What Are Stock Delistings and Why Do They Occur?

What Are Stock Delistings and Why Do They Occur?

When a stock is delisted, that means it’s been removed from its exchange. All publicly traded stocks are listed on an exchange. In the United States, that typically means the New York Stock Exchange (NYSE) or the Nasdaq.

There are different reasons for delisting stock, it can occur voluntarily or involuntarily. Owning a delisted stock doesn’t mean you can no longer trade it, but it does change how trades take place. If you own a delisted stock, it’s important to understand what it may mean for your portfolio.

How Stock Listings Work

Before diving into stock delisting, it’s helpful to know more about how stocks get listed in the first place. Stock exchanges can either be physical or digital locations in which investors buy and sell stocks and other securities. The NYSE is an example of a physical exchange, while the Nasdaq is an electronic stock exchange.

To get listed on any stock exchange, companies must meet certain requirements. For example, Nasdaq-listed companies must meet specific guidelines relating to:

•   Pre-tax earnings

•   Cash flows

•   Market capitalization

•   Revenue

•   Total assets

•   Stockholder equity

•   Minimum bid price

Companies must also pay a fee to be listed on the exchange. The NYSE has its own requirements that companies must meet to be listed.

Once a stock is listed, it can be traded by investors. But being listed on an exchange doesn’t guarantee the stock will remain there permanently. Stocks get added to and removed from exchanges fairly regularly.


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

What Does Delisting a Stock Mean?

When a stock is delisted, either the company itself or the exchange decides to remove the stock from the exchange.

Exchange-Initiated Stock Delisting

When an exchange delists a stock, it’s typically because it no longer meets the minimum requirements for listing or its failed to meet some regulatory requirement. Using Nasdaq-listed stocks as an example, a delisting can happen if a company’s pre-tax earnings, market capitalization, or minimum share price fall below the thresholds required by the exchange.

Exchanges set listing requirements to try and ensure that only high-quality companies are available to trade. Without stock listing requirements, it would be easier for financially unstable companies to find their way into the market. This could pose a risk to investors and the market as a whole.

In delisting stocks that don’t meet the basic requirements, exchanges can minimize that risk. When and if a company addresses the areas where it falls short, it can apply for relisting. Assuming it meets all the necessary requirements, it can once again trade on the exchange.

Exchanges typically give companies opportunities to rectify the situation before delisting stocks. For example, if a company is trading under the minimum bid price requirement, the exchange can send notice that this requirement isn’t being met and specify a deadline for improvement. That can help companies that experience temporary price dips only to have share prices rebound relatively quickly.

Company-Initiated Stock Delistings

A delisted stock can also reflect a decision on the part of the listed company. There are different reasons a company voluntarily delists itself. Scenarios include:

•   A move from public to private ownership

•   Merger with or acquisition by another company

•   Bankruptcy filing

•   Ceased operations

In some cases, a company may ask to be delisted as a preemptive measure if it’s aware that it’s in danger of being delisted by the exchange. For example, if the latest quarterly earnings report shows a steep decline in market capitalization below the minimum threshold, the company may move ahead with voluntary delisting.

What Happens If a Stock Is Delisted?

Once a stock has been delisted from its exchange, either voluntarily or involuntarily, it can still be traded. But trading activity now happens over-the-counter (OTC) versus through an exchange.

An over-the-counter trade is any trade that doesn’t take place on a stock exchange. Investors can trade both listed or delisted stock shares over-the-counter through alternative trading networks of market makers. The OTC Markets Group and the Financial Industry Regulation Authority (FINRA) are two groups that manage OTC trading activity.

Unless the company that issued a now-delisted stock cancels its shares for any reason, your investment doesn’t disappear. If you owned 500 shares of ABC company before it was delisted, for example, you’d still own 500 shares afterward. You could continue trading those shares, though you’d do so through an over-the-counter network.

What can change, however, is the value of those shares after the delisting. Again, this can depend on whether the exchange or the company initiated a delisting, and the reasoning behind the decision.

For example, if a stock is being delisted because the company is filing for bankruptcy its share price could plummet. That means when it’s time to sell them, you may end up doing so at a loss.

Even if a stock’s value doesn’t take a nosedive after delisting, it can still be a sign of financial trouble at the company. If you own delisted dividend-paying stocks, for instance, dividend payments may shrink or dry up altogether if the company begins making cutbacks to preserve capital or reduce expenses.

What to Do If a Stock You Own Is Delisted

If you own shares in a company that delists its stock, it’s important to consider how to manage that in your portfolio. Specifically, that means thinking about whether you want to hold on to your shares or sell them.

It helps to look at the bigger picture of why the reason for the delisting and what it might say about the company. If the company pulled its stock because a bankruptcy filing is in the works, then selling sooner rather than later might make sense to avoid a sharp drop in value.

Also, consider the ease with which you can later sell delisted stock if you decide to keep them. Some online brokerages allow you to trade over-the-counter but not all of them do. If you prefer to keep things as simple as possible when making trades, you may prefer to unload delisted stocks so you no longer have to deal with them.

Recommended: How to Open a New Brokerage Account

The Takeaway

When a stock becomes delisted, it’s removed from an exchange, either because it no longer met the requirements of the exchange, or because the company chose to delist for financial reasons. You can still trade a company after it’s delisted, but transactions occur over-the counter, rather than on an exchange.

Knowing about delisted stocks and companies can be helpful for investors of all types. It doesn’t necessarily mean that they need to invest in those companies, but broadening your knowledge about the markets is almost never a bad idea.

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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.


About the author

Rebecca Lake

Rebecca Lake

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



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What Happens to Joint Bank Accounts When Someone Dies?

Setting up a joint bank account can make your financial life easier. But it’s important to understand all the rules and regulations, particularly should tragedy strike.

Typically, joint bank accounts are set up so that both account holders have the right of survivorship. This means that should one owner die, the remaining partner retains full ownership of the funds in the account, and the account doesn’t become part of the probate estate. However, this may not always be the case. There are also some potential tax consequences to keep in mind. Here’s a closer look at the rules that apply to joint bank accounts after the death of an account holder.

Key Points

•   With a joint bank account, owners have equal rights to deposit, withdraw, and manage the funds in the account.

•   Joint accounts typically include rights of survivorship, allowing the surviving owner to control the account without probate.

•   A joint account may be part of the deceased’s taxable estate, potentially incurring estate taxes.

•   Inheritance taxes may apply depending on state laws, but spouses often inherit tax-free.

•   Income taxes on account earnings are the responsibility of the surviving owner after the co-owner’s death.

What Is a Joint Bank Account?

A joint bank account is a financial account, such as a checking account, shared by two or more individuals. It’s common for married couples to open a joint account to make it easier to manage shared income and expenses. You might also set up a joint account with an aging parent, an adult child, or a business partner.

Joint bank accounts work in much the same way as other types of bank accounts. The main difference is that both people who own the account have full control over it. Each can get a debit card, write checks, and make purchases or cash withdrawals. The money in a joint account belongs to both owners, regardless of which person deposited the funds. For this reason, it’s important to only open a joint bank account with someone you trust.

Like other bank accounts, joint bank accounts are typically insured by the Federal Deposit Insurance Corporation (FDIC) up to $250,000 per depositor in the event of bank failure. That means that a joint account owned by two people is protected up to $500,000. If one of the owners dies, however, their insurance coverage no longer applies. Credit unions offer similar insurance through the National Credit Union Administration (NCUA).

Joint Bank Account Rules After Death

If two people own a joint bank account and one of them dies, the surviving co-owner will typically become the account’s sole owner. The account will not need to go through probate (the legal process of distributing a deceased person’s assets and paying their debts) before it can be transferred to the surviving account owner.

Rights of Survivorship

Most joint accounts at banks and credit unions are set up as “joint with rights of survivorship,” sometimes abbreviated to JWRS. This means that, upon the death of one account holder, the assets are transferred to the surviving account holder or equally to the rest of the owners if there are multiple people on the account. This directive would override any instructions outlined in the deceased person’s will. Some banks may refer to rights of survivorship as “tenants by the entirety.”

While this is the typical set-up for a joint account, it’s wise to check with your financial institution to make sure your account carries automatic rights of survivorship. In some cases, a bank may require you to sign additional documents to indicate this is what you and your co-owner(s) want.

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What to Do When a Joint Account Owner Passes

If you co-own a joint account with someone else and that person passes away, the first step you’ll want to take is to notify the bank. You can do this by calling the customer service line and asking to speak with a representative.

Typically, you’ll need to provide the bank with a death certificate or other documentation to confirm the death. If the account includes rights of survivorship, you would not lose access to the account and the joint account would not be frozen after someone dies. The bank may offer you a choice of removing the deceased person from the account or opening a new individual bank account.

What Happens When You Inherit a Joint Bank Account?

Unlike most other assets, joint bank accounts usually don’t need to go through probate. That means you can continue using the funds in the account and won’t have to hand them over to an executor. The transfer of assets could, however, trigger certain taxes depending on the value of the estate and the laws in your state.

Recommended: What Happens to a Direct Deposit if It Goes to a Closed Account?

Tax Implications of Inheritance

Generally, inheriting assets from someone who dies can mean paying certain taxes at the federal or state level. Here’s a look at taxes associated with an inherited joint bank account.

Estate Taxes

If one of the owners of the joint account dies, a portion of that bank account will contribute to the deceased person’s taxable estate This happens despite the fact that the joint account is not subject to probate or the wishes outlined in the deceased person’s will. However, the federal estate tax in the U.S. only applies to estates that exceed a certain threshold, which as of 2024, is $13.61 million. Unless the deceased has a very large estate, it’s not likely that you would have to worry about any estate taxes associated with an inherited joint account.

Several states have their own estate taxes with thresholds that differ from federal ones. It’s a good idea to consult with a local attorney to find out whether your state is one of them and whether you have any estate taxes to consider at the state level.

Inheritance Taxes

Inheritance taxes differ from estate taxes in that they are paid by the individual receiving the inheritance, rather than by the estate itself. The federal government does not impose an inheritance tax, but some states do have them.

Even if you live in a state with an inheritance tax, however, you may be exempt from paying inheritance taxes on an inherited joint account. Generally, spouses inherit a deceased spouse’s assets tax-free. Immediate family members often pay a reduced inheritance tax rate; unrelated co-owners or beneficiaries to a bank account tend to pay the highest inheritance tax rates.

Income Taxes

When you take on sole ownership of a joint account after the death of your co-owner, you become fully responsible for paying any taxes owed on income earned by the account (such as interest or dividends). Income earned on the account prior to your becoming the sole owner would be reported in the same way it was before the person’s death. For example, if that person reported all of the income earned on the joint account, then 100% of income earned on the account prior to their death would be reported on their final tax return.

Recommended: Can You Remove Yourself From a Joint Bank Account?

The Takeaway

Knowing what to do when there are two names on a bank account and one dies can help you avoid headaches during what’s likely an already trying time. As a first step, you’ll need to report the death and provide a death certificate to the bank. After that, you will likely have sole ownership of the account and can decide what you’d like to do with the money moving forward.

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FAQ

Do joint bank accounts get frozen when someone dies?

Joint bank accounts with rights of survivorship typically do not get frozen when one account holder dies. The surviving account holder usually retains full access to the account without any interruptions. Once the bank receives the death certificate, they will take the deceased person’s name off of the account.

Do joint bank accounts go through probate?

Joint bank accounts with rights of survivorship generally do not go through probate. This is because the funds automatically transfer to the surviving account holder upon the death of the other. The surviving account owner takes over full ownership of the account, regardless of how assets get divided based on the deceased’s will. Once the surviving owner presents the bank with a death certificate, the bank will update the account to reflect the surviving account holder as the sole owner.

Is a joint bank account part of an estate?

If one owner of a joint account dies, a portion of that account will be part of their taxable estate. This is the case even though joint accounts are typically not subject to probate or considered part of the deceased person’s probate estate. Estate taxes may apply to the deceased person’s portion if their estate exceeds certain tax thresholds.

Can creditors go after joint bank accounts after death?

Not typically. After someone dies, their probate estate is responsible for paying off any remaining debts. A joint bank account generally bypasses probate and is transferred directly to the surviving account holder and can’t be used by the estate to pay outstanding debt. One exception: If the co-owner on the joint account co-signed the outstanding debt, they would be fully liable for repayment and a creditor could go after the joint account.


About the author

Rebecca Lake

Rebecca Lake

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



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Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

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This content is provided for informational and educational purposes only and should not be construed as financial 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.

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

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

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

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

What Is a Brokered Certificate of Deposit?

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

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

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

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

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How Brokered CDs Work

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

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

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

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

Examples of Brokered CDs

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

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

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

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

Advantages of a Brokered CD

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

More Flexibility Than Traditional CDs

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

Easier to Get Money Out Early on the Secondary Market

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

Higher Yields Than Standard Bank CDs

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

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

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

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

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Disadvantages of a Brokered CD

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

Long-Term Brokered CDs Expose Investors to Interest Rate Risk

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

Different Risk When Interest Rates Fall

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

Temptation to Sell May Be Costly

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

Comparing Brokered CDs to Other CDs

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

Brokered CD vs Bank CD

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

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

Brokered CD vs Bull CD

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

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

Brokered CD vs Bear CD

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

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

Brokered CD vs Yankee CD

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

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

Brokered CD

Bank CD

Bull CD

Bear CD

Yankee CD

Issued by a bank, sold by a brokerageIssued and sold by a bankIssued by a bank, sold by a brokerageIssued by a bank, sold by a brokerageIssued by a foreign bank and sold in the U.S.
Earns a fixed interest rateEarns a fixed interest rateEarns an interest rate that correlates to an underlying indexReturns are tied to an underlying market indexMay offer a fixed or floating rate
Maturity terms are fixed; however, brokered CDs can be sold on the secondary market before maturityMaturity terms are fixedInvestors are guaranteed a minimum rate of returnInterest is earned based on declines in the marketMaturity rates can be fixed or variable
May be FDIC-insured when issued by a qualifying bankFDIC-insuredNot FDIC-insuredNot FDIC-insuredNot FDIC-insured

How to Buy a Brokered CD

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

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

•   Minimum deposit requirements

•   Maturity terms

•   Interest rates

•   Fees

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

Are Brokered CDs FDIC Insured?

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

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

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

Are Brokered CDs Better Than Bank CDs?

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

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

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

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

When to Consider Brokered CDs Over Bank CDs

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

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

When to Consider Bank CDs Over Brokered CDs

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

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

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

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

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

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

FAQ

Can you lose money on a brokered CD?

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

Are brokered CDs a good idea?

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

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

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


About the author

Rebecca Lake

Rebecca Lake

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



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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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What Are Discount Brokers? What to Look For in a Broker

What Are Discount Brokers? What to Look for in a Broker

Discount brokers make it possible for investors to buy and sell securities, without paying the higher fees associated with a full-service brokerage. Using a discount brokerage could make sense for investors who are comfortable making trading decisions without the help of an investment professional.

The rise of discount brokerage firms has made investing more accessible for a wider variety of people. Discount stockbrokers can offer both tax-advantaged and taxable investment accounts. It’s possible to build a portfolio with a discount broker that includes different types of investments, including stocks, exchange-traded funds (ETFs) and other securities.

What Is a Discount Broker?

Discount brokers offer investors access to lower-cost securities trading. Many discount brokerage firms operate online or via mobile investment apps. They’re often geared to the DIY investor who’s interested in self-directed trading.

Some of the characteristics of discount brokers can include:

•   Investment selection that can include stocks, ETFs, mutual funds, bonds

•   Low or zero commission fees to trade stocks and exchange-traded funds (ETFs)

•   Fractional share trading

•   Low minimum investment thresholds

•   Investor-guided trading

While discount brokers offer a flexible way to invest they’re still subject to government regulation. Discount brokerage firms must register with the Securities and Exchange Commission (SEC). They must also belong to the Financial Industry Regulatory Authority (FINRA) and the Securities Investor Protection Corp (SIPC).


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

History of Discount Brokers

Discount brokerages have grown in popularity in recent years but online trading has its roots in the 1980s.

In 1984, Charles Schwab introduced The Equalizer, the first DOS-based portfolio management and trading tool. Shortly after, competitors entered the market, including TeleBroker, the first phone-based keypad trading application, and StreetSmart, a PC-based trading software program.

In 1992, E-Trade became the first online brokerage service provider. By 1995, E-Trade generated 80% of its revenues from trading commissions and the number of new discount brokerages joining the fray continued to grow. Larger firms, such as Charles Schwab and Fidelity began offering discount broker services. Over the last decade or so, they’ve been joined by newer startups.

Along with the introduction of new online trading platforms and expanded investment options, the discount broker industry has evolved from a pricing perspective. Many, if not most brokerages now offer commission-free trades, for instance.

How Do Discount Brokerages Work?

Discount stock brokerages put the investor in the driver’s seat. You decide which type of account to open with a discount broker. This may be a tax-advantaged account, such as a traditional or Roth Individual Retirement Account (IRA). Or you may choose to open a taxable brokerage account instead.

Once you open your account, you can then decide how to allocate it and how much to invest.

Recommended: Active vs Passive Investing: What You Should Know

With a discount brokerage, you decide how much to invest in each fund or stock. You also have control over how long you hold those investments and when you decide to sell. When you’re ready to execute trades, you may pay low or no commission fees to do so.

Discount brokerages can also open the door to new investment opportunities, beyond stocks or ETFs. For instance, you may be interested in investing in IPO stocks. With a discount brokerage account, you may have tools on hand to help you understand how the IPO process works and how companies set an IPO price. You can then compare IPOs and decide whether you want to invest, based on your investment goals and risk tolerance.

Discount brokers work well for newer investors and more advanced investors alike. They’re not as well suited for venture capitalists or investors with large portfolios who might be interested in crowdfunding options for investing or investors who want access to things like hedge funds and private equity.

Full-Service Brokers vs Discount Brokers: Key Differences

Brokerage firms help investors to execute trades of stocks and other securities. There are two main types of brokers to choose from: full-service and discount brokers.

Full-service Brokerages

Full-service brokerages assist clients with making trades. But they can also provide other services, including offering investment advice. For instance, a broker might recommend specific stocks or mutual funds to invest in. In exchange for this advice, investors pay fees on top of the commissions they may pay to complete trades.

Discount Brokerages

A discount brokerage differs in the scope of services provided and the fees investors pay. With discount stockbrokers, investors receive little to no direct personalized financial advice or analysis from investment professionals. Instead, it’s up to the investor to decide which securities to buy or sell.

Discount brokerage firms are effectively a link between investors and the market, as they help to carry out trade transactions. But they don’t have the higher fees associated with full-service brokerage firms.

Pros and Cons of Working With a Discount Stock Broker

Choosing a discount broker in place of a full-service broker can offer both advantages and disadvantages. While full-service brokers have a longer track record, discount brokers are making it easier for a broader group of investors to gain entry to the market.

Whether using a discount broker makes sense depends on what you need from a brokerage and what you’re willing or able to pay to build a portfolio. Here’s an overview of the main pros and cons to consider when comparing discount stockbrokers against a full-service option.

Pros of Using a Discount Broker

•   Cost. Arguably, the best reason to consider discount brokers in lieu of full-service brokers is cost. Discount brokers charge lower commission fees to trade, and you’re not paying additional costs for their professional investment research or advice since you’re responsible for making investment decisions.

•   Convenience. Discount stock brokerages make it easy to invest from virtually anywhere, since you can execute trades online or via mobile apps. If you come across a buying opportunity, for example, you can log in and complete the transaction in minutes without having to connect with a human broker first.

•   Variety. Another advantage of using a discount stock broker is the selection of investments to which you have access. That may include not only stocks, mutual funds, ETFs and bonds but you may also be able to buy IPO stock, commodities, or options. Discount brokers make it easier to build a diversified portfolio in one place, with minimal costs.

•   Self-directed trading. If you prefer making investment decisions yourself, a discount brokerage account allows you to do so. You can choose when to buy or sell and how much of your portfolio to allocate to one security versus another.

Cons of Using a Discount Broker

•   No access to professional advice. While discount stockbrokers can be cost-friendly, they’re typically missing one big thing: professional advisors to guide you through the investment process and discuss potential investment risks. Whether this is a con for you depends on how comfortable you are charting your own course with investing.

•   Customer support. Every discount brokerage is different in terms of the level of customer service and support they provide. Some may be more helpful than others, which is something to consider when choosing a discount broker.

•   Not fee-free. While many discount brokers charge $0 commissions to trade U.S. stocks and ETFs, that doesn’t mean there are no fees for trading. You may pay fees to trade mutual funds, for example. Or the brokerage may charge an extra fee if you need to complete a trade by phone.

•   Some limits: While discount brokerages give investors access to many types of investments, they don’t typically offer access to some riskier investments, such as hedge funds or crowdfunding.

What to Look for When Choosing a Discount Brokerage to Work With

If you’re interested in opening a brokerage account, researching your options is the first step. While picking the right brokerage won’t guarantee returns, it can make it easier for you to manage your portfolio and focus on your investments. When comparing discount brokers, here are some of the most important things to keep in mind.

•   Cost. First, consider what you’ll pay to trade stocks and other securities at a particular brokerage. Also, be sure to check the full fee schedule to see what additional trading or account fees may apply.

•   Investment selection. Next, consider what investments you can add to your portfolio with a particular discount stock broker. Some discount brokers may not offer certain options.

•   Minimum investment. Depending on where you are on your investing journey, you may have a lot of money or a little to start trading. So consider the minimum investment required to open an account at different discount brokerage firms.

•   User experience. If you’re going to be making trades online or via a mobile device, it’s important that the platform you use be easy to navigate. Check out websites and mobile apps for different discount brokers to see how they compare in terms of features and ease of use.

•   Research tools. Discount stock brokerages may offer research and analysis tools to help you construct your portfolio. Consider what types of tools, (i.e. tickers, stock simulators, etc.) may be available to help with your investment decision-making.

•   Customer support. Look at what type of customer support is available to help investors with a particular discount broker. The more ways you can communicate, such as email, by phone or live chat, the easier it may be to get help managing your account when you need it.

•   Reputation. Finally, consider how well a discount broker stands out compared to the competition. Does it have a great reputation for low-cost trading, for example? Has it won any major industry awards? What are investors saying about the brokerage? Looking at a discount stockbroker’s overall reputation and track record can help decide if it’s a good fit.



💡 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.

Discount Brokers Make Investing Affordable

Opening an account with a discount broker can be a first step toward growing wealth. Because they’re generally a low-cost way to invest, you’re able to preserve more of your investment returns over time. These days, most brokers have had to adjust to account for discount brokers in the market, which is generally a good thing for investors.

But remember that discount brokers have their pros and cons, and that investors would do well to do some research before picking a broker. Each broker won’t be the right fit for each investor, so again, take the time to look into potential options before taking the plunge.

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.


About the author

Rebecca Lake

Rebecca Lake

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



SoFi Invest®

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

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

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

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What Is a Financial Plan? Definition & Examples

A financial plan is a document used for managing your money and investments to help you achieve your goals. Having this kind of document allows you to map out the actions you need to take as you work toward important milestones, like paying down debt or saving for retirement.

You can create a financial plan yourself or with the help of a financial planner or advisor. Anyone can benefit from creating a financial plan, regardless of their age, net worth, or goals.

Key Points

•  Key components of a financial plan include specific goals, income and spending breakdown, assets and liabilities, risk tolerance, and time horizon.

•  A financial plan helps individuals manage money and investments, achieve goals, and prepare for life changes.

•  Benefits of a financial plan include identifying priorities, setting goals, staying motivated, and reducing financial stress.

•  Steps to create a financial plan can include assessing the current situation, listing assets and liabilities, setting goals, developing an action plan, tracking progress, and considering whether to hire professional help.

•  Setting financial goals can be vital for preparedness, confidence, and stress reduction.

Understanding Financial Plans


While the exact meaning will vary among individuals, typically, the definition of financial plan might go something like this:

•  A financial plan is a roadmap or blueprint for your financial life. It includes your most important financial goals and priorities, the action steps you’ll take to meet them, and guidelines for how to track your progress.

With that in mind, here’s a closer look at financial plans and how they work.

Purpose and Importance

Simply put, financial planning is designed to help you make the most of your income and assets so you can achieve specific objectives with your money.

It can be harder to do that if you’re not in touch with your money. If you don’t know how much you’re bringing in vs. what you’re spending, for instance, you might find it difficult to save anything. Worse, you may be incurring debt on credit cards to cover the gap between income and expenses.

A financial plan means you don’t have to guess about where your money goes. Instead, you can use your plan as a guide to save and invest strategically to make your money work harder for you.

Components of a Financial Plan


Financial plans, regardless of who is creating them or why, usually have some common elements:

•  Specific, measurable goals or objectives

•  A breakdown of income and spending

•  Detailed information about your assets and liabilities (debts)

•  Information about your personal risk tolerance and time horizon

Some financial plans are more complex than others. For example, if you’re 30 years old and only a few years into your career, your goals, income, debt, and net worth are likely to look very different from someone who’s in their early 60s heading into retirement.

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Types of Financial Plans


Financial planning can be divided into different categories, based on your purpose for creating the plan. Examples of financial plan uses include:

•  Cash flow planning and budgeting

•  Insurance planning

•  Investment planning

•  Tax planning

•  Retirement planning

•  Estate planning

•  College planning, if you have children (this could also apply to those going back to school for a degree or certificate)

You may also create a succession financial plan if you run a family-owned business that you’d like to eventually pass on to someone else. Financial advisors may offer planning in all of these areas or specialize in just one or two. For example, you might work with an advisor who only assists with estate and tax planning.

Creating a Financial Plan


Approximately 53% of Americans say they work with a financial planner, according to the CFP® Board. You don’t need to have a financial planner or advisor to make your plan, though it can help to have that added expertise and a second set of eyes.

That being said, here’s how to put together a financial plan yourself.

Assessing Your Current Situation


To make a financial plan you’ll need to know where you’re starting from. Here are some of the most important things that will shape your plan.

Income and Expenses


The first step in making a financial plan is knowing how much you make and how much you spend. If you don’t have a budget yet, this is a great time to make one.

•  Determine how much you make each month from a full-time job, part-time job, self-employment,

side gigs, and/or passive income

•  Add up all of your necessary expenses, meaning bills you have to pay each month to survive (e.g., housing, groceries, utilities, insurance, minimum payments on loans and lines of credit, etc.)

•  Add up what you spend on your wants (or discretionary expenses), such as dining out, entertainment, travel, etc.

•  Add up amounts that you send to savings or additional debt payments

Once you know what you spend, subtract it from what you make. This will tell you if you’re starting your financial plan in the red (meaning you are in debt, or living beyond your means) or the black (defined as accumulating wealth).

If you’re not sure how to track income or expenses, there’s a simple fix. First, see what your banking app or website offers in terms of tracking. You may be able to categorize and review your transaction history, including deposits of income and withdrawals for purchases or bills. Or you might use a third-party app to do this.

Recommended: Online Banking vs. Traditional Banking: What’s Your Best Option?

Assets and Liabilities


Now it’s time to look at what you own and what you owe. Make a list of your assets and their value, including:

•  Your home

•  Vehicles

•  Checking accounts

•  Savings accounts and CDs

•  Items of value, such as artwork or jewelry

Now, list out your debts. This can include:

•  Credit card balances

•  Student loans

•  Mortgage

•  Medical bills

•  Personal loans

•  Any other debts, such as money borrowed from a relative or a home equity loan

You’ll need this information to shape your goals and calculate your net worth.

Recommended: What Is a High-Yield Checking Account?

Investments and Retirement Accounts


If you have money in investment or retirement accounts, you’re already a step ahead. Make a list of all your investment and retirement accounts and their value. Include your:

•  401(k) (or 403(b), 457 plan, etc.

•  Individual Retirement Accounts (IRAs)

•  Brokerage accounts

Here’s a tip: Look for “lost” or “forgotten” retirement accounts. If you’ve changed jobs a few times, you may have some old 401(k)s floating around that you could add to the pile.

If you’re thinking of working with a financial planner, check their credentials. Some financial planners are certified by the CFP Board, meaning they’re held to the highest ethical standards. Others are registered with the Securities and Exchange Commission (SEC) as investment advisors. They’re fiduciaries, meaning they’re obligated to act in your best interest at all times.3

Working with a credentialed financial planner can ensure that the advice you’re getting is backed by expertise, knowledge, and a strong code of ethics.

Key Elements of a Financial Plan


Your financial plan should be tailored to your situation. That being said, the most important elements in a financial plan include:

•  A personal budget

•  Debt management strategies (if you have credit cards, student loans, or other debt)

•  Emergency fund savings

•  Insurance planning, including life insurance and property insurance

•  Tax planning

•  Estate planning

Your plan should reflect your goals in each of these areas. For example, when you’re talking about budgeting, your goal may simply be to stick to a budget month after month. If you’re planning for emergency fund savings, then you might set a specific target of saving $15,000 in 12 months. (Experts usually say to aim for three to six months’ worth of living expenses.)

Financial plans are not set-it-and-forget-it. It’s important to adjust your plan as you go through life changes. For example, changing jobs, getting married or divorced, or having a child can impact your financial goals and the steps you need to take to reach them. Also, if you are investing, your risk tolerance may change as you approach retirement. You might want to play it safer to protect your nest egg from, say, market fluctuations.

Benefits of Having a Financial Plan


Can you manage money without a structured financial plan? Certainly, but there are some benefits to creating one. Financial planning can help you to:

•  Identify what’s most important to you financially

•  Set realistic goals to help you create the life that you want

•  Stay motivated as you work toward the goals you most want to achieve

•  Be better prepared for life changes or unexpected events that might affect you financially

•  Feel more confident in your financial decision-making

•  Experience less stress over money or the future

According to one recent survey, 87% of Americans say they feel stress at least once a week surrounding their finances. Rather than hiding out from your checking account balance, you could implement a financial plan to help you feel more in control over your money and getting where you want to go.

Financial Plan Examples


Financial plans can help you manage a variety of goals from starting a business to retirement planning to saving for education. You could also use your plan to account for windfalls, either expected or unexpected.

For example, say your parents plan to leave you the entirety of their estate when they pass away, which is valued at $1.5 million. Your financial plan should reflect how you go about managing an inheritance of that size, including:

•  Where your parents’ assets are held (e.g., 401(k) plans, IRAs, savings accounts, etc.)

•  Whether any special restrictions or requirements limit what you can do with the inheritance

•  What your tax obligations will be and what strategies, if any, you can employ to minimize taxes owed on an inheritance

•  How you plan to put the assets you’re inheriting to work and what your goals are for their performance

•  Who you would like to inherit your assets when the time comes

By mapping out different scenarios in a plan and tracking how this inheritance could best be utilized, you can be prepared for the future. As noted above, you might want to work with a financial professional to guide your thinking.

Another scenario might be planning how you will achieve saving for both your child’s college education and your own retirement. If you are feeling as if hitting those two goals is both necessary and extremely challenging on your current income, planning can help you explore and utilize different techniques to attain your aspirations.

The Takeaway


Financial planning can give you clarity on your money situation and help you decide what you need to do to realize your goals. There are different kinds of financial planning for different needs, but at its most basic, it involves assessing your current financial status, your money goals, and how you could reach them. If you don’t have a financial plan yet, it’s never too late to create one, whether on your own or with a financial professional.

One part of smart financial planning can be to find a banking partner that helps you grow your money. See how SoFi can work with you.

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


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

FAQ


When should I create a financial plan?


There’s no set time at which you need to create a plan, though sooner is usually better than later. If you’re making money and spending it, then you can benefit from having a financial plan even if you don’t have a lot of assets yet. Also, many people find pivotal life moments, such as getting married or divorced, or changing careers, to be a good moment to reflect on their financial status and goals.

How often should I review and update my financial plan?


Reviewing your financial plan at least once a year is a good way to track the progress you’ve made over the last 12 months. You could also institute biannual or quarterly reviews if you have some big goals you’re working on, like paying down $40,000 in student loans or saving $50,000 toward a down payment on a home. Also, life events like the birth of a child or buying a home may be a good time to reassess your financial plan.

Can I create a financial plan on my own?


You can create a financial plan on your own; an advisor is not required. You’ll need to know how much you’re making and how much you’re spending, what you owe to debt, what assets you have, and how much you have invested. Then you can identify your current outlook and your goals and develop an action plan. That said, working with a financial planner can allow you to access deep professional knowledge as well as provide support as you work toward your goals.


About the author

Rebecca Lake

Rebecca Lake

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



Photo credit: iStock/FG Trade

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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Eligible Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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