Jul
01
2024
Guide to Transaction Deposits

Guide to Transaction Deposits

By | Budgeting & Goals, Financial Independence, money | Comments Off on Guide to Transaction Deposits

Bank transaction deposits are monetary deposits made into transaction accounts, also often known as checking accounts. Transaction deposits allow a person to have ready access to their money held at a depository financial institution, such as a bank or credit union, without delay or advance notice.

They differ from non-transaction deposits, which are deposits made into non-transaction accounts, such as certificates of deposit (CDs). Non-transaction accounts come with restrictions on when or how often you can access your money. Learn more about transaction deposits and their pros and cons here.

What Are Transaction Deposits?

A transaction deposit (sometimes also called a demand deposit) refers to a deposit made into a transaction account that is readily available for use — meaning you can use the money any time for other transactions.

The most common example of a transaction account is a checking account. This type of account allows account holders to make unlimited deposits, withdrawals, payments, and transfers. In other words, you can use the account as often as you want to get cash, make purchases, pay bills, and/or deposit cash at an ATM.

Savings accounts that allow account holders unlimited access are also considered transaction accounts. Typically, however, savings accounts may come with withdrawal and transfer limits (such as a certain number per month). As a result, they are generally considered non-transaction accounts.

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No account or overdraft fees. No minimum balance.

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Understanding Transaction Deposits

Transaction deposits can be made at a branch of the bank, at an ATM, and by transferring funds from another account. If you set up direct deposit with your employer, these deposits also qualify as transaction deposits.

If you want to access a transaction deposit, you can so for in a number of different ways, including:

•   Withdrawing money at a branch or ATM

•   Transferring the money to another account

•   Writing a check

•   Using auto-pay

•   Making a wire payment

Transaction Deposits vs Non-Transaction Deposits

To better understand transaction deposits, it helps to know the difference between the two main types of deposit accounts: transaction accounts and non-transaction accounts.

Transaction accounts allow account holders easy access to their money. These accounts may earn interest, but typically they do not.

Non-transaction accounts, such as most savings accounts, money market accounts, and certificates of deposit (CDs) typically earn interest, providing a return on the account holder’s investment. However, deposits made into a non-transaction account (called non-transaction deposits) are not as fully accessible as transaction deposits. Account holders may be limited or restricted from accessing all or some of the money, or they may need to make a request for a withdrawal.

For example, if you open a CD, your money is locked up for a certain period of time. If you want to access the money before the CD matures, you will typically pay a penalty. With many savings and money market accounts, the bank will impose limitations on the number of transactions you can make each month. If you exceed that limit, you may be charged withdrawal fees.

Here’s a look at transaction accounts vs non-transaction accounts:

Transaction Accounts

 Non-Transaction Accounts
Unlimited number of transfers or payments to third parties There may be a limit on the number of withdrawals and transfers of money that are allowed per statement period
Typically not interest-bearing Typically interest-bearing
Can make an unlimited number of transfers between your own accounts at the same institution May have penalties for withdrawing too much money or too many times
Payable on demand May require seven days notice to withdraw funds
No maturity period May be subject to a maturity period
Examples include checking accounts Examples include money market deposit accounts, certificates of deposit, and savings accounts

Real-Life Examples of Transaction Deposits

A checking account is an example of a transaction account where transaction deposits are made. The key feature of a transaction account, and the deposits made into it, is that the money is liquid, or readily available. There are no requirements for leaving the money for a set amount of time like there are with a time (or term) deposit account, such as a CD.

Here are some common examples of transaction deposits:

•   Direct deposits from your employer into your account

•   Check or cash deposits made at your bank

•   Mobile deposits

•   An electronic funds transfer (EFT) made into your account

•   Payments from third parties

•   Refunds from vendors

Restrictions of Transaction Deposits

There are some instances, however, where a bank may impose some restrictions or a waiting period on certain deposits made to transaction accounts. This could happen if you deposit a large check that requires verification, or if the account is new and the account holder doesn’t yet have an established history. Once the holding period ends, the funds are fully accessible.

Non-transaction deposits, however, come with far more restrictions. In the past,
The Federal Reserve’s Regulation D restricted withdrawals from money market accounts and savings accounts to six per month. If you went over this limit, the bank would charge you a fee. If you consistently went over this limit, they could convert the account to a regular (non-interest-bearing) account.

However, the Federal Reserve suspended Regulation D in 2020. Banks can now set their own restrictions on savings account transactions, and they can vary from one bank to another. In other words, some financial institutions still limit savings accounts to those six transactions; check with your bank or read the fine print on your account agreement.

Recommended: How Long Does the Direct Deposit Transaction Take?

Advantages of Transaction Deposits

There are a number of advantages that come with transaction deposits. These include:

•   Money is readily available

•   No maturity period

•   No eligibility restrictions

•   No limit on the number of deposits, withdrawals, or transfers the account holder can make

•   No early withdrawal penalties

•   Sometimes interest-bearing

Disadvantages of Transaction Deposits

The main disadvantage of transaction deposits is that the money being deposited will generally earn no, or only a small amount of, interest.

The Takeaway

A transaction deposit is a deposit made to a transaction account, such as a checking account. This type of account is ideal for everyday banking, since you can generally put money in and take money out whenever you like.

Non-transaction deposits are the opposite — they are funds put into non-transaction accounts, which include savings accounts, money market accounts, and CDs. With a non-transaction account, you will face some restrictions in when and how often you can access your money. However, the advantage of non-transaction deposits is that this money will typically earn more interest than a transaction deposit will.

If you’re interested in getting the benefits of both types of accounts in one, consider what SoFi offers.

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 4.20% APY on SoFi Checking and Savings.

FAQ

What is a bank deposit transaction?

A bank deposit transaction is a deposit into a transactional bank account, such as a checking account. It includes direct deposits, transfers, and deposits made at a bank or ATM.

Is a deposit considered a transaction?

Yes, a deposit is considered a transaction. Any money moving into and out of your account is considered a transaction.

What banks offer transaction deposits?

Any bank that offers a checking account is a bank that offers transaction deposits.

Photo credit: iStock/Prostock-Studio

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.20% 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 4.20% 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 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. 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.

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.

SOBK-Q224-1939779-V1

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Jul
01
2024
11 Benefits of Having a Side Hustle

11 Benefits of Having a Side Hustle

By | Budgeting & Goals, Financial Independence, money | Comments Off on 11 Benefits of Having a Side Hustle

Having a side hustle has become increasingly popular. According to one recent study, 54% of Americans said they have taken on a side hustle as a way to supplement their income.

And why not? Everyone likes a little extra cash in their pocket, especially if it’s from an activity they enjoy. Whether a side hustle involves using your tech skills to help people set up their computers or selling photos you take, it can be a great way to build an additional revenue stream.

But beyond the cash, there are other, potentially surprising benefits to having this kind of money-making venture.

What Is a Side Hustle?

A side hustle is a job or work, in addition to full-time employment, that helps boost an individual’s monthly income. It can involve ways to make money from home (say, as an online tutor or writer) as well as a part-time job outside the home.

For instance, maybe you do some pet-sitting when people in your town go on vacation. Or perhaps you have a Sunday gig as a barista. Or maybe you hunt for treasures at local yard sales and resell them on eBay or Etsy. These are just a few examples of side hustles, which can help you earn extra cash that you could use to pay bills or put into a bank account.

The amount Americans earn via a side hustle varies tremendously, as you might expect. Another recent survey of individuals with side hustles found that the average side hustle brings in about $688 a month. However, approximately 46% of people say they earn less than $250 a month from their side. About 19% say they make more than $1,000 a month.

Earn up to 4.20% APY with a high-yield savings account from SoFi.

No account or monthly fees. No minimum balance.

9x the national average savings account rate.

Up to $2M of additional FDIC insurance.

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Having a Side Hustle: 11 Benefits

An obvious benefit of a side hustle is the potential to generate extra cash each month. But on top of earning money, there are additional advantages to taking on extra work outside the typical 9-to-5.

If you’re wondering, “Should I start a side hustle?” read on and explore the unexpected benefits below.

1. Improving Ability to Budget

Having a solid budget is one of the important ways to improve your financial health. But getting that budget in place can be a challenge when money is tight, and it’s a struggle to make ends meet each month.

A side hustle has the potential to bring extra income, creating a little wiggle room in your budget. Creating a realistic budget may be easier with some more padding each month.

2. Developing Skills That Translate to Other Areas

Learning new skills is one of the more unexpected benefits of a side hustle. If a side hustler is starting to drive a ride-share, for instance, they may get a crash course in accounting as they learn to manage this income stream. Or if a side hustler’s gig is working weekends at a local café, they could develop important customer service skills they normally wouldn’t cultivate at their day job.

In other words, taking on an additional work endeavor can help you develop a more robust toolkit for future endeavors.

3. Improving Income and Financial Stability

Most people start side hustles to earn extra cash, and that benefit can’t be overstated. Additional monthly income can help give side hustlers a sense of financial stability. It could translate into less stress when the bills are due or even create a little breathing room to start saving and planning for the future.

With surplus cash in the budget, it may be time to set up a financial plan if you haven’t already. While it may be tempting to have fun spending the extra money, those funds could be put to work to help you build wealth.

4. Building a Stronger Work Ethic

Side hustles can be fun, but they are still a job. Spending more hours working can enhance your work ethic. After all, you are devoting what others might consider leisure time to a pursuit that will uplift your financial health. You should recognize your dedication and bask in the self-confidence boost you get along with the additional cash.

5. Improving Time Management Skills

It may be obvious, but taking on a side hustle means taking on more work hours. That translates into fewer free hours in the day, which means a side hustle can be a crash course in time management skills as well as cash management know-how.

With more responsibilities on your plate, you will likely get much more adept at being on time, meeting deadlines, and knowing how to pack in leisure activities in the time available. These are skills that will serve you well outside your side hustle.

6. Allowing You to Put More Into a Savings Account

Some start side hustles to help pay off outstanding debt or save for an upcoming trip, but earnings can be used to build up savings.

Once immediate financial needs are met, including bills and debt, surplus cash from a side hustle can go into a savings account. Not sure where to park your cash? Consider a high-yield bank account to help build your savings.

7. Allowing You to Better Prepare for an Emergency

One of the benefits of a side hustle is the ability to contribute to an emergency fund. As noted above, once immediate needs are met in a budget, extra cash from a side hustle could go into a savings account or help you grow your emergency cash supply.

A general recommendation is to have at least three to six months’ worth of basic living expenses set aside in an easily accessed account. This gives you a cushion if an unexpected medical or household expense crops us or if you were to lose your job.

8. Allowing You to Pay Debt Quicker

If high-interest debt is eating away at paychecks, money from a side hustle can be a help. Interest from high-interest credit cards can compound, for example, making it harder to pay off as the balance grows. The current average credit card interest rate (as of mid 2024) is 24.62%, which can mean that those carrying a balance may have a challenging time paying debt down. With limited income, it may feel impossible to get on top of that monthly bill.

Using income from a side hustle to pay off debt could lead to paying it off faster or at least relieving some of the pressure.

9. Improving Ability to Reach Financial Goals

Even an extra $100 a month can help side-hustlers as they work to reach financial goals.

For example, if you’re planning a vacation in the next year but don’t have enough in your budget to save for it, you could take on seasonal gig work and put those paychecks towards the vacation. Without it, you might not be able to take the vacation.

Beyond small savings goals, a side hustle can help you work towards bigger financial goals like saving for a downpayment or putting more money into a retirement fund.

10. Allowing You to Expand Your Network

One of the less-discussed benefits of a side hustle is the ability to meet new people and expand your network. Whether a side hustle is related to your day job or is something completely different, you’re bound to meet new people and create new connections.

These connections may lead to many benefits, including more work, new friends, or a new career opportunity.

11. The Opportunity to Do Something You Love

In addition to bringing in more money, a side hustle can also reignite someone’s passion for a hobby or activity.

Because it’s not your primary source of income, you can experiment with turning a personal interest into an income source. If you don’t enjoy your side hustle, it can feel exhausting. But working on something you love might not even feel like work.

For example, a nurse might love quilting in their off time and decide to open an Etsy shop. If they were already using their spare time to quilt for family and friends, now they can keep doing what they love, earn money from home, and make a profit off the sale of their quilts. It’s a win-win! Who knows? Some side hustles even become a person’s main job over time as their network and their skills grow.

The Takeaway

While the biggest benefit of a side hustle is bound to be the extra cash it brings, there are plenty of secondary benefits. From plumping up an emergency fund to meeting new people, a side hustle can be both a key to financial freedom and an avenue for exploration and personal growth.

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 4.20% APY on SoFi Checking and Savings.

FAQ

Why is a side hustle important?

Having a side hustle can generate more income and help people pursue something they’re passionate about on the side. It also can build skills and open up new networks and opportunities.

Is it worth having a side hustle?

If someone has a side hustle they enjoy and it generates extra income without taking up every last minute of their day, it may be well worth it. However, deciding if a side hustle is worth it is ultimately up to the individual.

How much does the average side hustle make?

The average side hustle brings in about $688 a month, according to one recent survey, though 46% of those with a side hustle report they earn less than $250 monthly. Even so, a couple hundred dollars is a nice sum to help pay off student loans or credit card debt faster, or to put towards a vacation fund.

Photo credit: iStock/visualspace

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

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

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2024 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

4.20% APY
SoFi members with direct deposit activity can earn 4.20% 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 4.20% 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 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. 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.

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Jul
01
2024
Guide to High-Risk Stocks

Guide to High-Risk Investments

By | Growing Wealth, invest, Investing | Comments Off on Guide to High-Risk Investments

High-risk investments may be types of investments or securities in which investors may experience significant losses, or significant gains. Generally, high-risk investments tend to be from cyclical, volatile industries, or take the form of equity in relatively new, untested companies. In contrast, lower-risk investments tend to be related to more established businesses or sectors.

But there are many types of high-risk investments. These can include stocks, cryptocurrencies, and even investing in venture capital or private equity (if available to you, as an investor). The important thing to know about high-risk investments is, broadly speaking, that the higher the associated potential reward with an investment, the higher the risks, too.

What Is Considered a High-Risk Investment?

There’s no set definition of “high-risk investment,” other than it can refer to any type of investment vehicle that may involve more innate or inherent risk than another type of investment. It may be helpful to think of risk as relative, too — if a Treasury bill, for instance, is generally considered to be a low-risk investment, a penny stock may exist on the other end of the spectrum.

It’s important to remember that no matter what you’re adding to your portfolio, investing almost always involves risk. In other words, there are no “safe” investments, but some may be “safer” than others.

The question for most new investors will be how much risk they are willing to take on (often referred to as risk tolerance). If you’re looking to take on substantial risk to reap potential rewards, you may want to look at certain subsets of stocks. Of course, it’s important to remember that the more risk you take on, the more you stand to potentially lose.

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, alternative investments, IRAs, and more. Get started in just a few minutes.

*Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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

Examples of High-Risk Investments

As noted, high-risk investments can take many forms. Here are some of the more common and higher-risk investments you may encounter.

Highly Volatile Stocks

Experts typically consider stocks to be one of the riskier asset categories to invest in, especially compared to bonds or certificates of deposits. But not all stocks are created equal, or have equal risk profiles. There are different classes of stocks that are riskier than others.

Here are some examples of high-risk, high-reward stocks that tend to be more volatile.

Penny Stocks

Broadly defined as stocks that trade at a market value of less than five dollars per share, penny stocks can be found across all industries. Penny stocks might represent shares of companies in utilities, energy, gold mining, technology, or anything else. Like other high-risk, high-reward stocks, penny stocks can yield high returns in a short amount of time. However, the risks of penny stocks may outweigh the potential for high rewards due to low trade volumes, lack of information on the companies, fraud, and other drawbacks.

IPO Stocks

Investing in stocks of newly public companies can also be higher risk. These initial public offering (IPO) stocks generally tend to be less tested by the market, making them more prone to price swings or ups and downs in business trends.

Commodities or Commodity Stocks

Commodity stocks, or stocks of companies that produce raw materials like oil, grains, and metals, tend to be highly volatile. That’s partly because these commodity industries are cyclical, or closely tied to economic growth. So, any sign of slowing growth or perceived signs of slowing growth can cause investors to sell this group.

đź’ˇ Recommended: Why Is It Risky to Invest in Commodities?

Cryptocurrencies

Bitcoin, and the entire digital currency market, have become mainstream fixtures in the financial markets. While certain cryptocurrencies are the most popular or recognizable, there are thousands of coins or tokens that investors could, potentially, get their hands on. But given Bitcoin’s wild price swings over the years, it’s easy to see why investors may want to try and ride its popularity to large returns.

However, the cryptocurrency market is still very volatile and highly speculative, with digital assets remaining mostly unregulated — for now. That’s likely to change in the years ahead. For investors, know this: Crypto is about as risky of an asset as you can find on the market.

đź’ˇ Recommended: Cryptocurrency Glossary

Spread Betting

Spread betting refers to making a bet on the direction of the price of an asset without actually holding it. In spread betting, you make money if the asset moves in the way you predicted, and you lose if it moves the opposite way. Investors can bet on currencies, bonds, commodities, or stocks.

Spread betting is often offered as a leveraged product, meaning investors can trade on margin. If the margin requirement were 10%, for example, a bet of $10,000 could be made with as little as $1,000. This amplifies both losses and gains. When trading on margin, investors are vulnerable to margin calls and can lose more than they initially invest.

Leveraged ETFs

A leveraged investment vehicle offers returns or losses several multiples higher than what someone has to invest, which makes an asset like a leveraged exchange-traded fund (ETF) potentially high-risk. Leveraged ETFs use debt or derivatives to generate two or three times the daily performance of an underlying index.

There are leveraged ETFs that rise in price along with the assets they track (bull ETFs) and those that rise in price when the assets they follow go down in price (bear ETFs, also known as leveraged inverse ETFs).

Hedge Funds

While not all investors are engaging with hedge funds, they’re worth discussing due to how relatively high-risk investing in one can be. Hedge funds operate by collecting a pool of investors’ money that gets invested in different assets. The goal of a typical hedge fund is to get high rates of return for investors by any means possible. That generally means taking calculated risks.

There is no established definition of what a hedge fund can invest in. Some hedge funds specialize in asset classes, like junk bonds, real estate, or equities — all relatively high-risk categories.

In general, hedge funds are only available to accredited investors. That means investors have to fit specific criteria. Specific financial entities like trusts and corporations can also be accredited investors.

Further, part of what makes hedge funds risky is that they are not subjected to government regulations that offer protection to everyday investors. The reasoning is that only sophisticated investors should be involved in the first place.

Venture Capital

Venture capital is a form of investing that targets a new company and seeks to help it grow. Again, like hedge funds, many investors likely aren’t involved with venture capital, but at some point, they might be.

The requirements for companies to access the public equity markets, meaning they raise money by selling their shares on an exchange where any average investor can purchase them, are high. Most corporations aren’t eligible for this kind of funding, so some of them turn to venture capitalists.

Venture capital funds often receive funding from large institutions like pension funds, university endowments, insurance companies, and financial firms.

The term “venture capital” has become closely associated with the tech industry, as many entrepreneurs in technology that believe they have promising ideas turn to venture capitalists to fund their startups. Traditional business loans often require real assets as collateral, and with many modern companies being information-based, that kind of loan isn’t always an option.

The fact of the matter is that new businesses fail often (about 25% don’t even make it one year), making venture capital investing full of risk. But the possibility of early investment in the next big tech company means the potential reward can also be high.

Angel Investing

Angel investing is a form of equity financing — a way for businesses to fund their operations in exchange for a stake of ownership in the company. Compared to venture capital, “angel investor” is a more generic term that applies to anyone willing to take a gamble on a new startup. Angel investors are often high-net-worth individuals looking for significant returns on their investments.

Why Invest in High-Risk Stocks

Investors may invest in high-risk stocks and similar securities because they may provide substantial returns. For some, the prospect of massive returns is simply too much to ignore.

Very few people, however, probably put 100% of their portfolios into high-risk investments. Instead, taking on risk is considered part of a broader asset allocation strategy.

Ideally, investors take on just enough risk to potentially increase their returns without ruining their long-term prospects should they lose up to a significant percentage of their allocation to high-risk assets. The balance between safe and risky investments tends to be determined by individual investor goals.

Conventional wisdom often says that younger investors in their 20s or 30s tend to be able to afford greater risks since they will, in theory, have the rest of their working lives to earn back any potential losses. Meanwhile, investors closer to retirement typically focus on relatively safer investments that are likely to produce more reliable, albeit likely smaller, returns.

A Warning About High-Risk Investments

There are different ways to attempt to measure risk. Some are objective measurements of aspects of a specific investment, while others are more generic insights. Penny stocks and IPOs tend to be riskier than shares of big companies, for example, because their underlying businesses generally aren’t as stable or profitable.

Statistically-based risk measurements, such as standard deviation, seek to assign mathematical value to the risk involved in a particular investment. Calculating portfolio beta is another way to monitor how sensitive your stock holdings are to broader swings in the market.

An important thing to note is that riskier investments are generally considered ones with greater volatility and potential for negative returns. When it comes to high-risk stocks and other investments involving significant risk, wise investors often follow the adage: never invest more than you can afford to lose. High-risk investors must be prepared for the possibility of losing a significant amount or the entirety of an investment.

Remember, too, that it may also be worthwhile to discuss your strategy with a financial professional.

💡 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.

The Takeaway

High-risk investments are just that — risky — but that might not necessarily mean everyone must avoid them all the time. If you have the risk tolerance, you can utilize high-risk investments to help build wealth and meet your financial goals. Investing in more volatile companies may help individuals benefit from the potential growth of these businesses.

Again, though, it may be a good idea to stick to a larger investment strategy that incorporates high-risk investments in balance with more conservative ones. A financial professional can also help you review options and allocations based on your risk-tolerance, if you need guidance.

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

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

FAQ

Which type of investment has the highest risk?

It’s difficult, if not impossible to say which type of investment has the highest associated risk, but some of the investment vehicles that do fit the description are options, certain types of stocks (penny stocks, for instance), and investing in hedge funds or venture capital.

Which type of stock is the highest risk?

While it’s not really possible to pinpoint any one type as “the highest risk,” penny stocks have one of the highest associated risk profiles. Penny stocks, which trade for less than $5, generally, and are shares of unproven, small, or young companies.

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.


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

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

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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01
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HSA vs FSA: The Similarities and Differences

By | Family Finances, Insurance, money | Comments Off on HSA vs FSA: The Similarities and Differences

A health savings account (HSA) and a flexible savings account (FSA) are both tax-advantaged savings accounts that help you pay for out-of-pocket medical expenses. To contribute to an HSA, you must be enrolled in a high-deductible health plan. To contribute to an FSA, you can have any type of health plan but your employer must offer an FSA as a benefit. Here’s a closer look at the similarities and differences between FSAs and HSAs and how to choose between them.

HSA and FSA, Explained

A health savings account (HSA) is designed to help individuals with high-deductible health plans (HDHPs) save for medical expenses. Contributions to an HSA are tax-deductible (or deducted from your paycheck pretax), and the funds can be used for a wide range of qualified medical expenses. HSAs also offer investment options and grow tax-free. In addition, withdrawals for qualified expenses are tax-free.

In 2024, a health plan is considered an HDHP if it has a minimum deductible of $1,600 for individual plans and $3,200 for family coverage.

A flexible spending account (FSA) is a benefit offered by employers that allows employees to set aside pretax dollars for eligible healthcare expenses. Unlike HSAs, FSAs do not require an HDHP. However, FSAs typically have a “use-it-or-lose-it” rule, meaning that any unused funds at the end of the plan year are forfeited unless your employer offers a grace period or a certain amount to roll over.

If you leave your job, you lose your FSA unless you’re eligible for FSA continuation through COBRA.

Differences Between HSA and FSA

Even when you have health insurance, you may run into medical expenses that your plan doesn’t cover, such as copays, eyeglasses, dental expenses, medications, diagnostic tests, and hospital fees. Both HSAs and FSAs allow you to set aside pretax money to cover these costs. But there are some key differences between them. Here’s how these two types of savings accounts compare at a glance.

Feature HSA FSA
Eligibility Must have a high-deductible health plan No specific health plan requirement
Ownership Account owned by the individual Account owned by the employer
Contribution Limits $4,150 for individuals, $8,300 for families (2024) $3,200 per year (2024)
Funds Rollover Unused funds roll over year to year Generally, “use-it-or-lose-it” policy
Portability Remains with the individual if they change jobs Typically not portable
Investment Options Can be invested in stocks, bonds, and mutual funds No investment options
Tax Advantages Contributions and earnings aren’t taxed; distributions are tax-free if used for eligible medical expenses. Contributions are pretax; distributions are tax-free and can only be used for eligible medical expenses.
Contribution Changes Can change contribution amounts anytime Contribution amount is typically set at the beginning of the year
Access to Funds Funds are available as they are deposited Full annual election amount available from the start of the year

Similarities Between HSA and FSA

Despite their differences, HSAs and FSAs share several similarities:

•   Funds from either type of account can be used for qualified medical expenses.

•   With both accounts, you can save significantly on medical expenses due to tax advantages.

•   Employers are allowed to contribute to both HSAs and FSAs (though this is not common with FSAs).

•   You can access funds immediately with either type of account. With an FSA, however, you’ll have access to full elected contribution at the start of the year.

Recommended: HSA vs HRA: Main Differences and Which Is Right for You

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No account or overdraft fees. No minimum balance.

Up to 4.20% APY on savings balances.

Up to 2-day-early paycheck.

Up to $2M of additional
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Can You Have an HSA and FSA at the Same Time?

Generally, no. However, there is one exception: If you have a limited-purpose FSA (LPFSA), which only covers dental and vision expenses, you can contribute to both an HSA and an LPFSA. This allows you to put more pretax dollars aside for your healthcare expenses than you could with an HSA alone.

Just keep in mind that you can’t “double dip,” meaning you cannot get reimbursed twice for the same expense — you must decide which account you want to use for reimbursement.

Recommended: HSA vs. HMO: What’s the Difference?

How Do You Choose Between an HSA and FSA?

Choosing between an HSA and FSA depends on your healthcare needs, financial situation, and employment status.

Scenarios When You Should Consider an HSA

•   You have a high-deductible health plan. If you have an HDHP, you are eligible for an HSA. The tax advantages and ability to save for future healthcare expenses can make opening an HSA a smart choice.

•   You’re interested in long-term savings. HSAs allow you to roll over unused funds year to year, making them ideal for long-term healthcare savings. And at age 65, you can treat an HSA like a traditional 401(k) or IRA — you can withdraw funds for any reason, though you will pay taxes on any funds not used for qualified medical expenses.

•   You want to grow your healthcare savings. HSAs offer investment options like stocks, bonds, and mutual funds.

•   You want to be able to take your healthcare savings with you if you leave your job. HSAs are portable and remain with you even if you change jobs, providing consistent coverage regardless of employment status.

Recommended: 15 Easy Ways to Save Money

Scenarios When You Should Consider an FSA

•   You don’t have (or want to enroll in) an HDHP. FSAs do not require a high-deductible health plan, making them accessible regardless of current health insurance.

•   You have fairly predictable healthcare costs. If you’re able to anticipate regular healthcare expenses each year, an FSA can help you save money by using pretax dollars for these predictable costs. If you over-contribute, however, you forfeit any unused balance (unless your employer allows a grade period or a certain amount to roll over).

•   Your employer offers FSA contributions. Some employers offer contributions to FSAs, providing additional savings and making FSAs a valuable benefit.

•   You want to have immediate access to your healthcare savings. FSAs provide immediate access to the full annual contribution amount at the beginning of the year, which can be beneficial for upfront medical expenses.

The Takeaway

Both HSAs and FSAs offer valuable tax advantages and can help you manage healthcare costs, but they cater to different needs and situations.

If you have a high-deductible health plan and want long-term savings with investment opportunities, an HSA can be a great choice. On the other hand, if you don’t have a high-deductible health plan and your employer offers an FSA, you’ll likely want to take advantage of this benefit. An FSA can help you save for (and save money on) healthcare expenses in the coming year.

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 4.20% APY on SoFi Checking and Savings.

FAQ

Is it better to have an HSA or FSA?

It depends on your healthcare plan and employment situation. A health savings account (HSA) can be a good fit if you have a high-deductible health plan (HDHP), since it offers higher contribution limits and allows you to carry funds forward. An FSA can work well if your employer offers this benefit, you do not have an HDHP, and you have predictable healthcare expenses (since these plans are often “use-it-or-lose-it”).

Is it good to have both an HSA and FSA?

Generally, you cannot contribute to or spend from a health savings account (HSA) and a flexible spending account (FSA) simultaneously, as both accounts are designed for medical expenses and have overlapping benefits.

However, there is one exception: You can have an HSA and a limited-purpose FSA (LPFSA) at the same time. An LPFSA specifically covers dental and vision expenses. This combination can be beneficial if you have significant dental and vision expenses in addition to regular medical costs, providing comprehensive coverage and enhanced tax advantages.

What happens if I switch from an HSA to an FSA?

If you switch from a health savings account (HSA) to a flexible savings account (FSA), you can no longer contribute to your HSA once your FSA becomes active. However, you still own the HSA and can use the remaining HSA funds for qualified medical expenses. In addition, the funds in your HSA will continue to grow tax-free.

Can I have an HSA if my wife has an FSA?

If your wife’s flexible savings account (FSA) is a general-purpose FSA, which covers a range of medical expenses, you cannot contribute to a health savings account (HSA). However, if her FSA is a limited-purpose FSA (LPFSA), which only covers dental and vision expenses, you can contribute to your HSA.

It’s important to review the specific rules and eligibility criteria for both accounts and coordinate with your spouse to optimize your tax savings and healthcare benefits.

Photo credit: iStock/zimmytws

SoFi members with direct deposit activity can earn 4.20% 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 4.20% 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 4.20% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 10/31/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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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.

*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.

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

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How Much Income Is Needed for a $600,000 Mortgage?

By | Home Ownership, mortgage, Real Estate | Comments Off on How Much Income Is Needed for a $600,000 Mortgage?

If you earn a minimum of $180,000 a year, you may be able to afford a $600,000 mortgage — as long as you don’t have any other significant debts. But the exact amount you may qualify to borrow — even if you’re in that income range or higher — may also depend on several other variables, including your credit score and down payment.

Read on for a look at how much income may be needed for a $600,000 mortgage, how income fits into the overall mortgage equation, and how lenders typically determine the mortgage amount a homebuyer can handle.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

What Income Is Needed to Get a $600,000 Mortgage?

You might think the loan amount you’ll receive when you apply for a mortgage will be based mostly on your household income. But income is just one of several factors lenders generally consider when deciding how much someone can borrow.

The home mortgage loan a borrower can qualify for usually is based on how much the lender believes that person can reliably pay back. So the loan company will run your financials through a few different checks and calculations to come up with that number. Here are a few things lenders may look at when you apply:

Reliability of Income

Be prepared to be asked not only about your income but also how long you’ve had your job (or your business if you’re self-employed). When it comes to your income, if you want to get an idea of where you stand before you apply for a mortgage, an online home affordability calculator can help you estimate whether your income is high enough to afford a $600,000 loan. Or you might try prequalifying with one or more lenders.

Creditworthiness

Lenders will also check your credit score and credit reports to ensure that you’re financially responsible and pay your bills on time.

Down Payment Amount

Contrary to what many people believe, a 20% down payment isn’t required to get a home loan. First-time homebuyers may be able to put as little as 3% down with some lenders, or even less, depending on the type of mortgage they get. A larger down payment can help you lower your monthly payments, however, and it can show lenders you’re serious about your investment.

Debt-to-Income (DTI) Ratio

You can also expect lenders to compare your monthly gross income to your existing monthly debts (such as credit cards and student loans) to help assess if you’ll be able to manage all your payments. This calculation is called your debt-to-income ratio. (DTI = monthly debts ÷ gross monthly income.)

What Is a Good Debt-to-Income Ratio?

The Consumer Financial Protection Bureau (CFPB) advises homeowners to work toward maintaining a DTI ratio of 36% or less. And in general, that’s the number mortgage lenders are looking for, as well. But some lenders may accept a DTI ratio of up to 43% — or even higher if the borrower can meet other criteria on certain types of loans.

What Other Factors Are Mortgage Lenders Looking For?

Here are a few formulas your lender — and you — may use to determine how much house you can afford on your income.

The 28/36 Rule

The 28/36 rule combines two factors that lenders typically look at to determine home affordability: income and debt. The first number sets a limit of 28% of gross income as a homebuyer’s maximum total mortgage payment, including principal, interest, taxes, and insurance. The second number limits the mortgage payment plus any other debts to no more than 36% of gross income.

For example: If your gross annual income is $180,000, that’s $15,000 per month. So with the 28/36 rule, you could aim for a monthly mortgage payment of about $4,200 — as long as your total monthly debt (your mortgage payment plus car payment, credit cards, etc.) isn’t more than $7,200. With disciplined budgeting, you may be able to afford a $600,000 mortgage at this income level.

The 35/45 Model

Another calculation lenders might look at is the 35/45 method, which recommends spending no more than 35% of your gross income on your mortgage and debt, and no more than 45% of your after-tax income on your mortgage and debt.

For example: Let’s say your gross monthly income is $20,000 and your after-tax income is about $15,000. In this scenario, you might spend between $6,750 and $7,000 per month on your debt payments and mortgage combined. This calculation allows you to spend a bit more on your mortgage payment… as long as you aren’t carrying a heavy debt load.

The 25% After-Tax Rule

If you’re nervous about keeping up with your monthly mortgage payments, this formula will give you a more conservative amount to shoot for. With this calculation, your target is to spend no more than 25% of your after-tax income on your mortgage.

Keep in mind that these calculations can give you only a rough estimate of how much you can borrow. If you want to be more certain about the overall price tag and monthly payments you can afford, it may be helpful to go through the mortgage preapproval process.

What Determines How Much House You Can Afford?

Here’s something else to consider when determining how much income is needed for a $600,000 mortgage: A house payment isn’t limited to just principal and interest. And the extra expenses that may be tacked on every month can add up fast. Let’s examine the costs covered by a monthly loan payment:

Principal

Principal is the original amount borrowed to buy the home. Each month, a portion of your payment will go toward paying down this amount.

Interest

Interest is the money you pay to the lender each month for giving you the loan. The interest rate you pay can be influenced by personal factors (such as the loan length you choose, your credit score, and your income) as well as prevailing rates in the market.

Homeowners Insurance

The cost of homeowners insurance (coverage that protects your home and other assets from various risks), also may be rolled into your monthly mortgage payment. Your lender will then pay this premium when it’s due.

Mortgage Insurance

Depending on the type of loan you get and the amount you put down on your home, you may be required to carry private mortgage insurance (PMI) or some other type of mortgage insurance policy. This insurance is designed to protect the mortgage lender if a borrower can’t make the agreed-upon loan payments.

Property Taxes

A portion of your monthly mortgage payment may also go toward the property taxes you’ll pay to your town or city.

Recommended: Home Loan Help Center

$600,000 Mortgage Breakdown Examples

The monthly payment on a $600,000 mortgage can vary based on several factors, including the length of the loan (usually 15, 20, or 30 years) and the interest rate. A mortgage calculator can give you a pretty good idea of what your payments might be. Here are some examples of how the payments for a $600,000 mortgage might break down.

30-Year Loan at 6.00% Fixed Interest Rate

Total Payment: $4,562

Principal and Interest: $3,597

Other Costs (estimated PMI, homeowners insurance, and property taxes): $965

15-Year Loan at 6.00% Fixed Interest Rate

Total Payment: $6,028

Principal and Interest: $5,063

Other Costs (estimated PMI, homeowners insurance, and property taxes): $965

30-Year Loan at 7.00% Fixed Interest Rate

Total Payment: $4,957

Principal and Interest: $3,992

Other Costs (estimated PMI, homeowners insurance, and property taxes): $965

15-Year Loan at 7.00% Fixed Interest Rate

Total Payment: $6,358

Principal and Interest: $5,393

Other Costs (estimated PMI, homeowners insurance, and property taxes): $965

Pros and Cons of a $600,000 Mortgage

According to Redfin, the median home sale price in the U.S. in March 2024 was $432,812. So if you can qualify for a mortgage that’s around $600,000, there’s a good chance you’ll be able to find a pretty nice home — depending on where you live.

The downside of borrowing $600,000 is that your mortgage payments could take a sizable slice out of your income every month. If you’re cutting it close and you experience an unexpected expense or temporary job loss, you may have trouble staying on track. Before moving forward with a loan of this size, you may want to speak with a financial advisor and be sure the amount fits with your budget and your other goals.

Recommended: Best Affordable Places to Live in the U.S.

How Much Will You Need for a Down Payment?

A down payment is generally between 3% and 20% of the purchase price. The amount you’ll need for a down payment will depend on the cost of the home you plan to buy and the type of mortgage loan you get.

Can You Buy a $600,000 Home with No Money Down?

You may be able to get a mortgage without making a down payment if you can qualify for a government-backed loan from the U.S. Department of Agriculture (USDA) or a VA home loan from the U.S. Department of Veterans Affairs. These loans are insured by the federal government — which means the government will help pay back the lender if the borrower defaults on the loan.

Not all lenders offer these programs, and borrowers must meet specific requirements to qualify. But if you think you may be eligible, it could be an option that’s worth looking into.

Can You Buy a $600,000 Home with a Small Down Payment?

Some private lenders will accept as little as 3% down from a first-time homebuyer on a conventional mortgage, so don’t give up if you can’t get a no-down-payment loan.

You also may want to check out the requirements for a government-backed FHA loan, which allows buyers to make a down payment as low as 3.5%. There may be a limit on how much you can borrow with an FHA loan, depending on where you buy, but the 2024 limit in higher-cost areas can be as much as $1,149,825. And in Alaska, Hawaii, Guam and the U.S. Virgin Islands, the 2024 limit is $1,724,725.

Is a $600,000 Mortgage with No Down Payment a Good Idea?

There’s no question that coming up with a down payment can be an obstacle to homeownership — especially for first-time homebuyers. And the thought of skipping that step may be appealing if it could help you get into a home faster, or allow you to hold onto your savings for renovations, an emergency fund, or other financial goals.

It’s important to remember, though, that without a down payment it can take longer to build equity in your home. And though you won’t have to pay for mortgage insurance with a no-down-payment government-backed loan, you can expect to pay an upfront funding fee for a VA loan and an upfront and annual guarantee fee for a USDA mortgage. A mortgage professional can help you weigh the pros and cons of different types of mortgage loans and determine the best move for your individual circumstances.

What If You Can’t Afford a $600,000 Mortgage Even with No Down Payment?

Here are a few steps to consider if it turns out you can’t afford the payments on a $600,000 mortgage:

Pay Off Debt

If your DTI ratio needs work, you may want to suspend your home search and concentrate on paying down recurring debts like credit cards, car payments, or a personal loan. This could allow you to put more of your monthly income toward your mortgage payments.

Build Your Credit

Checking your credit reports can give you an idea of what lenders might see when they evaluate your creditworthiness. If there are any errors, you can take steps to fix them, and if you see something negative in your reports, you can work on doing better. If you use a credit-score monitoring service, you may already know what your credit score is and if it needs a boost. Conventional lenders typically look for a minimum score of 620 to 640.

Start Budgeting

Creating a budget and trimming some expenses could help you reach your debt-payment and savings goals. Remember: If you can come up with a bigger down payment, you may be able to borrow less, keep your monthly payments to a more reasonable amount, and pay less in interest over the life of the loan.

Alternatives to Conventional Mortgage Loans

If you can’t qualify for a conventional mortgage loan, you may have some alternatives to consider. Here are a few potential options:

First-time Homebuyer Programs

As mentioned above, you may qualify for a federal, state, or local first-time homebuyer program that can help lower your down payment, closing costs, and other expenses. There may be limits on the type of home you can buy or a cap on the home’s cost. But you might find it’s worth doing some research, or asking a mortgage professional, to see if you’re eligible.

Rent-to-Own

Another option may be to enter into an agreement to rent-to-own a home. With this type of arrangement, you start out renting, but the landlord agrees to credit a portion of your monthly payment toward purchasing the home. This can be a good way to start working toward homeownership if you can’t qualify for the mortgage amount that you want. But it’s important to understand the downsides of the deal — including that you might lose money if you change your mind about buying the home, or if the landlord has second thoughts about selling.

Owner Financing

With owner financing, the person who’s selling the home may serve as the lender for all or part of the purchase price. Just as with a rent-to-own home, there are risks to this kind of agreement, but it can make homeownership possible if a traditional loan isn’t available.

Mortgage Tips

No matter how much you plan to borrow, buying a home is a big step. Here are a few things you may want to do to prepare:

Work Out Your Housing Budget

Remember, your housing costs won’t be limited to principal and interest. It’s important to determine how much you might pay for insurance, taxes, homeowners association dues, maintenance, and other expenses before you make the leap to homeownership.

Find the Mortgage that Best Suits Your Needs

This may include deciding whether you want a:

•   fixed vs. variable interest rate

•   conventional vs. government-backed loan

•   shorter vs. longer term loan

Get Preapproved

Going through the mortgage preapproval process with a lender can give you a better idea of how much you can afford to spend on a home. And having preapproval may give you an edge over other house hunters in a tight market.

The Takeaway

Obtaining a mortgage is just one of many steps in the homebuying process, but it’s an important one. Taking the time to do some research could keep you from getting in over your head — or locked into a loan that isn’t a good fit.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.


SoFi Mortgages: simple, smart, and so affordable.

FAQ

How much income do you need to qualify for a $600,000 mortgage?

If you make at least $180,000 a year, you may be able to qualify for a $600,000 mortgage, depending on how much debt you’re carrying and other variables.

How much is a $600,000 mortgage per month?

The monthly payment for a $600,000 mortgage can vary based on several factors, including the length of the loan and the interest rate. For example, a 30-year fixed-rate mortgage with a 7.00% interest rate could be $3,992 per month for principal and interest alone, while the principal and interest for a 15-year fixed-rate mortgage with a 7.00% interest rate could be $5,393 per month.

Can I afford a $600,000 house on a $100,000 salary?

It would be very difficult to keep up with the monthly payments or even qualify for a loan to buy a $600,000 house on a $100,000 salary — that is, unless you have additional income outside of your salary or make a very large down payment on the property.

Photo credit: iStock/LumiNola

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Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

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

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

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

ÂąFHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.
†Veterans, Service members, and members of the National Guard or Reserve may be eligible for a loan guaranteed by the U.S. Department of Veterans Affairs. VA loans are subject to unique terms and conditions established by VA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. VA loans typically require a one-time funding fee except as may be exempted by VA guidelines. The fee may be financed or paid at closing. The amount of the fee depends on the type of loan, the total amount of the loan, and, depending on loan type, prior use of VA eligibility and down payment amount. The VA funding fee is typically non-refundable. SoFi is not affiliated with any government agency.

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