices up or encourage selling to drive prices down.

Investors and brokers might work together to influence trading volume, usually for the financial benefit of both sides. The broker, for example, may benefit from collecting commissions from other investors who want to purchase a stock being targeted for wash trading. The investor, on the other hand, may realize gains from the sale of securities through price manipulation.

Wash trading can be a subset of insider trading, which requires the parties involved to have some special knowledge about a security that the general public doesn’t. If an investor or broker possesses insider knowledge they can use it to complete wash trades.

How Does Wash Trading Work?

On the surface level, a wash trade means an investor is buying and selling shares of the same security at the same time. But the definition of wash trades goes one step further and takes the investor’s intent (and that of the broker they may be working with) into account. There are generally two conditions that must be met for a wash trade to exist:

• Intent. The intent of the parties involved in a wash trade (i.e. the broker or the investor) must be that at least one individual involved in the transaction must have entered into it specifically for that purpose.

• Result. The result of the transaction must be a wash trade, meaning the investors bought and sold the same asset was bought and sold at the same time or within a relatively short time span for accounts with the same or common beneficial ownership.

Beneficial ownership means accounts that are owned by the same individual or entity. Trades made between accounts with common beneficial ownership may draw the eye of financial regulators, as they can suggest wash trading activity is at work.

A telling indicator of wash trading activity is the level of risk conveyed to the investor. If a trade doesn’t change their overall market position in the security or expose them to any type of market risk, then it could be considered a wash.

Wash trades don’t necessarily have to involve actual trades, however. They can also happen if investors and traders appear to make a trade on paper without any assets changing hands.

💡 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.

Example of a Wash Trade

Here’s a simple wash trade example:

Say an investor who’s actively involved in day trading owns 100 shares of ABC stock and sells those shares at a $5,000 loss on September 1. On September 5, they purchase 100 shares of the same stock, then resell them for a $10,000 gain. This could be considered a wash trade if the investor engaged in the trading activity with the intent to manipulate the market or to unfairly claim a tax deduction for the loss.

Is Wash Trading Illegal?

Yes. The Commodity Exchange Act prohibits wash trading. Prior to the passage of the Act, traders commonly used wash trading to manipulate markets and stock prices. The Commodity Futures Trade Commission (CFTC) also enforces regulations regarding wash trading, including guidelines that bar brokers from profiting from wash trade activity.

The IRS has rules of its own regarding wash trades. The rules disallow investors from deducting capital losses on their taxes from sales or trades of stocks or other securities that are the result of a wash sale. Under the IRS rules, a wash sale occurs when you sell or trade stocks at a loss and within 30 days before or after the sale you:

• Purchase substantially identical stock or securities

• Acquire substantially identical stock or securities in a fully taxable trade

• Acquire a contract or option to buy substantially identical stock or securities, or

• Acquire substantially identical stock for your individual retirement arrangement (IRA) or Roth IRA

Wash sale rules also apply if you sell stock and your spouse or a corporation you control buys substantially identical stock. When a wash sale occurs, you’re no longer able to claim a tax deduction for those losses.

So, in short, yes, wash trading is illegal.

Difference Between Wash Trading & Market Making

Market making and wash trading are not the same thing. A market maker is a firm or individual that buys or sells securities at publicly quoted prices on-demand, and a market maker provides liquidity and facilitates trades between buyers and sellers. For example, if you’re trading through an online broker you’re using a market maker to complete the sale or purchase of securities.

Recommended: What Is a Brokerage Account?

Market making is not market manipulation. A market maker is, effectively, a middleman between investors and the markets. While they do profit from their role by maintaining spreads on the stocks they cover, this is secondary to fulfilling their purpose of keeping shares and capital moving. Without market makers, trades would take longer to execute and the markets could become sluggish.

How to Detect & Avoid Wash Trading

The simplest way to avoid wash trading as an investor is to be aware of what constitutes a wash trade or sale. Again, this can mean the intent to manipulate the markets by placing similar trades within a short time frame, or it can mean inadvertently executing a wash sale because you’re not familiar with the rules.

In the latter case, you can avoid wash trading or wash sales by being mindful of the securities you’re buying and selling and the time frame in which those transactions are completed. So selling XYZ stock at a loss, then buying it again 10 days later to sell it for a profit would likely constitute a wash sale, if you executed the trade in an attempt to be able to deduct the initial loss.

It’s also important to understand how the 30 days period works for timing wash sales. The 30 day rule extends to the 30 days prior to the sale and 30 days after the sale. So effectively, you could avoid the wash sale rule by waiting 61 days to replace assets that you sold in your portfolio to be on the safe side.

💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.

Wash Trading in Crypto Trading

Cryptocurrency can be a target for wash-trading activity. In the EOS case, wash trades were suspected of being used as a means of driving up investor interest surrounding the cryptocurrency during its initial offering. High-frequency trading has also been a target of scrutiny, as some believe it enables wash trading in the crypto markets. Whether wash trading rules and regulations specifically apply to crypto, however, is a bit murky.

The Takeaway

Wash trading involves selling certain securities and then replacing them in a portfolio with identical or very similar securities within a certain time period. This is done so as to avoid making substantial changes in your portfolio. Wash trading is illegal in practice but it’s also avoidable if you’re investing consciously and with a strategy in place.

Understanding when wash sale rules apply can help you to stay out of trouble with the IRS. If you’re unclear about it, you can consult with a financial professional for guidance.

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).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

Photo credit: iStock/mapodile

About the author

Rebecca Lake

SoFi Invest®

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

SOIN0723114

Mar

2025

What Are Cyclical Stocks?

By Rebecca Lake | Financial Independence, Growing Wealth, invest, Investing | Comments Off

Cyclical stocks are stocks that tend to follow trends in the broader economic cycle, with returns fluctuating as the market moves through upturns and downturns. A cyclical stock is the opposite of a defensive stock, which tends to offer more consistent returns regardless of macroeconomic trends.

Investing in cyclical stocks could be rewarding during periods of economic prosperity. During a recession, however, certain types of cyclical stocks may suffer if consumers are spending less.

What Is a Cyclical Stock?

The stock market is not static; it moves in cycles that often mirror the broader economy. To understand cyclical stocks, it helps to understand how the market changes over time, with the understanding that this has a different impact on different types of stocks.

A single stock market cycle involves four phases:

Accumulation (trough)

After reaching a bottom, the accumulation phase signals the start of a bull market and increased buying activity among investors.

Markup (expansion)

During the markup phase more investors may begin pouring money into the market, pushing stock valuations up.

Distribution (peak)

During this phase, investors begin to sell the securities they’ve accumulated, and market sentiment may begin to turn neutral or bearish.

Markdown (contraction)

The final phase of the cycle stock is a market downturn, when prices begin to significantly decline until reaching a bottom, at which point a new market cycle begins.

💡 Quick Tip: The best stock trading app? That’s a personal preference, of course. Generally speaking, though, a great app is one with an intuitive interface and powerful features to help make trades quickly and easily.

Cyclical Stocks Examples

The cyclicality of a stock depends on how they react to economic changes. The more sensitive a stock is to shifting economic trends, the more likely investors would consider it cyclical. Some of the most common cyclical stock examples include companies representing these industries:

• Travel and tourism, including airlines

• Hotels and hospitality

• Restaurants and food service

• Manufacturing (i.e. vehicles, appliances, furniture, etc.)

• Retail

• Entertainment

• Construction

Generally, consumer cyclical stocks represent “wants” versus “needs” when it comes to how everyday people spend. That’s because when the economy is going strong, consumers may spend more freely on discretionary purchases. When the economy struggles, consumers may begin to cut back on spending in those areas.

Cyclical Stocks vs Noncyclical Stocks

Cyclical stocks are the opposite of non cyclical or defensive stocks. Noncyclical stocks don’t necessarily follow the movements of the market. While economic upturns or downturns can impact them, they may be more insulated against negative impacts, such as steep price drops.

Non Cyclical stocks examples may include companies from these sectors or industries:

• Utilities, such as electric, gas and water

• Consumer staples

• Healthcare

Defensive or non cyclical stocks represent things consumers are likely to spend money on, regardless of whether the economy is up or down. So that includes essential purchases like groceries, personal hygiene items, doctor visits, utility bills, and gas. Real estate investment trusts that invest in rental properties may also fall into this category, as recessions generally don’t diminish demand for housing.

Cyclical stocks may see returns shrink during periods of reduced consumer spending. Defensive stocks, on the other hand, may continue to post the same, stable returns or even experience a temporary increase in returns as consumers focus more of their spending dollars on essential purchases.

Dive deeper: Cyclical vs Non-Cyclical Stocks: Investing Around Economic Cycles

Pros and Cons of Investing in Cyclical Stocks

There are several reasons to consider investing in cyclical stocks, though whether it makes sense to do so depends on your broader investment strategy. Cyclical stocks are often value stocks, rather than growth stocks. Value stocks are undervalued by the market and have the potential for significant appreciation over time. Growth stocks, on the other hand, grow at a rate that outpaces the market average.

If you’re a buy-and-hold investor with a longer time horizon, you may consider value cyclical stocks. But it’s important to consider how comfortable you are with investment risk and riding out market ups and downs to see eventual price appreciation in your investment. When considering cyclical stocks, here are some of the most important advantages and disadvantages to keep in mind.

Pros of Cyclical Stocks

• Return potential. When a cyclical stock experiences a boom cycle in the economy, that can lead to higher returns. The more money consumers pour into discretionary purchases, the more cyclical stock prices may rise.

• Predictability. Cyclical stocks often follow market trends, making it easier to forecast how they may react under different economic conditions. This could be helpful in deciding when to buy or sell cyclical stocks in a portfolio.

• Value. Cyclical stocks may be value stocks, which can create long-term opportunities for appreciation. This assumes, of course, that you’re comfortable holding cyclical stocks for longer periods of time.

Cons of Cyclical Stocks

• Volatility. Cyclical stocks are by nature more volatile than defensive stocks. That means they could post greater losses if an unexpected market downturn occurs.

• Difficult to time. While cyclical stocks may establish their own pricing patterns based on market movements, it can still be difficult to determine how long to hold stocks. If you trade cyclical stocks too early or too late in the market cycle, you could risk losing money or missing out on gains.

• Uneven returns. Since cyclical stocks move in tandem with market cycles, your return history may look more like a rollercoaster than a straight line. If you’re looking for more stable returns, defensive stocks could be a better fit.

💡 Quick Tip: Distributing your money across a range of assets — also known as diversification — can be beneficial for long-term investors. When you put your eggs in many baskets, it may be beneficial if a single asset class goes down.

How to Invest in Cyclical Stocks

When considering cyclical stocks, it’s important to do the research before deciding which ones to buy. Having a basic understanding of fundamental analysis and technical analysis can help.

Fundamental analysis means taking a look under a company’s hood, so to speak, to measure its financial health. That can include looking at things like:

• Assets

• Liabilities

• Price to earnings (P/E) ratio

• Earnings per share (EPS)

• Price to earnings growth (PEG)

• Book to value ratio

• Cash flows

Fundamental analysis looks at how financially stable a company is and how likely it is to remain so during a changing economic environment.

Technical analysis, on the other hand, is more concerned with how things like momentum can affect a stock’s prices day to day or even hour to hour. This type of analysis considers how likely a particular trend is to continue.

Considering both can help you decide which cyclical stocks may be beneficial for achieving your short- or long-term investment goals.

The Takeaway

Cyclical stocks are stocks that tend to follow trends in the broader economic cycle, with returns fluctuating as the market moves. Cyclical stocks could be a good addition to your portfolio if you’re interested in value stocks, or you want to diversify with companies that may offer higher returns in a strong economy.

Investing in cyclical stocks does have its pros and cons, however, like investing in just about any other type or subset of securities. Investors should make sure they know the risks, and consider talking to a financial professional before making a decision.

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

About the author

Rebecca Lake

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.
For a full listing of the fees associated with Sofi Invest please view our fee schedule.

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.

Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

Investment Risk: Diversification can help reduce some investment risk. It cannot guarantee profit, or fully protect in a down market.

SOIN0623059

Mar

2025

Brokered Certificates of Deposit (CDs): What Are They and How They Work

Brokered Certificates of Deposit (CDs): What They Are and How They Work

By Rebecca Lake | Growing Wealth, Investing, money | Comments Off

A brokered CD is a CD that’s sold by a brokerage firm or a deposit broker (an individual that can place financial deposits in an institution on behalf of a third party), rather than a bank. Brokered CDs may offer higher rates than traditional CDs sold at a bank, but they may also entail greater risk for investors.

Before investing in brokered CDs, it’s important to understand how they work, how they differ from traditional CDs, and the potential pros and cons of these accounts.

What Is a Brokered Certificate of Deposit?

A certificate of deposit is a type of savings account that allows you to deposit money and earn interest over a set time period called the term, which is usually a few months to five years. When a traditional CD reaches maturity, you can withdraw the principal plus interest, or roll it over to another CD. Traditional CDs are generally FDIC insured.

A brokered CD is a CD that’s offered by a broker or brokerage firm that’s authorized to act as a deposit broker on behalf of an issuing bank. These CDs often function more like bonds and they may be sold on the secondary market. Brokered CDs tend to be FDIC insured — as long as the CD was bought by the broker from a federally-insured bank.

What is a brokered CD in simpler terms? It’s a CD you buy from a brokerage. A deposit broker buys the CDs from a bank, then resells them to investors. Brokered CDs are held in a brokerage account. They can earn interest, but instead of only being static investments that you hold until maturity like traditional CDs, you can trade brokered CDs like bonds or other securities on the secondary market.

Compared to a standard CD, a brokered CD may require a higher minimum deposit than for a traditional bank CD. The trade-off, however, is that brokered CDs may potentially offer higher returns than you could get with a regular CD.

💡 Quick Tip: Help your money earn more money! Opening a bank account online often gets you higher-than-average rates.

How Brokered CDs Work

To buy a brokered certificate of deposit, you first need to find a deposit broker that offers them. Banks can issue CDs specifically for the customers of brokerage firms. These CDs may be issued in large denominations, say several million dollars. The brokerage would then break that large CD into smaller CDs to offer to its customers.

You could buy a brokered CD, depositing the minimum amount required or more. The brokered CD then earns interest, with the APY typically corresponding to the length of the maturity term. While longer terms typically earn higher interest rates, currently, short term CDs are offering higher rates because banks believe the Federal Reserve may cut the interest rate in the future. For example, you might be offered a 12-month brokered CD earning 5.40% or a 24-month brokered CD that yields 5.25%.

Ordinarily, you’d have to keep the money in your CD until the CD matures (if you withdraw the funds before the CD matures, you could face an early-withdrawal penalty). You could then roll the original deposit and interest into a new CD or withdraw the total amount.

With brokered CDs, on the other hand, you have the option to sell the CD on the secondary market before it matures.

Examples of Brokered CDs

Many online brokerages offer brokered CDs, including Fidelity, Vanguard and Charles Schwab, to name just a few. Here are the rates on some brokered CDs, as of late May 2024.

Vanguard: Up to 5.50% APY for a 10- to 12-month brokered CD

Fidelity: Up to 5.40% APY for a 6-month brokered CD

Charles Schawb: Up to 5.51% APY for a 3-month brokered CD

Advantages of a Brokered CD

Brokered CDs can offer several advantages, though they may not be the best option for every investor. Here are some of the potential benefits of a brokered certificate of deposit.

More Flexibility Than Traditional CDs

Brokered CDs can offer more flexibility than investing in bank CDs in the sense that they can have a variety of maturity terms, so you can choose ones that fit your needs and goals. You might select a 90-day brokered CD, for example, if you’re looking for a short-term investment or choose one with a 2-year maturity if you’d prefer something with a longer term. It’s also possible to purchase multiple brokered CDs issued by different banks and hold them all in the same brokerage account for added convenience.

Easier to Get Money Out Early on the Secondary Market

With a standard CD, you’re more or less locked in to the account until it matures. (While you could take money out early if your bank allows it, it’s likely you’ll pay an early withdrawal penalty to do so. This penalty can reduce the amount of interest earned.) Brokered CDs don’t have those restrictions; if you need to get money fast then you could sell them on the secondary market, effectively cashing out your principal and interest gains — without a penalty.

Higher Yields Than Standard Bank CDs

Deposit brokers that offer brokered certificates of deposit can use the promise of higher interest rates to attract investors. Rather than earning 1.00% on a CD as you might at a bank, you could potentially earn 5.00% or more with a brokered CD. If you’re seeking higher returns in your portfolio with investments that offer greater liquidity, brokered CDs could hit the mark.

You may also get a higher yield from a brokered CD versus a bond, with greater liquidity to boot.

Potential to Make Profit Once It Reaches Maturity Even If Interest Rates Fall

Interest rates for brokered CDs are locked until maturity. So even if rates fall during the maturity period, you could still profit when you sell the brokered CD later. As a general rule, shorter-term brokered CDs are less susceptible to interest rate risk than ones with longer terms.

Disadvantages of a Brokered CD

Brokered CDs can have some drawbacks that investors need to know about.

Long-Term Brokered CDs Expose Investors to Interest Rate Risk

As mentioned, the longer the CD term the more exposure you have to interest rate risk. Brokered CD prices are subject to fluctuations on the secondary market. If interest rates rise, this usually has an inverse effect on the market price of existing brokered CDs. That means if you were to sell those CDs before maturity, you run the risk of getting less than what you paid for them.

Different Risk When Interest Rates Fall

You can also run into a different type of risk when rates are dropping if your brokered CDs are callable. A callable CD means the issuing bank can terminate or call the CD prior to maturity, similar to a callable bond. Callable brokered CDs can be problematic when rates drop because you’re forced to cash in your investment. In doing so, you’ll miss out on the full amount of interest you could have earned if you’d been able to hold the CD to maturity.

Temptation to Sell May Be Costly

The early withdrawal penalty associated with bank CDs actually serves an important purpose: It keeps you from taking money out of your CD early. Since brokered CDs don’t have this penalty, there’s nothing stopping you from selling your CDs on the secondary market whenever you like. That means it’s easier to cash out your investment, rather than sticking with it, which could cost you interest earnings.

Comparing Brokered CDs to Other CDs

When deciding whether or not to invest in a brokered CD, it can be helpful to compare them to other types of CDs to see how they stack up.

Brokered CD vs Bank CD

Bank CDs are typically purchased from a bank. They are purchased for a set period of time and must be held until maturity. If you want to cash out the CD early you will generally have to pay an early withdrawal penalty.

Brokered CDs are purchased from a deposit broker or brokerage house. They don’t have early withdrawal penalties so you can sell them on the secondary market if you choose to do so.

Brokered CD vs Bull CD

A bull CD is a CD that offers investors an interest rate that’s tied to an index or benchmark like the S&P 500 Index. Investors are also guaranteed a minimum rate of return. Bull CDs can also be referred to as equity-linked or market-linked CDs.

Brokered CDs earn interest but the rate is not tied to a market index. Instead, the rate is fixed for the maturity term.

Brokered CD vs Bear CD

Bear CDs are the opposite of bull CDs. With this type of CD, interest is earned based on declines in the underlying market index. So in other words, you make money when the market falls.

Again, brokered CDs don’t work this way. There is no index correlation; returns are based on the interest rate assigned at the time the CD is issued.

Brokered CD vs Yankee CD

Yankee CDs are CDs issued by foreign banks in the U.S. market. For example, a Canadian bank that has a branch in New York might offer Yankee CDs to its U.S. customers. Yankee CDs are typically suited to higher net worth investors, as they may require $100,000 or more to open. Unlike brokered CDs, which have fixed rates, a Yankee CD may offer a fixed or floating rate.

This chart offers an at-a-glance comparison of the CDs mentioned above and how they work.

Brokered CD	Bank CD	Bull CD	Bear CD	Yankee CD
Issued by a bank, sold by a brokerage	Issued and sold by a bank	Issued by a bank, sold by a brokerage	Issued by a bank, sold by a brokerage	Issued by a foreign bank and sold in the U.S.
Earns a fixed interest rate	Earns a fixed interest rate	Earns an interest rate that correlates to an underlying index	Returns are tied to an underlying market index	May offer a fixed or floating rate
Maturity terms are fixed; however, brokered CDs can be sold on the secondary market before maturity	Maturity terms are fixed	Investors are guaranteed a minimum rate of return	Interest is earned based on declines in the market	Maturity rates can be fixed or variable
May be FDIC-insured when issued by a qualifying bank	FDIC-insured	Not FDIC-insured	Not FDIC-insured	Not FDIC-insured

How to Buy a Brokered CD

If you’d like to buy a brokered CD, you’ll first need to find a brokerage that offers them. You can then open a brokerage account, which typically requires filling out some paperwork and verifying your ID. Most brokerages let you do this online to save time.

Once your account is open, you should be able to review the selection of brokered CDs available to decide which ones you want to purchase. When comparing brokered CDs, pay attention to:

• Minimum deposit requirements

• Maturity terms

• Interest rates

• Fees

Also, consider whether the CD is callable or non-callable as that could potentially affect your returns.

Are Brokered CDs FDIC Insured?

Brokered CDs are generally FDIC-insured if the bank issuing them is an FDIC member. The standard FDIC coverage limits apply. Currently, the FDIC insures banking customers up to $250,000 per depositor, per account ownership type, per financial institution. You have to be listed as the CD’s owner in order for the FDIC protection to kick in.

There is an exception if brokered CDs function more like an investment account. In that case, you would have no FDIC protection. The FDIC does not consider money held in securities to be deposits and encourages consumers to understand where they’re putting their money so they know if they’re covered or not.

However, it’s possible that you may be covered by the Securities Investor Protection Corporation (SIPC) if a member brokerage or bank brokerage subsidiary you have accounts with fails.

Are Brokered CDs Better Than Bank CDs?

Brokered CDs do offer some advantages over bank CDs, in terms of flexibility, liquidity, and returns. You’re also free from withdrawal penalties with brokered certificates of deposit. You could, however, avoid this with a no-penalty CD.

What is a no-penalty CD? Simply put, it’s a CD that allows you to withdraw money before maturity without an early withdrawal fee. Some banks offer no-penalty CDs, along with Raise Your Rate CDs and Add-On CDs to savers who want more than just a standard certificate of deposit account.

Here’s something else to keep in mind. You’ll typically need more money to invest in brokered CDs vs. bank CDs. And you’re taking more risk with your money, since brokered CDs are more susceptible to market risk and interest rate risk.

Bank CDs, by comparison, are generally lower-risk investments.

When to Consider Brokered CDs Over Bank CDs

You might choose a brokered CD over bank CDs if brokered certificates of deposit are offering competitive rates and you plan to hold the CD until maturity. Even if rates were to rise during the maturity period, you could still realize a gain when it’s time to cash the CD out.

Paying attention to interest rates can help you decide on the right time to invest in a brokered certificate of deposit. Also, consider the minimum investment and any fees you might pay to purchase the CD.

When to Consider Bank CDs Over Brokered CDs

You might consider bank CDs over brokered CDs if you’d prefer to take less risk with your money. CDs are designed so that you get back the money you put into them, along with the interest earned. Typically, the only time you might lose money from a bank CD is if you cash it out early and have to pay an early withdrawal penalty.

Bank CDs may also be more attractive if you don’t want to tie up your money in a single brokered CD. For example, instead of putting $10,000 into a single brokered certificate of deposit you might spread that out across five or six bank CDs with different maturity dates instead.

This is called CD laddering. Creating a CD ladder can provide some flexibility, since it may be easier to avoid early withdrawal fees if a maturity date is always on the horizon. You could also use a CD ladder to capitalize on rising rates by rolling CDs over once they mature.

Finally, keep in mind that buying CDs is not the only way to save money and potentially help it grow. For instance, if you’re committed to saving, and you want to earn more interest than you’d get with the standard savings account, you might also want to consider opening a high-yield savings account. Taking some time to explore your options can help you determine the best savings vehicles for your needs.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 3.80% APY on SoFi Checking and Savings.

FAQ

Can you lose money on a brokered CD?

It’s possible to lose money on a brokered CD if you sell it prior to maturity after interest rates have risen. Higher rates can cause the market price of brokered CDs to decline, meaning you could end up selling them for less than what you paid.

Are brokered CDs a good idea?

While it depends on your specific situation, a brokered CD might be a good idea if you understand the risks involved. Brokered certificates of deposit can offer the potential to earn higher interest rates than regular CDs. But it’s also possible to lose money with this type of CD. Be sure to weigh the pros and cons.

What is the difference between a brokered CD and a bank CD?

A brokered CD is issued by a bank and sold by a brokerage. Bank CDs are issued by banks and offered directly to their customers. Brokered CDs may have higher minimum deposit requirements and offer higher interest rates. They are also typically more flexible than bank CDs because you can sell them on the secondary market, while you are required to hold onto bank CDs for the full term or risk paying an early withdrawal penalty.

About the author

Rebecca Lake

Photo credit: iStock/Anchiy

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.

External Websites: The information and analysis provided through hyperlinks to third-party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.

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® Checking and Savings is offered through SoFi Bank, N.A. ©2025 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
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.

3.80% APY
SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. 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 during a 30-day Evaluation Period (as defined below).

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 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, 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 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY 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, 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 members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% 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 1/24/25. There is no minimum balance requirement. Additional information can be found at http://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.

SOBK-Q224-1874471-V1

7 Places to Put Your Cash

Low-Risk Places to Put Cash

Checking Account

Savings Account

Money Market Account

High-Yield Savings Account

Get up to $300 when you bank with SoFi.

Higher-Risk Places to Put Cash

Stocks

Bonds

Exchange-Traded Funds and Mutual Funds

The Takeaway

Understanding the Different Types of Mutual Funds

Mutual Funds Recap

Alternative investments, now for the rest of us.

Start trading funds that include commodities, private credit, real estate, venture capital, and more.

9 Types of Mutual Funds

1. Equity Funds

2. Bond Funds or Fixed-Income Funds

3. Money Market Funds

4. Index Funds

5. Balanced Funds

6. Income Funds

7. International Funds

8. Specialty Funds

9. Target Date Funds

What’s the Difference Between Mutual Funds and ETFs?

The Takeaway

Wash Trading: What Is It and How Does It Work?

What Is Wash Trading?

How Does Wash Trading Work?

Example of a Wash Trade

Is Wash Trading Illegal?

Difference Between Wash Trading & Market Making

How to Detect & Avoid Wash Trading

Wash Trading in Crypto Trading

The Takeaway

What Are Cyclical Stocks?

What Is a Cyclical Stock?

Accumulation (trough)

Markup (expansion)

Distribution (peak)

Markdown (contraction)

Cyclical Stocks Examples

Cyclical Stocks vs Noncyclical Stocks

Pros and Cons of Investing in Cyclical Stocks

Pros of Cyclical Stocks

Cons of Cyclical Stocks

How to Invest in Cyclical Stocks

The Takeaway

Brokered Certificates of Deposit (CDs): What They Are and How They Work

What Is a Brokered Certificate of Deposit?

How Brokered CDs Work

Examples of Brokered CDs

Advantages of a Brokered CD

More Flexibility Than Traditional CDs

Easier to Get Money Out Early on the Secondary Market

Higher Yields Than Standard Bank CDs

Potential to Make Profit Once It Reaches Maturity Even If Interest Rates Fall

Get up to $300 when you bank with SoFi.

Disadvantages of a Brokered CD

Long-Term Brokered CDs Expose Investors to Interest Rate Risk

Different Risk When Interest Rates Fall

Temptation to Sell May Be Costly

Comparing Brokered CDs to Other CDs

Brokered CD vs Bank CD

Brokered CD vs Bull CD

Brokered CD vs Bear CD

Brokered CD vs Yankee CD

How to Buy a Brokered CD

Are Brokered CDs FDIC Insured?

Are Brokered CDs Better Than Bank CDs?

When to Consider Brokered CDs Over Bank CDs

When to Consider Bank CDs Over Brokered CDs

FAQ

Can you lose money on a brokered CD?

Are brokered CDs a good idea?

What is the difference between a brokered CD and a bank CD?

JOIN THE COMMUNITY

Student Loan Refinancing

Alternative investments,
now for the rest of us.

Student Loan
Refinancing

Personal
Loans

Online
Investments