Jun
28
2025
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How to Find the Right Fixed Index Annuity Rate for Your Needs

By | Growing Wealth, invest, Investing | Comments Off on How to Find the Right Fixed Index Annuity Rate for Your Needs

Annuities are a type of insurance contract that investors can use to fund their retirement or help meet other financial goals. When someone purchases an annuity, they pay premiums to the annuity issuer. The annuity company then makes regular payments back to the annuitant as agreed in the annuity contract.

Annuities can provide a steady stream of income in retirement, which may help support people’s investment goals. What’s important to keep in mind, however, is that rates of return generated can vary from one annuity to the next. It’s helpful to understand how to compare index annuity rates side by side to find the best one for your needs.

Key Points

•   Fixed index annuities offer a guaranteed minimum return and potential for higher returns linked to a market index.

•   Key factors affecting rates are cap rate, participation rate, and fees.

•   These annuities may help balance safety with market growth opportunities.

•   A good rate considers minimum return, cap, participation, fees, and the company’s financial health.

•   Evaluate companies by financial ratings and compare rates, fees, and terms to direct market investments.

What Is an Indexed Annuity?

An indexed annuity, or fixed index annuity, is a specific type of annuity product that can yield a minimum guaranteed rate of return along with a rate of return that’s linked to a stock market index.

For example, the annuity’s performance may be based on the performance of the S&P 500 Composite Price Index. This is a market capitalization-weighted index that represents 500 of the largest publicly traded U.S. companies.

Generally, annuities are indexed, fixed, or variable. With a fixed annuity, you’re guaranteed to earn a minimum rate of return, making them relatively safe investments. Variable annuity returns hinge on how underlying annuity investments, such as mutual funds, perform which can make them riskier. Indexed annuities strike a middle ground in terms of their risk/reward profile.

This type of annuity may be suitable to investors who seek upside potential with built-in downside protection, while enjoying the benefits of tax-deferred growth. Indexed annuities may also be favorable among investors who lean toward a passive versus active investing strategy.

What Are Fixed Index Annuity Rates?

Fixed index annuity rates are the guaranteed minimum rate of return on an annuity. Rather than tracking interest rates, the fixed index annuity rate is benchmarked against a particular index.

How Fixed Index Annuities Work

Fixed index annuities have two phases: the accumulation phase and the income phase.

Once you purchase a fixed indexed annuity, the accumulation phase begins. This is the period during which your annuity earns interest on a tax-deferred basis. The amount of money you have in the annuity, also referred to as the contract value, can fluctuate over time based on how the underlying index that the annuity tracks is performing.

Annuity returns are typically recalculated every 12 months, though the annuity contract should spell out how and when return calculations occur. It’s important to keep in mind that the contract may specify a cap rate, which represents the maximum positive rate of return an indexed annuity can earn.

The income or annuity phase is when payments are made back to you from the contract. These payments can be made periodically or be delivered in a single lump sum. Additionally, they can last for a specified time frame or for the duration of your natural life. If you’re married, indexed annuity payments can also continue to be paid to your spouse after you pass away. The annuity contract will detail the payment schedule.

For example, in the accumulation phase, an annuity might pay out a minimum of 3% with a 7% rate cap (even if the index is tracking at 11%). In the income phase, the fixed index annuity might be paid monthly starting at a predetermined date, and pay out across the lifetime of you and/or your spouse.

How Are Fixed Index Annuity Rates Set?

Broadly speaking, index annuity rates are tied to the index they track. So again, this could be an index like the S&P 500 Composite Price Index or the Nasdaq 100.

With a fixed index annuity, the annuity company guarantees a minimum interest rate alongside the interest rate generated by the underlying index.

When setting fixed index annuity rates, annuity contract providers typically use several factors to determine how much of a return is credited to the contract owner. The actual rate of return realized from an indexed annuity can depend on:

•  Cap rate

•  Participation rate

•  Margin/spread fees

•  Riders

Here’s more on how each one affects fixed index annuity rates.

Cap Rate

Cap rate represents the upper limit on returns that an annuity can earn over time. For instance, an indexed annuity that has a 3.5% cap rate would limit the returns credited to the annuity owner to that amount — even when the underlying index produces a higher rate of return. Generally, cap rates fall somewhere between 3 and 7% per year.

Participation Rate

If the index an annuity tracks goes up, the participation rate determines how much of that gain is credited to an annuity owner. For instance, if the index increases by 10% and the participation rate is 80%, an 8% return would be credited.

Margin/Spread Fees

Also referred to as an administrative fee, this fee can deduct a set percentage from index gains. An indexed annuity that realizes a 10% gain and has a 3% spread fee, for example, would yield a net credited return of 7%.

Riders

Riders can be used to enhance fixed indexed annuity benefits. For instance, you might choose to add a rider that would guarantee lifetime income payments to your spouse if you’re married. Expanding the annuity’s coverage can result in added premium costs, which may reduce credited returns.

What Is a Good Fixed Index Annuity Rate?

A “good” fixed index annuity rate is one that results in a rate of return that aligns with your objectives and needs. Index annuity rates can also vary based on the length of the contract term. Cost is also an important consideration, as indexed annuities can charge a variety of fees, including administrative fees and surrender charges, which may apply if you decide to cancel an annuity contract.

The top index annuities are the ones that offer the best combination of high rates and low fees. It’s also important to consider an annuity company’s ratings before purchasing an indexed annuity.

Is an Indexed Annuity Right for You?

Fixed index annuities can offer the potential to earn higher rates of return compared to traditional fixed annuities. At the same time, they may be less risky than a variable annuity product since they track an index rather than investing in the market directly.

Investment risk management is an important part of any strategy for growing wealth, even when you’re starting from scratch with building an investment portfolio. Indexed annuities aim to help with balancing that risk while creating an ongoing stream of income to rely on in retirement.

That said, it’s also important to consider how fixed index annuity rates compare to the rate of return one could earn by investing in the market directly. For example, you may see better returns by investing in individual stocks. That does involve taking more risk but individuals with a longer timeline until retirement generally have a broader window to recover from market downturns.

The Takeaway

A fixed index annuity offers investors a minimum guaranteed rate of return along with a rate of return that’s linked to a stock market index. While fixed indexed annuities do offer some advantages, they may not suit every investor and it’s important to research index annuity rates to find the right one.

FAQ

What is a fixed annuity?

Fixed annuities are a type of insurance contract that investors can use to fund their retirement or meet other financial goals. When someone purchases an annuity, they pay premiums to the annuity issuer, and the annuity company then makes regular payments back to the annuitant as agreed in the annuity contract.

What is an indexed annuity?

An indexed annuity, or fixed index annuity, is a specific type of annuity product that can yield a minimum guaranteed rate of return along with a rate of return that’s linked to a stock market index.

What determines fixed index annuity rates?

Annuity contract providers typically use several factors to determine how much of a return is credited to the contract owner. The actual rate of return realized from an indexed annuity can depend on the cap rate, participation rate, margin and spread fees, and riders.

About the author

Rebecca Lake

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.



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

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

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

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.

¹Claw Promotion: Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

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

S&P 500 Index: The S&P 500 Index is a market-capitalization-weighted index of 500 leading publicly traded companies in the U.S. It is not an investment product, but a measure of U.S. equity performance. Historical performance of the S&P 500 Index does not guarantee similar results in the future. The historical return of the S&P 500 Index shown does not include the reinvestment of dividends or account for investment fees, expenses, or taxes, which would reduce actual returns.
Mutual Funds (MFs): 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 clicking the prospectus link on the fund's respective page at sofi.com. You may also contact customer service at: 1.855.456.7634. Please read the prospectus carefully prior to investing.Mutual Funds must be bought and sold at NAV (Net Asset Value); unless otherwise noted in the prospectus, trades are only done once per day after the markets close. Investment returns are subject to risk, include the risk of loss. Shares may be worth more or less their original value when redeemed. The diversification of a mutual fund will not protect against loss. A mutual fund may not achieve its stated investment objective. Rebalancing and other activities within the fund may be subject to tax consequences.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

SOIN-Q225-135

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Jun
28
2025
Lessons From the Dotcom Bubble_780x440-1

Lessons From the Dotcom Bubble

By | Financial Independence, invest, Terminology | Comments Off on Lessons From the Dotcom Bubble

At the dawn of the millennium, the “dot-com bubble” burst, and many tech companies either went bankrupt, or saw their values plunge. Many recovered, others did not. But it was a classic case of a market bubble, and there are lessons to be drawn from it.

A bubble comprises numerous factors — such as rising stock valuations, an increase in initial public offerings (IPOs), and a focus on buzz over basics — and financial professionals are always on the lookout for the next one. Here are five lessons from the dot-com bubble and the financial crisis that followed.

Key Points

•   Asset bubbles may arise when investors’ extreme enthusiasm overshadows researching company fundamentals.

•   Diversification of assets may help to shield a portfolio against sharp market downturns.

•   Momentum trading demands discipline and paying close attention to market movements to avoid prolonged holding.

•   Historical events may provide insights but not necessarily forecasts — it’s important to view potential investments in context of the current market.

•   The Dot-com bubble burst during the middle of 2000.

What Caused the Dot-com Bubble, and Why Did It Burst?

Back in the mid-1990s, investors fell in love with all things internet-related. Dot-com and other tech stocks soared. The number of tech IPOs spiked. For example, one company, theGlobe.com Inc., rose 606% in its first day of trading in November 1998.

Venture capitalists poured money into tech and internet start-ups. And enthusiastic investors — often drawn by the hype instead of the fundamentals — kept buying shares in companies with significant challenges, trusting they’d make it big later.

But that didn’t happen. Many of those exciting new companies with optimistically valued stocks weren’t turning a profit. And as companies ran through their money, and fresh sources of capital dried up, the buzz turned to disillusionment. Insiders and more-informed investors started selling positions. And average investors, many of whom got in later than the smart money, suffered losses.

The tech-heavy Nasdaq index had climbed nearly 600% between 1995 to 2000. The gauge however slid from a peak of 5,048.62 on March 10, 2000, to 1,139.90 on Oct. 4, 2002. Many wildly popular dot-com companies (including Kozmo.com, eToys.com, and Excite) went bust. Equities entered a bear market. And the Nasdaq didn’t return to its peak until 2015.

What Can Investors Today Learn from the Past?

Every investment carries some risk, and volatility for stocks is generally known to be higher than for other asset classes, such as bonds or certificates of deposit (CDs). But there are strategies that can help investors manage that risk.

Here are some lessons:

1. Diversification Matters

One of the most established strategies for protecting a portfolio is to diversify into different market sectors and asset classes. In other words, don’t put all your eggs in one basket.

It may be tempting to go all-in on the latest hot stock, or to invest in a sector you’re intrigued by or think you know something about. But if that stock or sector tanks, as tech did in 2000, you could lose big.

Allocating across assets may reduce your vulnerability because your money is distributed across areas that aren’t likely to react in the same way to the same event.

Diversifying your portfolio won’t necessarily ensure a profit or guarantee against loss. And you might not be able to brag about your big score. Over time though, and with a steady influx of money into your account, you’ll likely have the opportunity to grow your portfolio while experiencing fewer gut-wrenching bumps along the way.

2. Ignoring Investing Basics Can Have Consequences

Even as the stock market began its meltdown in 2000, individual investors — caught up in the rush to riches — continued to dump money into equity funds. And many failed to do their homework and research the stocks they were buying.

Prices didn’t always reflect underlying business performance. Most of the new public companies weren’t profitable, but investors ignored poor fundamentals and increasing warnings about overvalued prices. In a December 1996 speech, then Federal Reserve Chairman Alan Greenspan warned that “irrational exuberance” could “unduly escalate asset values.” Still, the behavior continued for years.

When Greenspan eventually tightened up U.S. monetary policy in the spring of 2000, the reaction was swift. Without the capital they needed to continue to grow, companies began to fail. The bubble popped and a bear market followed.

From 1999 to 2000, shares of Priceline Inc., the name-your-own-price travel booking site, plunged 98%. Just a couple months after its IPO in 2000, the sassy sock puppet from Pets.com was silenced when the company folded and sold its assets. Even Amazon.com’s shares suffered, losing 90% of their value from 1999 to 2001.

And it wasn’t just day traders who were losing money. A Vanguard study showed that by the end of 2002, 70% of 401(k)s had lost at least one-fifth of their value, and 45% had lost more than one-fifth.

Valuing a Stock

There are many different ways to analyze a stock you’re interested in — with technical, quantitative, and qualitative analysis, and by asking questions about red flags. It can help in determining whether a company is undervalued or overvalued.

Even if you’re familiar with what a company does, and the products and services it offers, it can help to look deeper. If you don’t have the time to do your due diligence — to look at price-to-earnings ratios, business models, and industry trends — you may want to work with a professional who can help you understand the pros and cons of investing in certain businesses.

3. Momentum Is Tricky

Momentum trading when done correctly has the potential to be profitable in a relatively short amount of time, and successful momentum traders may turn out profits on a weekly or daily basis. But it can take discipline to get in, get your profit and get out.

Tech stocks rallied in the late 1990s because the internet was new and everybody wanted a piece of the next big thing. But when the reality set in that some of those dot-com darlings weren’t going to make it, and others would take years to turn a profit, the momentum faded. Investors who got in late or held on too long — out of greed or panic or stubbornness — came up empty-handed.

Identifying a potential bubble is tough enough, and it’s only the first step in avoiding the fallout should it eventually burst. Determining when that will happen can be far more challenging. If day-trading strategies and short-term investing are your thing, you may want to pay attention to the trends and your own gut, and get out when they tell you it’s time.

4. History May Repeat, But It Doesn’t Clone Itself

There are similarities between what’s happening in the more recent tech sector and the dot-com bubble that popped in 2000. But the situations are not exactly the same.

For one thing, investors today may have a better grip on what the Internet is, and how long it can take to develop a new idea or company. Some stock valuations today are, indeed, stretched but not as stretched as they were during the dot-com bubble.

Though it can be useful to look at past events for investing insight, it’s also important to look at stock prices in the context of the current economy.

5. You Can’t Always Predict a Downturn, But You Can Prepare

The dot-com stock-market crash hit some investors hard — so hard that many gave up on the stock market completely.

That’s not uncommon. Investors’ decisions are often driven by emotion over logic. But the result was that those angry and fearful investors lost out on an 11-year bull market. You don’t have to look at every asset bubble or market downturn as a signal to run for the hills. Also, if the market decline is followed by a rally, you could miss out.

One strategy — along with diversifying your portfolio — may be to keep a small percentage of cash in your investment or savings account. That way you’ll have protected at least a portion of your money, and you’ll be set up to take advantage of any new opportunities and bargains that might emerge if the stock market does go south.

Investors should also really look at a company’s fundamentals as well. Does a business make sense? Does it seem like they can grow their sales and keep costs low? Who are the competitors? Do you trust the CEO and management? After deep research into these topics, if the company is still attractive to you, then it could make sense to hang on to at least some of the shares.

If you’re a long-term investor who’s purchased shares in strong, healthy companies, those stocks could very well rebound. But this is an incredibly difficult process that even seasoned investors can get wrong.

The Takeaway

Asset bubbles like the dot-com bubble can have different causes, but the thing they tend to have in common is that investors’ extreme enthusiasm leads them to throw caution to the wind. In the late-‘90s and early-2000s, that “irrational exuberance” led investors to buy overpriced shares in internet companies with the expectation that they couldn’t lose. And when they did lose, the dot-com craze turned into a dot-com crash. Investors who thought they had a piece of the next big thing lost money instead.

Could it happen again? Unfortunately, there’s really no way to know when an asset bubble will burst or how severe the fallout might be. But a diversified portfolio can offer some protection. So can paying attention to investing basics and doing your homework before putting money into a certain stock. And it never hurts to ask for help.

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).

¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.

FAQ

What was the dot-com bubble?

The dot-com bubble was a period marked by rising tech stocks and tech IPOs in the late 1990s, which eventually led to a bubble burst. Many companies went bankrupt or lost significant value after the burst.

What caused the dot-com bubble to burst?

Some reasons that the dot-com bubble burst include the fact that many companies weren’t profitable despite their lofty valuations, dried-up sources of capital, and fleeing insiders selling shares.

What are some lessons from the dot-com bubble?

Some lessons may include the fact that diversification is important, ignoring investment basics can have negative consequences, and that market bubbles are always possible, so investors should pay close attention.


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

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

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

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.

¹Claw Promotion: Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. 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.

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. This should not be considered a recommendation to participate in IPOs and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation. New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For more information on the allocation process please visit IPO Allocation Procedures.

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

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Jun
28
2025
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What Is a Clearinghouse?

By | invest, Investing | Comments Off on What Is a Clearinghouse?

A clearinghouse is a financial institution that acts as a middleman between buyers and sellers in a market, ensuring that transactions take place even if one side defaults. If one side of a deal fails, a clearinghouse can step in to fill the gap, thus reducing the risk that a failure will ripple across financial markets. In order to do this, clearinghouses ask their members for “margin,” or collateral that is held to keep them safe from their own actions and the actions of other members.

While often described as the “plumbing” behind financial transactions, clearinghouses became high profile after the 2008 financial crisis, when the collapse of Lehman Brothers Holdings Inc. exposed the need for steady intermediaries in many markets. Regulations introduced by the Dodd-Frank Act demanded greater clearing requirements, turning the handful of clearinghouses in the country into some of the most systemically important entities in today’s financial system.

Key Points

•   Clearinghouses act as intermediaries in financial markets, ensuring transactions complete even if a party defaults.

•   Clearinghouses manage the clearing and settlement process, transferring assets and funds between parties.

•   Margin requirements and default funds help provide layers of protection against financial instability.

•   Clearinghouses gained prominence after the 2008 financial crisis, enhancing market stability.

•   Regulators have raised concerns that clearinghouses may be too big to fail, concentrating financial risk.

How Clearinghouses Work

Clearinghouses handle the clearing and settlement for member trades. Clearing is the handling of trades after they’re agreed upon, while settlement is the actual transfer of ownership, or delivering an asset to its buyer and the funds to its seller.

Other responsibilities include recording trade data and collecting margin payments. The margin requirements are usually based on formulas that take into account factors like market volatility, the balance of buy-versus-sell orders, as well as value-at-risk, or the risk of losses from investments.

Because they handle investing risk from both parties in a trade, clearinghouses typically have a “waterfall” of potential actions in case a member defaults. Here are the layers of protection a clearinghouse has for such events:

1.    Margin requirements by the member itself. If market volatility spikes or trades start to head south, clearinghouses can put in a margin call and demand more money from a member. In most cases, this response tends to cover any losses.

2.    The next buffer would be the clearinghouse’s own operator capital.

3.    If these aren’t enough to staunch the losses, the clearinghouse could dip into the mutual default fund made up from contributions by members. Such an action however could, in turn, cause the clearinghouse to ask members for more money, in order to replenish the collective fund.

4.    Lastly, a resolution could be to try to find more capital from the clearinghouse itself again — such as from a parent company.

Are Clearinghouses “Too Big to Fail?”

Some industry observers have argued that regulations have made clearinghouses too systemically important, turning them into big concentrations of financial risk themselves.

These critics argue that because of their membership structure, the risk of default in a clearinghouse is spread across a group of market participants. And one weak member could be bad news for everyone, especially if a clearinghouse has to ask for additional money to refill the mutual default fund. Such a move could trigger a cascade of selling across markets as members try to meet the call.

Other critics have said the margin requirements and default funds at clearinghouses are too shallow, raising the risk that clearinghouses burn through their buffers and need to be bailed out by a government entity or go bankrupt, a series of events that could meanwhile throw financial markets into disarray.

Clearinghouses in Stock Trading

Stock investors may have learned the difference between a trade versus settlement date. Trades in the stock market aren’t immediate. Known as “T+2,” settlement happens two days after the trade happens, so the money and shares actually change hands two days later.

In the U.S., the Depository Trust & Clearing Corporation (DTCC) handles the majority of clearing and settling in equity trades. Owned by a financial consortium, the DTCC clears trillions in stock trades each day.

Clearinghouses in Derivatives Trading

Clearinghouses play a much more central and pivotal role in the derivatives market, since derivatives products are typically leveraged, so money is borrowed in order to make bigger bets. With leverage, the risk among counterparties in trading becomes magnified, increasing the need for an intermediary between buyers and sellers.

Prior to Dodd-Frank, the vast majority of derivatives were traded over the counter. The Act required that the world of derivatives needed to be made safer and required that most contracts be centrally cleared. With U.S. stock options trades, the Options Clearing Corp. is the biggest clearinghouse, while CME Clearing and ICE Clear U.S. are the two largest in other derivatives markets.

The Takeaway

Clearinghouses are financial intermediaries that handle the mechanics behind trades, helping to back and finalize transactions by members. But since the 2008 financial crisis, the ultimate goal of clearinghouses has been to be a stabilizing force in the marketplace. They sit in between buyers and sellers since it’s hard for one party to know exactly the risk profile and creditworthiness of the other.

For beginner investors, it can be helpful to understand this “plumbing” that allows trades to take place and helps ensure financial markets stay stable.

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).

¹Opening and funding an Active Invest account gives you the opportunity to get up to $3,000 in the stock of your choice.

FAQ

What does a clearinghouse do?

Clearinghouses handle the clearing and settlement for trades on the markets. Clearing is the handling of trades after they’re agreed upon, while settlement is the actual transfer of ownership, or delivering an asset to its buyer and the funds to its seller.

What role do clearinghouses play in the markets?

Since the financial crisis in 2008 and 2009, clearinghouses largely play a stabilizing role, while also clearing trades.

What protections help stabilize the markets as it relates to clearinghouses?

Margin requirements and default funds provide layers of protection against financial instability.


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

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

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

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.

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

¹Claw Promotion: Probability of Member receiving $1,000 is a probability of 0.026%; If you don’t make a selection in 45 days, you’ll no longer qualify for the promo. Customer must fund their account with a minimum of $50.00 to qualify. Probability percentage is subject to decrease. See full terms and conditions.

SOIN-Q225-134

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Jun
27
2025
How to Pay for Coding Bootcamps: couple looking into coding bootcamp

How to Pay for Coding Bootcamps

By | Building Your Career, Student Loans, student_loan | Comments Off on How to Pay for Coding Bootcamps

According to the US Bureau of Labor Statistics, the job outlook for software developers is going to increase by 17% from 2023 to 2033. This represents a significantly higher projected growth than the average for all occupations. Median annual pay for software developers was $131,450 as of May 2023 (the most recent government statistic available.)

According to CourseReport, the average cost of code school is $13,584. Not all students have enough cash on hand to cover the cost. Fortunately, there are ways to make coding bootcamp more affordable. Read on for a closer look at how these programs work, including average costs and payment options.

Key Points

•   Coding bootcamps offer comprehensive training in multiple programming languages and skills.

•   The average cost is $13,584, with financing options like loans and deferred tuition.

•   Free bootcamps typically support specific demographics and underrepresented groups.

•   Graduates can secure jobs as software engineers, data scientists, and mobile developers.

•   Median starting salary for bootcamp graduates is $70K, increasing to $99K by the third job.

What Do Students Learn in Coding Bootcamp?

Students will learn a variety of programming languages, rather than focusing on just one, to be equipped for a dynamic job market. When students graduate, they may have a portfolio, a website, profiles on programming websites, as well as interviewing and job hunting skills.

These programs teach frameworks and programming languages like JavaScript, CSS, HTML, Ruby on Rails, Python on Django, and PHP. According to a Course Report study, 79% of bootcamp graduates find jobs as programmers.

Coding bootcamps are intensive programs that teach skills like data science, cybersecurity, full-stack web development, and technical sales, among others. Typically, the average bootcamp is around 14 weeks long but can range anywhere from one week to a year or two. Courses are offered online or in-person and at dedicated coding bootcamp facilities or at universities a bootcamp program might partner with.

How Much Does Coding Bootcamp Cost?

The coding bootcamp cost varies depending on the program. While the average full-time coding bootcamp in the US costs $13,584, but there’s a wide range to bootcamp tuition. It’s a good idea to ask about costs for the programs you are interested in so you’ll have adequate information to compare programs. The cost of coding bootcamp might seem high, but paying for a college degree can be a much costlier investment.

If the cost seems out of reach, looking into free coding bootcamps might be an alternative. Some free programs are open to anyone, while others require passing one or more tests. There are also free coding programs targeted to women, girls, and residents of underserved neighborhoods. Some of the free programs offer just basic instruction in coding, while others are more comprehensive.

Recommended: Are Coding Bootcamps Worth the Money?

Paying for Coding Bootcamp

There are a variety of options to pay for coding bootcamp.

Loans

One option might be taking out a coding bootcamp loan. Some coding bootcamps partner with lenders that offer various terms and interest rates depending on a variety of the student’s financial factors. Bootcamps might also offer their own financing, or students might choose to apply for a loan through a bank or credit union. It’s important, however, to read the fine print of any loan agreement to be sure you’re aware of any fees, such as an origination fee or early repayment fee, that could add to the cost of the financing.

Another popular option is a personal loan. This is typically an unsecured loan available from banks, credit unions, and online lenders. The interest rate is usually less than what your credit card charges, and the repayment term is often between one and seven years.

Alternative Ways to Pay Tuition

Coding bootcamps may also offer an income sharing agreement (ISA) or deferred tuition. Students who choose an ISA agree to pay a percentage of their income to the school for a certain period of time after they graduate and find a job. With deferred tuition, students will either pay no upfront tuition or they’ll pay a small deposit, and then begin paying tuition once they graduate and secure a job.

The terms of each ISA or deferred tuition program differ by program. Some courses may not require students to pay tuition if they don’t secure a job within a certain timeframe of graduating at a certain salary, so read the fine print to learn details.

Recommended: Ways to Pay for Your Child’s Tuition

Employer Funding

If students are already working, they might consider asking their employer to fund part of or all of their boot camp education. By demonstrating to their employer that by increasing their skill set they’ll be able to contribute more to the company and boost their productivity, their employer might be willing to pay for some of the program cost.

Recommended: How Does Tuition Reimbursement Work?

Military Benefits

US military veterans may be able to pay for approved coding bootcamps using their GI Bill benefits.

Paying Out-of-Pocket

Using personal savings to pay for a coding bootcamp program is an option some students might have. While it may be difficult to part with the money, the return might be worth it. The median starting salary for a coding bootcamp grad is around $70K for their first job, rising to $99K by their third job as of mid-2025.

Recommended: Jobs that Pay for Your College Degree

Coding Bootcamp Scholarships

Students seeking scholarship funds won’t have far to look. Like scholarships for any other education program, these are available to students who meet a variety of qualifications, for instance, residence in certain geographic locations, students of diverse genders and cultural backgrounds, veterans, and military spouses, among many others.

Some scholarships might be need-based, while others will be based on merit. The amount of tuition and other costs that are covered will vary by scholarship. An internet search should reveal multiple scholarship options.

Types of Jobs for Coders

After graduating from coding bootcamp, students will be qualified to work in a variety of jobs, including:

•   Software engineer: working with Ruby, HTML, CSS, and JavaScript.
•   Data scientist: discovering insights from massive amounts of data.
•   Back-end web developer: using PHP, Sql, Ruby, Python, or Java.
•   Front-end web developer: utilizing HTML, CSS, and JavaScript to design websites.
•   Full-stack developer: troubleshooting website design on the front and back end.
•   Mobile developer: building mobile apps.

There are many options, and students can look for a job that best suits their skills.

The Takeaway

If you want to be a part of the growing technology field, a coding bootcamp might be a route you can take to learn programming skills. While the average cost of $13K can be a deterrent, there are a number of ways to make the tuition more manageable, including scholarships, deferred tuition programs, tuition financing, and/or personal loans.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. See your rate in minutes.


SoFi’s Personal Loan was named NerdWallet’s 2024 winner for Best Personal Loan overall.

FAQ

How can you afford coding bootcamps?

Many students afford the average $13K cost of coding bootcamps by applying for scholarships and/or loans. Using savings or employer funding are other options.

How much does coding bootcamp cost?

As of mid-2025, the average cost of coding bootcamp is $13,584.

How can I get a loan for a computer bootcamp?

You can explore what the business offering the bootcamp may provide in terms of financing options or see what personal loans are available from banks, credit unions, and online lenders. Compare rates and terms to find the best fit.

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What Are Convertible Bonds?: Convertible bonds are a form of corporate debt that also offers the opportunity to own the company’s stock.

What Are Convertible Bonds?

By | Financial Independence, Growing Wealth, invest, Investing, Terminology | Comments Off on What Are Convertible Bonds?

Convertible bonds are a type of corporate debt security that provide fixed-income payments like a bond, but can be converted to common shares of stock. As such, they’re often referred to as “hybrid securities.”

Most convertible bonds give investors a choice. They can hold the bond until maturity, or convert it to stock at certain times during the life of the bond. This structure protects investors if the price of the stock falls below the level when the convertible bond was issued, because the investor can choose to simply hold onto the bond and collect the interest.

Key Points

•   Convertible bonds are known as hybrid securities because they offer investors some fixed-income features as well as equity features.

•   Convertible bonds offer fixed-income payments, as well as the potential to be converted to a pre-set number of common stock shares in the company.

•   The investor can obtain shares based on the conversion ratio, which is determined at the time of purchase.

•   The conversion price per share is also built into the bond contract.

•   There’s no obligation to convert these securities. When the bond matures, the investor can either take their principal, or convert it to the corresponding shares.

How Do Convertible Bonds Work?

Companies will often choose to issue convertible bonds to raise capital in order to not alienate their existing shareholders. That’s because shareholders may be uneasy when a company issues new shares, as it can drive down the price of existing shares, often through a process called stock dilution.

Convertible bonds are also attractive to issue for companies because the coupon — or interest payment — tends to be lower than for regular bonds. This can be helpful for companies who are looking to borrow money more cheaply.

What Are the Conversion Ratio and Price?

Every convertible bond has its own conversion ratio. For instance, a bond with a conversion ratio of 3:1 ratio would allow the holder of one bond to convert that security into three shares of the company’s common stock.

Every convertible bond also comes with its own conversion share price, which is set when the conversion ratio is decided. That information can be found in the bond indenture of convertible bonds.

Convertible bonds can come with a wide range of terms. For instance, with mandatory convertible bonds, investors must convert these bonds at a pre-set price conversion ratio.

There are also reverse convertible bonds, which give the company — not the investor or bondholder — the choice of when to convert the bond to equity shares, or to keep the bond in place until maturity.

But it also allows the investor to convert the bond to stock in the case where they’d make money by converting the bond to shares of stock when the share price is higher than the value of the bond, plus the remaining interest payments.

In general, these options are not available when investing online.

How Big Is the Convertible Bond Market?

As of 2024, the size of the U.S. convertible bond market was estimated to be about $270 to $280 billion. Securities have been issued by hundreds of companies. But note that these numbers are miniscule compared to the U.S. equity market, which has trillions in value and thousands of stocks.

The total size of the convertible bond market does expand and contract, though, often with the cycling of the economy. In 2024, the total convertible bond issuance reached nearly $88 billion, versus $55 billion in 2023, and $29 billion in 2022. This may reflect the higher interest-rate environment, and companies’ desire to minimize debt payments.

Recommended: How Does the Bond Market Work?

Reasons to Invest in Convertible Bonds

Why have investors turned to convertible bonds? One reason is that convertible bonds can offer a degree of downside protection from the bond component during stock volatility. The companies behind convertibles are obligated to pay back the principal and interest.

Meanwhile, these securities can also offer attractive upside, since if the stock market looks like it’ll be rising, investors have the option to convert their bonds into shares. Traditionally, when stocks win big, convertibles can deliver solid returns and outpace the yields offered by the broader bond market.

For example, in 2024, the U.S. convertibles market returned 11.4%, outpacing the performance of all major fixed-income indices. And over the 10-year period ending December 31, 2024, convertible bonds have delivered a higher yield than equities, according to data by Bloomberg.

Recommended: Stock Market Basics

Downsides of Convertible Bonds

One of the biggest disadvantages of convertible bonds is that they usually come with a lower interest payment than what the company would offer on an ordinary bond. As noted, the chance to save on debt service is a big reason that companies issue convertibles. So, for investors who are primarily interested in income, convertibles may not be the best fit.

There are also risks. Different companies issue convertible debt for different reasons, and they’re not always optimal for investors. Under certain conditions, convertible financing can lead to “death spiral financing.”

What Is Death Spiral Debt?

The death spiral is when convertible bonds drive the creation of an increasing number of shares of stock, which drives down the price of all the shares on the market. The death spiral tends to occur when a convertible bond allows investors to convert to a specific value paid in shares, rather than a fixed number of shares.

This can happen when a bond’s face value is lower than the convertible value in shares. That can lead to a mass conversion to stock, followed by quick sales, which drives the price down further.

Those sales, along with the dilution of the share price can, in turn, cause more bondholders to convert, given that the lower share price will grant them yet more shares at conversion.

How to Invest in Convertible Bonds

Most convertibles are sold through private placements to institutional investors, so retail or individual investors may find it difficult to buy them.

But individual investors who want to jump into the convertibles market can turn to a host of mutual funds and exchange-traded funds (ETFs) to choose from. But because convertibles, as hybrid securities, are each so individual when it comes to their pricing, yields, structure and terms, each manager approaches them differently. And it can pay to research the fund closely before investing.

For investors, one major advantage of professionally managed convertible bonds funds is that the managers of those funds know how to optimize features like embedded options, which many investors could overlook. Managers of larger funds can also trade in the convertible markets at lower costs and influence the structure and price of new deals to their advantage.

The Takeaway

Convertible bonds are debt securities that can be converted to common stock shares. These hybrid securities offer interest payments, along with the chance to convert bonds into shares of common stock.

While convertible bonds are complex instruments that may not be suitable for all investors, they can offer diversification, particularly during volatile periods in the equity market. Investors can gain exposure to convertible bonds by putting money into mutual funds or ETFs that specialize in them.

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

Why would an investor choose convertible bonds?

Convertible bonds offer downside protection for an investor’s principal, and also offer the potential to see equity gains as well.

What is the difference between a corporate bond and a convertible bond?

The main difference is that a corporate bond pays a fixed rate of interest that’s typically higher than a convertible bond coupon. But a regular corporate bond doesn’t offer access to an equity upside the way a convertible bond can.

Can a convertible bond be converted into cash?

Yes. First, in some cases a convertible bond may offer the option to convert to cash value rather than a pre-set number of company shares. Then, there is always the option to redeem the bond at maturity for its cash value.

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

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

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

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

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