Jun
28
2024
Guide to Market-Linked Certificates of Deposit (CDs)

Guide to Market-Linked Certificates of Deposit (CDs)

By | Growing Wealth, Investing, money | Comments Off on Guide to Market-Linked Certificates of Deposit (CDs)

A market-linked certificate of deposit (CD) tracks a basket of underlying securities, or an index like the S&P 500. They differ from traditional CDs, which generally pay a fixed rate of interest. These accounts are sometimes called equity-linked CDs or stock CDs.

A market-linked CD (MLCD) is similar to a traditional certificate of deposit, in that it’s a time-deposit account with a fixed term during which the investor’s funds are unavailable. The principal (though not the gains) is federally insured up to $250,000. But market-linked CDs come with some risks — including the possibility of zero gains at maturity.

What Is a Market-Linked CD?

As noted, a market-linked CD tracks an underlying index or collection of securities, rather than paying a fixed rate of interest. Investing in CDs offers some familiar advantages, chiefly that the CD investor can deposit their funds for the specified term (typically a few months to a few years), and count on a steady rate of return until the CD reaches maturity.

The CD’s total return is unlikely to be high, especially when comparing deposit accounts, because it’s based on current interest rates, but there is little to no market risk. Traditional CDs are federally insured, whether by a bank or a credit union, for up to $250,000. For this reason, traditional CDs are considered a fairly low-return, low-risk investment.

Market-linked CDs share some of these features — e.g. the investor deposits funds for a set period of time, and the funds are unavailable until the CD matures. But the returns of an MLCD are, as the name suggests, linked to the stock market, which adds in a layer of potential reward, but also potential risk.

Unlike traditional CDs, which are considered cash equivalents, market-linked CDs are more like securities. The reason for creating market-linked CDs goes back to the days when banks couldn’t sell securities, and these products offered investors a workaround.

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How Do Market-Linked CDs Work?

Unlike traditional CDs, market-linked CDs do not offer fixed interest payments. Rather the return is based on the underlying investments or market index the CD tracks. Some of these market benchmarks include equity, commodity indexes, or a basket of commodities or currencies. But investors don’t see precisely the same gains and losses as the market.

Typically, the upside of MLCDs is capped in one of two ways. For example, the return on a market-linked CD will be determined by its participation rate, i.e. the percentage of the upside you will see. For example, an 80% participation rate means you only receive 80% of the gains from the underlying market. An interest cap refers to an MLCD where there is simply an upper limit for any gains.

Fortunately, the principal amount deposited in the CD is protected. At maturity, investors will get their full deposit back. But if the market underperforms, the CD may not have any gains. In other words, at maturity there is no guarantee your return will be more than your deposit amount.

Recommended: How Do CD Loans Work?

How to Calculate the Return of a Market-Linked CD

To calculate the return of a market-linked CD, financial institutions average out the close price of the underlying index over a certain period of time. For this method, you can take the average of the index’s different values in two different periods.

Another method you can use is the point-to-point method, which involves identifying two values. The first is the value of the index when the market-linked CD was issued, and the other is the value of the index before the CD’s maturity date, which is referred to as the ending point. The difference between these two values will yield the expected return on your market-linked CD.

The final return also assumes that the funds are left in the CD until maturity. Withdrawing funds earlier than the maturity date — whether that’s two months or 20 years — will likely trigger early withdrawal penalties.

Pros of Market-Linked CDs

Market-linked CDs have several favorable characteristics that may be appealing for investors who are looking for alternatives to conventional CDs, or directly investing in the stock market without having too much risk exposure.

•   Protection: Market-linked CDs protect your principal and when held to maturity, the principal is backed by the bank that issues it. In the scenario where the underlying market declines during the period where you hold the CD, investors are protected from losses.

•   Insurance: Market-linked CDs are also FDIC- or NCUA-insured for up to $250,000 on the principal investment, not investment earnings.

•   Potential for greater returns: Market-linked CDs have the ability to provide investors with higher returns than traditional CDs. Because the underlying is based on a collection of stocks, commodities, or indexes, there is a chance market-linked CDs can outperform traditional CDs.

•   Return on original deposit: At time of maturity, you will get the full amount of your original deposit regardless of the performance of the underlying market index or securities. If you choose to sell your market-linked CD prior to maturity on the secondary market, there is no guarantee that you will get the full amount of your principal back.

Cons of Market-Linked CDs

Investors must also consider the risks associated with holding market-linked CDs.

•   Liquidity risk: Investors must be aware that when opening a market-linked CD, they are locking up their money for a period of time, and they must be willing to hold on to the CD through its maturity to achieve the full benefits, even though they are not obligated to do so. If you need access to the capital in the CD and want to withdraw money, you may incur withdrawal fees.

•   Market risk: Market-linked CDs that are linked to the equity markets are subject to volatility, which can impact the market-linked CD returns. Other factors can influence market-linked CDs such as changes in interest rates.

•   Taxes: MLCD earnings are taxed as interest income, not as capital gains, and thus investors will pay a higher rate for their earnings. Also, interest must be reported annually, even though it’s not paid until maturity.

•   Little or no profit: The worst scenario is holding a market-linked CD to maturity — but not making a profit. Even though your original principal will be protected, there is no guarantee that you will make more than your deposit amount.

   You may have the possibility of greater gains if you invest your money in an exchange-traded fund (ETF) or index fund directly, which provides similar diversification benefits. However, you are still exposed to market risk, and your original principal is at risk.

How to Open a Market-Linked CD

Opening a market-linked CD is fairly straightforward. Here are some broad steps.

•   At the financial institution of your choosing, you can open a market-linked certificate of deposit by choosing the interest rate and maturity date.

•   Next, deposit the amount of money you are able to lock up for a period of time.

•   Some market-linked CDs have a minimum investment requirement and a maximum deposit limit per account which must be considered.



💡 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.

Alternatives to a Market-Linked CD

Alternatives to market-linked CDs could include investing in a bond fund. Similar to a CD, bond funds have different maturity dates, either short term or long term, and can offer competitive yields. Depending on the creditworthiness of the bonds, the yield can vary. Bonds with a high credit rating which are lower risk may have a lower yield than bonds with a lower credit rating, but the latter may come with higher risk. The choice of bond fund depends on the investor’s risk tolerance.

Investors may also consider a high-yield savings account, which is lower risk but yields less than a market-linked CD. These types of accounts are more for emergency funds but if you are looking for the lower risk options to store your cash, high yield savings accounts can be another alternative to a market-linked CD.

When to Consider Investing in Market-Linked CDs

Investors may be interested in a market-linked CD if they are looking for an alternative for a traditional CD and for the potential for higher returns. Market-linked CDs may also offer some diversification, and protection of principal investment.

If you are looking for exposure to the broader stock market with managed risk, a marked-linked CD may be a suitable option because it’s viewed as an alternative to directly investing in the stock market. That said, market-linked CDs are insured products and are not considered securities.

The Takeaway

Market-linked CDs are, as the name implies, a sort of hybrid savings/investment option. They offer some of the features of traditional CDs: You invest your money for a fixed period of time; if you withdraw funds before the maturity date you face an early withdrawal penalty; and your funds are federally insured for up to $250,000. Because MLCDs are market-linked, though, a CD’s performance is tied to underlying securities or a market index.

Thus, investors don’t receive a fixed interest rate, and returns can fluctuate. Typically these CDs are also capped in terms of the gains they can provide. And while an investor’s initial principal deposit is protected from a market drop, you can still lose money if you withdraw funds early or try to sell this type of CD on the secondary market. Finally, like any other investment in the markets, there’s no guarantee that a market-linked CD will see a profit by the time it matures.

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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.

FAQ

What is a market-linked CD?

Market-linked CDs are certificates of deposits that can be linked to stocks, commodities, an index — or a mix of these — depending on the type of return the investor is seeking, and their risk tolerance.

Is a market-linked CD a security?

No. A market-linked CD is federally insured in the event of bank failure or fraud, so your principal is protected up to $250,000. Insured products are not considered securities.

What is a stock market CD?

A stock market CD is another name for a market-linked CD, and is linked to a broad stock market index like the S&P 500. This means the CD’s performance will adjust as the index changes.

Photo credit: iStock/MicroStockHub

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.

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.


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

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.

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SOIN-Q224-1929388-V1

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Jun
25
2024

Guide to Art as an Investment

By | Growing Wealth, invest, Investing | Comments Off on Guide to Art as an Investment

Investing in art can add diversification to a portfolio if you’re ready to move beyond traditional stocks and bonds. Alternative investments like art can offer above-average returns and offset some of the impacts of market volatility.

Art investment has traditionally had a higher barrier to entry, as individual works of art may carry five and six-figure prices (or more). In addition, there are a number of risk factors when investing in art, including lack of liquidity and lack of transparency around pricing.

However, new ways to invest in art have emerged that make it a more accessible asset class to a broader range of investors.

What Is Art Investing?

Art investing refers to the purchase of works of art to sell them at a profit at a later date. Apart from owning individual artworks (which can be expensive and difficult to maintain), there are a range of new ways to invest in art, including:

•   Fractional share investing through online art platforms

•   Art funds

•   Art stocks

•   Non-fungible tokens (NFTs)

Buying art as an investment doesn’t require you to have an advanced art degree or professional background in the art world. You will, however, need to be willing to spend some time learning about this alternative investment to understand how the market works.1

How Art Investing Works

Investing in art requires a certain mindset, and doing your due diligence to size up what constitutes the best opportunities for you, depending on your goals.

Art, like other alternative investments, may require a much longer holding period for you to realize returns, which contributes to the lack of liquidity in this space. It may be challenging to find a buyer if the artwork or the artist is not in demand.

It’s also important to understand traditional art ownership, along with some of the newer investment vehicles.

Individual Works

Similar to investing in a traditional asset class like stocks, investing in individual works requires knowing some fundamentals: a history of the artist, their status (e.g., are they in demand?), the relevance of a given work, and a sense of whether it’s overvalued or undervalued.

The risks of choosing individual works include the possibility of fraud, the cost of maintaining the work (e.g., storage and insurance), and hidden charges, similar to investment fees (e.g., commissions and other costs). Given the fragility of most art, there is also the risk of physical damage or total loss.

Fractional Shares of Art

Owing to the high cost of owning blue-chip works of art (as well as other highly valued works) it’s now possible to buy fractional shares of art, similar to investing in fractional shares of stock.

There are a number of new platforms that sell fractional art shares, and each may have its own system and process (more below).

The risk of buying fractional shares of art is that, as with any investment, there are no guarantees of a return.

Art Funds

Similar to traditional mutual funds and ETFs, an art fund is a type of pooled investment fund. But unlike conventional equity funds, say, that hold many different stocks, art funds often hold only a handful of works. Investors who buy shares of the fund are buying into the collective, potential value of those works.

Art funds are generally structured as closed-end funds, but with a twist: investors typically contribute their capital over a period of three to five years, often with no returns for another specified time period (terms vary).

These funds are highly illiquid, and (in addition to the unpredictability of the art market itself) there are substantial risks to locking up your capital for what could be years, for an unspecified return upon redemption.

Alternative investments,
now for the rest of us.

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

Types of Artists

There are generally three types of artists you may invest in:

•   Blue-chip artists: Blue-chip artists are individuals everyone has most likely heard of. Names like Van Gogh, Picasso, and Banksy are familiar to people both within and outside the art world.

Works from these artists typically carry the least risk because there’s always someone willing to buy them. The downside is that the average investor may not have sufficient capital to purchase individual blue-chip artworks since they can cost hundreds of thousands, if not millions, of dollars.

•   Established artists: Established artists are known artists whose works typically command higher prices, but have not yet reached blue-chip status. Investing in art from established artists can offer solid return potential with a moderate degree of risk.

•   Emerging artists: Emerging artists present the greatest risk since they’re still up and coming. However, you might be able to generate a sizable profit from investing in their art if their career takes off.3

Risks and Returns of Investing in Art

Investing in alternatives such as art carries risks that are similar to other alternative investments, like commodities, real estate, collectibles, and other assets. Investors who are willing to accept a higher degree of risk, however, may enjoy a substantial upside.

Here’s a side-by-side look at the pros and cons of investing in art.

Rewards

 Risks
Art investment offers the potential for higher returns.

Art can add diversification to a portfolio, allowing you to better manage market volatility and the impacts of inflation.

Investing in art can help you grow wealth while allowing you to support your favorite artists and contribute something to the art community.

A significant amount of capital is not necessarily required to begin investing in art.

Interest in art has persisted for hundreds of years, making it a reliable investment option for the longer term.

An investment in art is not guaranteed to be profitable.

Certain types of art investments offer limited liquidity, which could make it difficult to exit quickly.

Valuing artworks is often highly subjective, which could make it difficult for a beginning investor to determine what a piece is truly worth.

Owning individual artworks may entail paying maintenance and storage fees, as well as insurance.

Forgeries and fakes are a real part of the art world investors must contend with.

If you’re trying to decide whether to invest in art, consider your personal risk tolerance and investment horizon.

Dive deeper: Why Invest in Alternative Investments?

5 Ways to Start Investing in Art

When deciding how to invest in art, it’s important to remember that you’re not locked into any single path. You might choose multiple investment strategies to build out your art portfolio.

With that in mind, here are some of the best ways for beginners to start investing.

1. Fractional Art Shares

Fractional art share investing is a relatively new phenomenon. It works like this:

•   You join an art investment marketplace.

•   The marketplace vets works of art and lists them for investment.

•   You buy fractional shares of individual works of art.

•   When the artwork sells you get a piece of the profits.

Typically, you invest a minimum amount to buy a certain number of shares of a work you believe will appreciate. So you might hold 30 shares of a Basquiat piece and 20 shares of a Warhol.

The platform purchases and maintains the art; you don’t actually see or handle it. If it appreciates within a set period of time, the piece will be sold and profits will be distributed proportionately to each investor’s ownership amount.

The downside is that you might need $10,000 or more to get started on a fractional share marketplace. Additionally, you don’t get to choose when the artwork sells — that’s determined by the platform.

While trading fractional shares isn’t available on public exchanges yet, some fractional art platforms operate a secondary market whereby shareholders can execute trades.

2. Art Funds

Art investment funds are typically privately managed funds that offer investors exposure to multiple works. In that sense, they’re similar to traditional mutual funds.

Some art funds are index funds, meaning they seek to replicate the returns of an art market index, similar to a traditional index like the S&P 500. Other art funds are equity funds that try to beat the market.

If you’re considering art funds, check the minimum investment to get started. Certain funds may be limited to accredited investors, or require you to have $20,000 or more to purchase shares.

Also, consider the fund’s expense ratio, which determines your cost of owning it yearly.

3. Art Stocks

Art stocks offer a slightly different way to invest in art. Rather than funding individual artworks, you might invest in publicly traded companies that:

•   Manufacture art supplies

•   Handle art restoration

•   Sell art insurance

•   Produce art prints

•   Create digital art software programs or applications

•   Create software or apps used by museums

This type of art investment is more tangential, but may be worth a look if you’re interested in the art world in its entirety, not just individual paintings or sculptures.

Similar to investing in art funds, consider the minimum investment required to buy shares. And study the stock’s past performance and risks to fully understand what you’re buying.

4. Non-Fungible Tokens (NFTs)

Non-fungible tokens or NFTs are digitized versions of various works, including art. NFTs and their owners are recorded on the blockchain so they can’t be duplicated or reproduced.

If you’re weighing NFTs, carefully consider the risks as well as the amount you plan to invest. A good rule of thumb for this type of investment may be to limit yourself only to what you can afford to lose.

5. Individual Works of Art

You might invest in art by purchasing individual pieces. Again, you may choose from blue-chip, established, or emerging artists.

The advantage is that you can decide when to sell and you’re not necessarily locked in for decades. Art flipping, a controversial practice in art circles, involves buying works of art and selling them quickly for a profit. It’s similar to house flipping, another type of alternative investment.

If you’re interested in buying individual pieces, you might buy them from:

•   Galleries

•   Private dealers

•   Art auctions

Purchasing directly from the artist may also be an option, though this may require some negotiation to decide on a price.

Before buying a piece of art, consider the ongoing costs of ownership. For example, you may need to pay to have it professionally stored to avoid damage to the work. And depending on its value you may need to buy insurance for your investment.

The Takeaway

Art and other alternative investments can help you create a well-rounded portfolio. The important thing to remember is that art is an alternative investment, with specific risks and potential advantages. While you could make a profit with art investments, you could also lose money, so it’s wise to assess the risks before wading in.

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.

FAQ

Is art a good investment?

Art can be a good investment for people who have sufficient means to invest and are comfortable with the various risks. It’s possible to realize higher returns from art investments compared to stocks or bonds, but it typically requires a longer holding period. Reduced liquidity can make art a less attractive investment for people who are looking for near-term gains.

How do you start investing in art?

You can start investing in art by deciding which strategy you’d like to pursue. Do you like the idea of owning fractional shares, or share in an art fund? Would you prefer to buy stock in art-related companies? Or do you feel confident in your taste, and budget, as a collector to purchase individual works? Be sure to vet your all-in costs, how long your money might be locked up, and whether there are risks with one choice versus another.

Why do millionaires invest in art?

Millionaires may invest in art for different reasons, ranging from a desire for higher returns to a passion for art as a collectible. As alternative investments go, art can be profitable, though it does take some knowledge of the market to assess which pieces are most likely to see the greatest appreciation.

Photo credit: iStock/Antonio_Diaz

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.


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.
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.
Fund Fees
If you invest in Exchange Traded Funds (ETFs) through SoFi Invest (either by buying them yourself or via investing in SoFi Invest’s automated investments, formerly SoFi Wealth), these funds will have their own management fees. These fees are not paid directly by you, but rather by the fund itself. these fees do reduce the fund’s returns. Check out each fund’s prospectus for details. SoFi Invest does not receive sales commissions, 12b-1 fees, or other fees from ETFs for investing such funds on behalf of advisory clients, though if SoFi Invest creates its own funds, it could earn management fees there.
SoFi Invest may waive all, or part of any of these fees, permanently or for a period of time, at its sole discretion for any reason. Fees are subject to change at any time. The current fee schedule will always be available in your Account Documents section of SoFi Invest.


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

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 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.

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Jun
25
2024

Guide to ESAs and How They Work

By | Growing Wealth, invest, Investing | Comments Off on Guide to ESAs and How They Work

A Coverdell Education Savings Account (ESA) is a tax-advantaged way to set aside money for educational expenses, including those for primary, secondary, and higher education. You can open one in addition to a 529 college savings plan, or in place of one.

Generally speaking, an ESA has similar rules and benefits to a 529 plan, but more stringent income and contribution limits. ESAs offer more investment choices, however.

🛈 Currently, SoFi does not offer ESAs.

What Is an Education Savings Account (ESA)?

An Education Savings Account is a type of custodial account that can be established to save money for qualified education expenses for students in grades K-12, as well as in college. ESA funds can be withdrawn to pay for tuition, textbooks, tutoring, and other education-related expenses. Non-qualified withdrawals will be taxed.

Parents, grandparents, and other individuals can open educational savings accounts on behalf of an eligible beneficiary (the student) and make annual contributions. Contributions are limited to $2,000 per year, total, per beneficiary.

ESA Rules

These accounts are different from traditional savings accounts or high-yield savings accounts because they’re designed for a single purpose: funding education expenses. That means you have less flexibility when it comes to withdrawals, but the tax benefits can make up for it.

Setting up a college fund at a bank or brokerage that offers ESAs is usually just a matter of filling out an application and meeting the requirements.

•   The beneficiary must be under 18 when the account is opened (or be a special needs beneficiary, per the IRS).

•   If you make more than $110,000 in income (for single filers), or $220,000 (married filing jointly), you cannot contribute to an ESA. See below for details.

•   It’s possible to contribute to an ESA and a 529 college savings plan for the same student.

How Do ESAs Work?

Education Savings Accounts work by allowing savers to contribute money for the benefit of an eligible student on a tax-advantaged basis. Contributions are not deductible, but they grow tax-deferred; and withdrawals are tax free when used for qualified education expenses.

Because contributions are made with after-tax dollars (similar to a Roth IRA), you can withdraw the amount of your contributions at any time tax free. But earnings are taxable. Thus the earnings portion of non-qualified withdrawals will be taxed as income, and you may get hit with a 10% penalty on that taxable amount as well.

You might use an ESA to fund future expenses for K-12 tuition, as well as saving for your child’s college tuition. The IRS imposes guidelines on how these plans can be used to pay for education. Unlike 529 plans in some states, you cannot deduct contributions to an ESA.

Income Limits

In addition, your income determines your ability to contribute to an Education Savings Account. You might be eligible to make a full contribution, a partial contribution, or no contribution at all.

For the 2024 tax year, full contributions are allowed for:

•   Single filers with a modified adjusted gross income (MAGI) below $95,000

•   Married couples filing jointly with a MAGI below $190,000

Partial contributions are allowed for:

•   Single filers with MAGI between $95,000 and $110,000

•   Married couples filing jointly with MAGI between $190,000 and $220,000

If you file single and have a MAGI greater than $110,000, or are married with a MAGI greater than $220,000, you can’t contribute to an Education Savings Account.

Contribution Limits

The IRS is very clear about how much you can contribute to an ESA each year, for each student. The annual contribution limit is $2,000. That limit applies per beneficiary, no matter how many educational savings accounts they have.

For example, if you open an ESA for your child and contribute $1,400, and the child’s grandparents also open an ESA for the same child, they could only contribute $600 for the same year.

Excess contributions in a given year may face a penalty of 6%, except under certain circumstances. You can find more information at IRS.gov.

ESA Withdrawal Rules

As with any tax-deferred account, whether for retirement (like an IRA) or for education, ESA withdrawals rules are complicated. Withdrawals are tax-free when the money is used for qualified education expenses incurred at an eligible education institution. A qualified education institution is any school that’s eligible to participate in federal student aid programs.

You can use ESA funds to pay for college expenses, secondary school expenses, or elementary school expenses. If you’re using an ESA for college savings, qualified higher education expenses include:

•   Tuition and fees

•   Books, supplies, and equipment

•   Room and board, for students enrolled at least half-time

•   Expenses for special needs services for a special needs beneficiary

A portion of the withdrawals that exceed a student’s qualified education expenses are treated as taxable income by the IRS.

Elementary and Secondary School Expenses

ESA funds can also be used to cover tuition and fees, books, supplies, equipment, academic tutoring, and special needs services at secondary or elementary schools. Room and board, uniforms, transportation, and supplementary items may also be covered if the school requires them as a condition of attendance.

Handling Leftover Funds

Leftover funds must be distributed within 30 days of the designated beneficiary’s 30th birthday, unless they qualify for a special needs exception. Or, if the beneficiary dies before turning 30, you must also withdraw any remaining funds within 30 days of their death.

Here’s one important thing to know:

A portion of withdrawals (i.e. earnings) from an Education Savings Account that aren’t for a qualified education expense, including required distributions at age 30, may be taxed as income and subject to a 10% penalty. You can avoid these tax penalties by rolling the balance over to another ESA for another member of the original beneficiary’s family.

ESA Pros and Cons

Is an Education Savings Account a good way to save for education? There are advantages and drawbacks to consider if you’re trying to decide how to pay your child’s college tuition.

Here are some of the pros:

•   Earnings grow tax-deferred, and you can open an ESA as a supplement to other college savings plans.

•   Qualified withdrawals are 100% tax-free and can be used for elementary, secondary, or higher education expenses.

•   Should your student decide not to go to college, you can transfer their ESA to another beneficiary (similar to a 529 plan), but they must be under 30.

•   Most ESA plans offer a wide array of investment choices.

Now for the cons:

•   With a $2,000 annual contribution limit per child, you can only save so much with an ESA.

•   Distributions for anything other than education expenses are subject to tax and penalties (including funds left over when the child’s education is complete).

•   Excess contributions may face a 6% penalty.

•   High-income earners may be ineligible to contribute to an Education Savings Account.

The deadline for withdrawals at age 30 can also be a disadvantage. With a 529 savings plan, you’re not required to take money out by a specific date or age, and you’re permitted to rollover unused funds to a Roth IRA for the beneficiary.

ESA vs 529 Savings Plan

A 529 savings plan is another tax-advantaged way to save for college. Thanks to a recent rule change, parents can also withdraw funds from a 529 to pay for qualified K-12 tuition expenses.

So, how does a 529 compare to an ESA? Here’s a quick rundown.

Education Savings Account

 529 College Savings Plan
Who Can Contribute Individuals whose MAGI is within IRS limits Anyone, regardless of income
Annual Contribution Limit $2,000 per child None, though contributions above the annual gift tax exclusion limit may trigger the gift tax

Lifetimes contributions (typically between $235,000-$575,000) are determined by each state
Eligible Beneficiaries Students under the age of 18, or special needs students of any age (you cannot contribute after the student turns 18) Any future student, including oneself, one’s spouse, children, grandchildren, or other relatives, regardless of age
Investment Options Typically a wide array of investment choices Typically limited or pre-set by the plan provider
Taxes on Withdrawals Withdrawals for qualified education expenses are tax free; all other withdrawals are subject to tax and penalties Withdrawals for qualified education expenses are tax-free; all other withdrawals are subject to tax and penalties
Eligible Expenses Withdrawals can be used to pay for elementary, secondary, and higher education expenses, including tuition, fees, books, and equipment Withdrawals can be used to pay for qualified higher education expenses, including tuition, fees, books, and equipment, as well as K-12 tuition, eligible apprenticeship expenses, and qualified education loan repayments
Mandatory Distributions All funds must be withdrawn by age 30, excluding special needs beneficiaries Funds can remain in the account indefinitely or be rolled over to another beneficiary
FAFSA Impact Treated as parental assets Treated as parental assets

The benefits of a 529 savings plan may outweigh the advantages of an Education Savings Account. Aggregate contribution limits for 529 plans are much higher and there’s no hard cutoff for using the money.

The Takeaway

Saving up for college can reduce the need for students to take out federal or private loans to pay for school. An Education Savings Account is one option for saving; a 529 plan is another. You can also consider opening a Roth IRA for yourself or your child, as it’s possible to access the amount you contribute for expenses like education.

FAQ

How does an education savings account work?

An Education Savings Account works by allowing you to set aside $2,000 per year on behalf of an eligible student to cover education expenses, from elementary school through college. Your earnings grow tax-deferred, and you pay no taxes on withdrawals when they’re used for qualified expenses.

Is an ESA the same as a 529?

An ESA is not the same as a 529 plan. If you’re starting college savings late, you may get more benefits from contributing to a 529 plan versus an Education Savings Account. The annual contribution limits for 529 plans are much higher than they are for an ESA, meaning you could save quite a bit more — and you’re not required to stop making contributions once your child turns 18.

What is the income limit for an ESA?

The income limit for making a full contribution to an ESA is $95,000 for single filers and $190,000 for married couples filing jointly. You’ll need to have a modified adjusted gross income below those thresholds to contribute the $2,000 maximum; if you earn up to $110,000 (single) and $220,000 (joint) you can make a partial contribution.

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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.
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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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Guide to Education IRAs

By | Growing Wealth, invest, Investing | Comments Off on Guide to Education IRAs

There are many different ways you can save for education expenses, and each one comes with its own pros and cons. Depending on your situation, you may want to explore 529 college savings plans, Roth IRAs, or education IRAs — also known as Coverdell Education Savings Accounts (or ESAs).

Education IRAs — more commonly called Coverdell ESAs today — provide a tax-advantaged way to save for primary, secondary, and higher education expenses. Unlike 529 Plans, you can only save $2,000 per year, per beneficiary in an ESA, and your contribution limit is determined by your income.

🛈 Currently, SoFi does not offer education IRAs.

What Is an Education IRA, or ESA?

Despite sometimes being called an education IRA, this is not a retirement account like a traditional IRA, but is rather intended for education-related expenses, including tuition, tutoring, books, and more.

It’s possible for a parent to consider using retirement funds to pay for college, but it’s generally unwise to compromise your own retirement.

Fortunately, there are many tax-advantaged ways to save for a child’s education. It’s even possible to use an education IRA in combination with a 529 plan, especially if you’re looking for creative ways to save for college.

ESA Basics

It’s important to know that different rules apply to each type of educational account. For example, parents, grandparents, and other individuals can open ESAs on behalf of an eligible beneficiary (the student) and make annual contributions.

But contributions are not tax deductible (as they sometimes are when creating a college fund, depending on the state); and contributions are limited to $2,000 per year, total, per beneficiary. So, if a grandparent opens an ESA for a child, and an uncle opens an ESA for the same child, the total contribution amount per year in those two ESA accounts cannot exceed $2,000.

The perks of a 529 savings plan include: No annual contribution limits; no income limits; contributions are tax deductible in some states. But you can only use up to $10,000 in 529 funds for primary and secondary education expenses.

How Do Education IRAs Work?

ESAs have two primary people involved — the custodian, who manages the account, and the beneficiary, or student. The custodian sets up the education IRA and manages the funds on behalf of the student beneficiary.

An education IRA is a self-directed account, where the custodian can invest the money in assets like stocks, bonds, real estate or mutual funds. The appreciation and interest earned in an education IRA is tax-deferred, which means that appreciation is not subject to tax on capital gains or income. Distributions for qualified educational expenses are also not subject to taxes.

ESA Rules

Here are a few of the rules for setting up education IRAs (i.e., Coverdell ESAs):

Funds Must Be Contributed Before the Beneficiary Turns 18

All funding to an education IRA must be contributed before the beneficiary turns 18 years old, unless they’re a special needs beneficiary per the IRS.

Funds Must Be Distributed Before Age 30

You must distribute all funds in an education IRA before the beneficiary turns 30 (again, this doesn’t apply to those with special needs). However, the custodian may name a new beneficiary if there are still funds in the account when the original beneficiary reaches age 30.

Contribution Limits

Each account may only receive $2,000 in funding each year, total. Additionally, if your modified adjusted gross income (MAGI) is between $95,000 to $110,000 ($190,000 to $220,000 for those filing jointly), you can contribute a partial amount, not the full $2,000. If your MAGI is above $110,000 (or $220,000 for joint filers), you are not permitted to contribute to an ESA.

Tax-free for Qualified Expenses

While contributions are not deductible, assets in an education IRA are considered tax-advantaged, which means you do not pay any capital gains or income tax over time on the money within the account. And as long as you withdraw the money for qualified education expenses, you won’t pay any taxes on the withdrawals either. Nonqualified withdrawals, however, are subject to taxes and a 10% tax penalty.

Pros and Cons of an Education IRA

Pros of an Education IRA

 Cons of an Education IRA
Withdrawals for qualified education expenses are tax-free Limited to $2,000 in contributions per year
Are self-directed, meaning contributors can choose their own investments Ability to contribute is limited by contributors’ MAGI
Can be used for educational expenses from kindergarten through college Can’t contribute after the beneficiary reaches age 18*
Beneficiary of an ESA can be changed to a family member of the original beneficiary Must distribute all funds before the beneficiary turns 30*

*This does not apply to special needs beneficiaries.

Alternatives to Education IRAs

Here are a few alternatives to education IRAs:

529 Plans

A 529 plan is one of the most common ways that people save for college and other educational expenses. Earnings in 529 plans are also tax-deferred and qualified educational expenses can be withdrawn tax free, but in contrast to education IRAs, 529 plans have no limitations on the age of the beneficiary.

Roth IRA

You can also set up a Roth IRA for a child as a way to save for higher education expenses like college. While a Roth IRA is mostly intended for retirement savings, it can also be used for higher-education expenses because you can withdraw your contributions at any time (but there are restrictions on withdrawing investment earnings from a Roth before age 59 ½ ).

High-Yield Savings Account

It is also possible to put some or even the majority of your college savings money in a high-yield savings account. While you lose some of the tax advantages that come with Coverdell ESAs, IRAs, or 529 plans, you also have more flexibility since the money in a savings account can be used for any purpose without penalty. Also, these accounts are typically FDIC insured.

FAQ

Is an education IRA the same as a 529 savings plan?

While education IRAs (now called Coverdell ESAs) and 529 savings plans are both ways to save for education expenses, they are not the same thing. The aggregate contribution limits for 529 plans are much higher than they are for an ESA, so you could save more — and you’re not required to stop making contributions once your child turns 18.

What are the benefits of an education IRA?

An education IRA allows you to save money for a beneficiary and watch that money grow tax-free. And as long as you withdraw that money for qualified education expenses, you won’t ever have to pay income tax or capital gains tax on that money.

What is the income limit for an education IRA?

Education IRAs do limit who can make a contribution based on the adjusted gross income (MAGI) of the donor. Currently, the income limits for an education IRA are $95,000 for single taxpayers and $190,000 for married taxpayers. Single taxpayers with an MAGI of $95,000 to $110,000 and joint filers with an MAGI of $190,000 to $220,000 can contribute a lesser amount due to a phaseout rule. Single taxpayers and join filers whose MAGI exceeds $110,000 and $220,000, respectively, are not eligible to contribute to an educational IRA.

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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.

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

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

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.
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All You Need to Know About IRA Certificates of Deposit (CDs)

All You Need to Know About IRA Certificates of Deposit (CDs)

By | Budgeting & Goals, Growing Wealth, Investing, money, Preparing for Retirement | Comments Off on All You Need to Know About IRA Certificates of Deposit (CDs)

An IRA CD is simply an individual retirement account (IRA) in which the investor has opened one or more certificates of deposit (CDs).

This may provide tax advantages and be a smart long-term move for some savers. Keep reading to learn how an IRA CD works and its pros and cons.

What Is an IRA CD?

An IRA CD is an IRA where your money is invested in certificates of deposit. In other words, an IRA CD is a traditional, Roth, or other type of IRA account where the funds are invested at least partly in CDs.

Investing in CDs can offer some tax advantages and may be a good option for long-term savings. As you may know, a CD, or certificate of deposit, is a time deposit. You agree to keep your funds on deposit for a certain amount of time, typically at a fixed interest rate.

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How Do IRA CDs Work?

If you choose to put your retirement money in an IRA, you have the chance to choose investments that might include stocks, mutual funds, bonds — and also CDs. By investing in CDs within an IRA, you can add to your portfolio’s diversification. Unlike equities, CDs can offer a predictable rate of return.

By investing in an IRA CD, you no longer have to pay taxes on the interest gains, and the money can grow taxed-deferred.

But if you withdraw funds prior to the CD’s maturity date, you will face an early withdrawal penalty. Once the IRA CD matures, you can either renew it or take your money and invest it in the stock market for potentially higher returns.

How much can you contribute to an IRA CD? It depends on the type of IRA account you choose. Traditional and Roth IRAs have contribution limits of $7,000 per year as of 2024, or if you are 50 or older, the contribution limit is $8,000 per year. The contribution limits for SEP IRAs are typically higher.

If you choose an IRA CD with a bank or credit union backed by the Federal Deposit Insurance Corp., or FDIC, your money in the IRA CD is insured for up to $250,000 per depositor, per account ownership category, per insured institution. This means that if the bank goes under for any reason, your retirement funds are covered up to that amount.

CD Basics

A CD or a certificate of deposit is a type of savings or deposit account that usually offers a fixed interest rate for locking up your money for a certain period of time, known as the term. An investor deposits funds for the specified terms (usually a few months to a few years), and cannot add to the account or withdraw funds from the account until the CD matures.

In exchange, for keeping your money in a CD, the bank will offer a higher interest rate compared with a traditional savings account. But the chief appeal for retirement-focused investors is that CDs can provide a steady rate of return, versus other securities in a portfolio which may entail more risk.

You may be able to find variable-rate and promotional-rate CDs as well.

Recommended: How Investment Risk Factors into a Portfolio

IRA Basics

An IRA or individual retirement account is a tax-advantaged account designed for retirement planning. There are different IRA types to choose from, such as a traditional IRA, Roth IRA, or SEP IRA. By contributing to this type of account, you can have your money grow tax-free or tax-deferred, depending on the type of IRA you open.

Think of an IRA as a box in which you place your retirement investments. With an IRA, investors have the flexibility to invest in a variety of securities for their portfolio.

For this reason, it might make sense for some investors to include CDs as part of their asset allocation within the IRA.

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Pros and Cons of IRA CDs

IRA CDs have unique characteristics that can benefit account holders as they think about how to handle their retirement funds. The upsides include:

•   Compared to investing in the stock market where investment returns can be volatile and unpredictable, IRA CDs are low-risk cash investments.

•   CDs guarantee a fixed return.

•   With an IRA CD, there are similar tax benefits that come with a traditional IRA. Investors can enjoy tax benefits such as growing your account with pretax dollars while having your earnings accumulate tax-deferred until you reach retirement.

There are some cons associated with IRA CDs to keep in mind:

•   With an IRA CD, you have to keep your money locked away for a period of time that varies depending on the maturity date you choose. During this time, you cannot access your funds in the event you need capital.

•   If you decide to withdraw cash prior to the IRA CD’s maturity, you will incur early withdrawal penalties. After age 59 ½ there is no penalty for withdrawing cash.

•   While putting your retirement funds in an IRA CD is a safer and lower-risk option than investing in the stock market, the returns can be quite low. If you are in retirement and are concerned about the stock market’s volatility, an IRA CD could be a safer option than other securities. But if you are many years away from retirement, an IRA CD may not yield enough returns to outpace inflation over time.

Pros of IRA CDs

 Cons of IRA CDs
Low-risk investment Money is locked away until maturity
Guaranteed return Penalty for early withdrawal
Tax-deferred growth Returns can be low vs. other retirement savings options

Who Should and Should Not Invest in an IRA CD?

IRA CDs are a safe way to invest money for retirement. However, they are best suited for pre-retirees who are looking for low-risk investments as they approach retirement age.

If you are many years away from retirement, an IRA CD is probably not the best option for you because they are low-risk and low-return retirement saving vehicles. In order to see growth on your investments you may need to take on some risk.

If you decide an IRA CD is the right option for you, you also must determine if you are comfortable with keeping your money stowed away for a period of time. Account holders can choose the length of maturity that best suits them.

How to Open an IRA CD

The first step is to open an IRA at a bank, brokerage, or other financial institution. Decide if a traditional, SEP, or Roth IRA is right for you. You can set up the IRA in-person or online. Once you open an IRA account, you can buy the CD.

Choose the CD that fits your minimum account requirements and length of maturity preference. Typically, the shorter the CD maturity, the lower the minimum to open the account. When considering maturity, you also should compare rates. Often, the longer the maturity, the higher the rate of return.

The Takeaway

If you’re looking to add diversification to the cash or fixed-income part of your portfolio, you might want to consider opening an IRA CD — which simply means funding a CD account within a traditional, Roth, or SEP IRA. Bear in mind that CDs typically offer very low interest rates, though, and your money might see more growth if you chose other securities, such as bonds or bond funds.

If you’re thinking about how to earn a steady rate of return on your savings, consider an account with SoFi.

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

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

What is the difference between an IRA CD and a regular CD?

A standard CD is a separate account you open at a bank or credit union. An IRA CD is where the CD is funded within the IRA itself.

Can you withdraw from an IRA CD?

With a regular CD, you withdraw the funds penalty-free when the CD matures. With an IRA CD, however, you can withdraw the funds penalty free starting at age 59½, per the rules and restrictions of the IRA.

What happens when an IRA CD matures?

Once your IRA CD matures, you’ll receive the principal plus interest. Then you can either leave the IRA CD as is or renew it. You cannot withdraw the funds from an IRA CD until age 59 ½, as noted above.

Are IRA CDs safe?

Yes, IRA CDs are considered low-risk. If you open an IRA CD with a federally insured institution, your funds can be covered up to $250,000 per depositor, per account ownership category, per insured institution.

Who offers IRA CDs?

IRA CDs can typically be found at traditional and online-only banks as well as credit unions and brokerage firms.

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SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. 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 (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% 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 Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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

SoFi Invest®

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

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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

Third-Party 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.

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Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

✝ To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

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