Dec
07
2023
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What Is a Limit Order?

By | Growing Wealth, Investing, Terminology | No Comments

What Is a Limit Order?

A limit order allows investors to buy or sell securities at a price they specify or better, providing some price protection on trades.

When you set a buy limit order, for example, the trade will only be executed at that price or lower. For sell limit orders, the order will be executed at the price you set or higher. By using certain types of orders, traders can potentially reduce their risk of losses and avoid unpredictable swings in the market.

How Do Limit Orders Work?

In the simplest terms, limit orders work as a sort of restriction that an investor can choose (to either buy or sell) with “limits” on a minimum or maximum price. An investor places an order to buy a stock at a minimum price, for instance, or places an order to sell at a maximum price, in an effort to maximize their returns.

There are two types of limit orders investors can execute: buy limit orders and limit sell orders. An important thing to know is that while a limit order specifies a desired price, it doesn’t guarantee the trade will occur at that price — or at all.

When you set a limit order, the trade will only be executed if and when the security meets the terms of the order — which may or may not happen, depending on the overall market conditions. So, when an investor sets a limit order, it’s possible to miss out on other investing opportunities.

Types of Limit Orders

As mentioned, there are two types of limit orders investors can execute: buy limit orders and limit sell orders.

What is a Buy Limit Order?

For buy limit orders, you’re essentially setting a ceiling for the trade — i.e. the highest price you’d be willing to pay for each share.If a trader places a buy limit order, the intention is to buy shares of stock. The order will be triggered when the stock hits the limit price or lower.

For example, you may want to buy shares of XYZ stock at $15 each. You could place a buy limit order that would allow the trade to be carried out automatically if the stock reaches that purchase price or better.

What is a Sell Limit Order?

For sell limit orders, you’re setting a price floor — i.e. the lowest amount you’d be willing to accept per share. If a trader places a limit order to sell, the order will be triggered when the stock hits the limit price or higher. So you could set a sell limit order to sell XYZ stock once its share price hits $20 or higher.

What is a Stop-Limit Order?

A stop-limit order is a combination of a stop order and a limit order. Stop-limit orders involve setting two prices. For example: A stock is currently priced at $30 and a trader believes it’s going to go up in value, so they set a buy stop order of $33.

When the stock hits $33, a market order to buy will be triggered. But with a stop-limit order, the trader can also set a limit price, meaning the highest price they’re willing to pay per share — say, $35 per share. Using a stop-limit order gives traders an additional level of control.

Stop-limit orders can also help traders make sure they sell stocks before they go down significantly in value. Let’s say a trader purchased stock XYZ at $40 per share, and now anticipates the price will drop. The trader doesn’t want to lose more than $5 per share, so they set a stop order for $35.

If the stock hits $35 — the stop price — the stock will be triggered to sell. However, the price could continue to drop before the trade is fully executed. To prevent selling at a much lower price than $35, the trader can set a limit order to only sell between $32 and $35.

How to Set a Limit Order

When placing a limit order with your brokerage firm, the broker or trading platform might ask for the following information:

•   The stock or security

•   Is it a buy or sell order

•   Number of shares to buy or sell

•   Stock order type (limit order, market order, or another type of order)

•   Price

When setting up a limit order, the trader can set it to remain open indefinitely, (until the stock reaches the limit price), or they can set an expiration date.

Limit Order Example

Say a trader would like to purchase 100 shares of stock XYZ. The highest price they want to pay per share is $26.75. They would set up a limit buy order like this:

Buy 100 shares XYZ limit 26.75.

As noted above, the main upside of using limit orders is that traders get to name a desired price; they generally end up paying a price they expect; and they can set an order to execute a trade that can be executed even if they are doing other things.

In this way, setting limit orders can help traders seize opportunities they might otherwise miss because limit orders can stay open for months or in some cases indefinitely (the industry term is “good ‘til canceled,’ or GTC). The limit order will still execute the trade once the terms are met.

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When a Trader Might Use a Limit Order

There are several reasons why you might want to use a limit order.

•   Price protection. When a stock is experiencing volatility, you may not want to risk placing a market order and getting a bad price. Although it’s unlikely that the price will change drastically within a few seconds or minutes after placing an order, it can happen, and setting a limit order can set a floor or a ceiling for the price you want.

•   Convenience. Another occasion to use a limit order might be when you’re interested in buying or selling a stock but you don’t want to keep a constant eye on the price. By setting a limit order, you can walk away and wait for it to be executed. This might also be a good choice for longer-term positions, since in some cases traders can place a limit order with no expiration date.

•   Volatility. Third, an investor may choose to set a limit order if they are buying or selling at the end of the market day or after the stock market has closed. Company or world news could be announced while the market is closed, which could affect the stock’s price when the market reopens. If the investor isn’t able to cancel a market order while the market is still closed, they may not be happy with the results of the trade. A limit order can help prevent that.

Limit orders can also be useful when the stock being traded doesn’t have a lot of liquidity. If there aren’t many people trading the stock, one order could affect the price. When entering a market order, that trade could cause the price to go up or down significantly, and a trader could end up with a different price than intended.

Pros and Cons of Using Limit Orders

Each type of order has pros and cons depending on the particular situation.

Pros of Limit Orders:

•   The trader gets to name their price. One of the chief reasons traders rely on limit orders is to set baselines for profits and losses. They won’t end up paying a price they didn’t expect when they buy or get a price below their target when it’s time to sell.

•   The trader can set the order and walk away. Day trading can be time consuming and it requires a significant amount of knowledge. Investors who use limit orders don’t have to continuously watch the market to get the price they want.

•   Traders may pay less in fees. Commissions can take a bite out of your profits, something many investors would prefer to keep to a minimum. When trading illiquid stocks, sometimes the bid-ask spread is enough to cover broker fees.

•   Insulate against volatility. Volatility can cause you to make emotional decisions. Limit orders can give traders more control over their portfolio and ward off panic-buying or selling.

•   Ride the gaps. Stock prices can fluctuate overnight due to after hours trading. It’s possible to benefit from price differences from one day to another when using limit orders.

For example, if a trader places a buy limit order for a stock at $3.50, but the order doesn’t get triggered while the market is open, the price could change overnight. If the market opens at $3.30 the next morning, they’ll get a better price, since the buy limit order gets triggered if the stock is at or below the specified price.

Cons of Limit Orders:

•   The order may never be executed. There may not be enough supply or demand to fulfill the order even if it reaches the limit price, since there could be hundreds or even thousands of other traders wanting to buy or sell at the specified price.

•   The stock may never reach the limit price. For example, if a stock is currently priced at $20, a trader might set a limit order to buy at $15. If the stock goes down to $16 and then back up to $20, the order won’t execute. In this case, they would miss out on potential gains.

•   The market can change significantly. If a trader sets a shorter-term limit order they might miss out on a better price. For example, if a stock a trader owns is currently priced at $150, the trader may choose to set a sell limit order at $154 within four weeks. If the company then makes a big announcement about a new product after that period, and the stock’s price spikes to $170, the trader would miss out on selling at that higher price.

•   It takes experience to understand the market and set limit orders. New investors can miss out on opportunities and experience unwanted losses, as with any type of investment.

Limit Order vs Market Order

Limit orders differ from market orders, which are, essentially, orders to buy a security immediately at its given price. These are the most common types of orders. So, while a market order is executed immediately regardless of terms, limit orders only execute under certain circumstances.

Limit orders can also be set for pre-market and after-hours trading sessions. Market orders, by contrast, are limited to standard trading hours (9:30am to 4pm ET).

Remember: Even though limit orders are geared to a specific price, that price isn’t guaranteed. First, limit orders are generally executed on a first-come-first-served basis. So there may be orders ahead of yours that eliminate the availability of shares at your limit price.

And it bears repeating again: There is also the potential for missed opportunities: The limit order you set could trigger a trade. But then the stock or other security might hit an even better price.

In other words, time is a factor. In today’s market, computer algorithms execute the majority of stock market trades. In this high-tech trading environment, it can be hard as an individual trader to know when to buy and sell. By using certain types of orders, like limit orders, traders can potentially limit their losses, lock in gains, and avoid swings in the market.

Though limit orders are commonly used as a part of day trading strategies, they can be useful for any investor who wants some price protection around their trades. For example, if you think a stock is currently undervalued, you could purchase it at the current market price, then set a sell limit order to automatically sell it when the price goes up. Again, the limit order can stay open until the security meets your desired price — or you cancel the order.

However, speculating in the market can be risky and having experience can be helpful when deciding how and when to set limit orders.

Limit Orders vs Stop Orders

There is another type of order that can come into play when you’re trying to control the price of a trade: a stop order. A stop order is similar to a limit order in that you set your desired price for a stock, say, and once the stock hits that price or goes past it, a market order is triggered to execute the purchase or sale.

The terms of a limit order are different in that a trade will be executed if the stock hits the specified price or better. So if you want to sell XYZ stock for $50 a share, a sell limit order will be triggered once the stock hits $50 or higher.

A stop order triggers a market order once XYZ stock hits $50, period. By the time the order is executed, the actual stock price could be higher or lower.

Thus with a stop order there’s also no guarantee that you’ll get the specified price. A market order is submitted once the stop price is hit, but in fast-moving markets the actual price you pay might end up being higher or lower.

Stop orders are generally used to exit a position and to minimize losses, whereas limit orders are used to capture gains. But two can also be used in conjunction with each other with something called a stop-limit order.

When to Consider a Market Order vs a Limit Order

If you’re trying to parse out when a market order or a limit order is the best tool to use, consider the following.

A trader might want to use a market order if:

•   Executing the trade immediately is a priority

•   The stock is highly liquid

•   They’re only trading a small number of shares

•   The stock has a narrow bid-ask spread (about a penny)

A trader might want to use a limit order if:

•   They want to specify their price

•   They are trading an illiquid stock

•   They want to set a long-term trade (or even walk away for their lunch break and still have the trade execute)

•   They feel a stock is currently over- or undervalued

•   The stock has a large bid-ask spread

•   They are trading a larger number of shares

Is a Limit Order Bad?

Limit orders are not necessarily good or bad. As mentioned, they can offer advantages to investors who understand how to use them.

For example, limit orders can offer more control and flexibility than using market orders. And they can work well in a number of different trading situations. If the stock being traded is highly volatile, for instance, a limit order can help traders retain control and avoid paying an unexpected price.

Each time a trader does research on a stock and decides to buy or sell shares, they also consider their goals and the current market conditions to decide whether to place a market or a limit order.

What Happens If a Limit Order Is Not Filled?

A limit order can only be filled if the stock’s price reaches the limit price or better. If this doesn’t happen, then the order is not executed and it expires according to the terms of the contract. An order can be good just for a single trading day, for a certain period of time, or in some cases it’s possible to leave the limit order open-ended using a GTC (good ‘til canceled) provision.

So if you placed a buy limit order, but the stock does not reach the specified price or lower, the purchase would not be completed and the order would expire within the specified time frame.

And if you’re using a sell limit order, but the security never reaches the specified sell price or higher, the shares would remain in your trading account and the order would expire.

Limit Orders and Price Gaps

Price gaps can occur when stocks close at one price then open at a different price on the next trading day. This can be attributed to after-market or pre-market trading that occurs after the regular market hours have ended. After-hours trading can impact stock price minimally or more substantially, depending on what’s spurring trades.

For example, say news of a large tech company’s planned merger with another tech giant leaks after hours. That could send the aftermarket trading markets into a frenzy, resulting in a radically different price for both company’s stocks when the market reopens. Pricing gaps don’t necessarily have to be wide but large pricing swings are possible with overnight trading.

Limit orders can help to downplay the potential for losses associated with pricing gaps. Placing a buy limit order or limit sell order may not close the gap entirely. But it could help to mitigate the losses you may experience when gaps in pricing exist. Whether the gap is moving up or down can determine what type of limit order to place and where to cap your limit price.

The Takeaway

Limit orders can be an effective and efficient way for investors to set price caps on their trades, and also give them some protection against market swings. Limit orders offer other advantages as well, including giving traders the ability to place longer- or shorter-term trades that will be executed even if they’re not continuously watching the market. This can potentially protect investors against losses and potentially lock in gains.

That said, limit orders are complicated because they don’t guarantee that the trade will be executed at the set price. The stock (or other security) could hit the limit price — and there might not be enough supply or demand to complete the trade. There is also the potential for some missed opportunities, if the price you set triggers a trade, and subsequently the stock or other security hits an even better price.

Investors can also consider combining a limit order with a stop order. A stop-limit order can provide even more protection against potential losses.

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FAQ

Can I specify the price for a limit order?

Yes, investors can specify the price for a limit order. In fact, the price typically is the limit in a limit order, representing either a price ceiling or a price floor.

How long does a limit order stay active?

Generally, a limit order will stay active indefinitely, unless an investor cancels it or specifies otherwise. That means that if the limit is never reached, the order will not execute, and the limit order will remain active until the limit is reached.

Can I cancel a limit order once it’s placed?

Investors can cancel standing limit orders as long as conditions haven’t arrived that’s led to the order being actively executed. The cancelation process will depend on the specific exchange an investor is using, however.

What happens if the market price doesn’t reach my limit price?

If the market price of a stock does not reach the limit price — either a price floor or price ceiling — then the limit order will not execute, and the limit order will remain active until it does.

Can I place a limit order outside of regular trading hours?

It’s possible to place limit orders outside of regular trading hours, depending on the rules of a given exchange, and market conditions dictate. The order itself, of course, won’t execute until the market opens, assuming that the limit is reached.

Are there any fees associated with limit orders?

There may or may not be fees associated with limit orders, and it’ll depend on the specific exchange or brokerage an investor is using. Note that some brokerages may charge higher fees for limit orders than market orders — but some may charge no fees at all.

Are limit orders guaranteed to be executed?

No, there is no guarantee that a limit order will be executed, as it will only execute if the limit price is reached. If the limit is not reached, the order will remain active but not execute.

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Dec
07
2023

Financial Health: What It Is and 7 Ways to Improve It

By | Budgeting & Goals, Debt Payoff, Financial Independence, money | Comments Off on Financial Health: What It Is and 7 Ways to Improve It

When you think about your health, your mind likely goes first to your physical health and then maybe your mental and emotional health. But there is another key component to your overall well-being, and that’s your financial health.

While you may never discuss it with your doctor —- and may go months or years ignoring it —- your financial wellness has a significant impact on your daily life, as well as your future. What’s more, having poor financial health can in turn affect your physical and mental health.

But what exactly is financial health? How do you measure it? And, more importantly, how do you achieve it? Read on to learn all about financial health, from how to assess it to how to improve it.

Understanding Financial Health

Financial health is defined as the current state of your monetary situation, such as your credit, debt, savings, investments, and income. Being financially healthy means you can meet your monthly financial obligations, are on track to achieve your financial goals, and have enough cash in the bank to be able to absorb a financial setback.

Indications of Financial Health

Below are six signs that your finances are in good health:

•   You make enough money to cover your monthly expenses

•   You pay all of your bills on time

•   You have no debt or have debt that is manageable and being repaid on schedule

•   You’re saving enough to meet your short- and long-term goals

•   Your credit score is strong enough to help you qualify for whatever loans you might need at low rates

•   You feel comfortable with your financial situation

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Metrics and Measurements

There are several core components of financial health. Here’s a look at how to measure the current state of your finances and discover areas where you may need improvement.

•   Your debt-to-income ratio: Carrying too much debt can be harmful to your financial health. Lenders use a calculation called debt-to-income ratio (DTI) that compares a person’s monthly debt payments to their monthly gross income to determine how manageable someone’s debt load is. Lower is generally better. Lenders often like to see DTI ratios of 36% or less.

•   Your credit score: Having a strong credit score is an indicator of good financial health. Factors that impact your score include amounts you owe on your debt accounts, repayment history, your credit mix, and the length of credit history. FICO® Scores range from 300 to 850. Having a score above 700 is generally considered good credit, while above 800 is considered excellent.

•   Your emergency fund: A key measure of financial health is having enough cash in the bank to weather unexpected setbacks like a medical emergency, car breakdown, or job loss. Experts generally agree that you should have an emergency fund with three to six months’ worth of living expenses saved.

•   Your retirement savings: Because there are so many variables, it’s hard to know exactly how much you need to save for retirement. One rule of thumb is to aim to save at least 1x your salary by 30, 3x by 40, 6x by 50, 8x by 60, and 10x by 67. Check how your savings compares to ideal retirement savings by age to know if you’re on track or if you need to catch up.

Improving Financial Health

You might feel that achieving optimal financial health is a long way off. Don’t get discouraged. The good news is that implementing just a few good financial habits — such as tracking your spending and saving at least something each month -– can boost your financial well-being right away, and even more so over time.

Below are seven practical tips to help you move forward.

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1. Get on a Budget

When it comes to money in and money out each month, many of us leave it to chance — and hope that the numbers work out. Taking some time to actually crunch the numbers and set up a monthly budget, however, can help ensure that you are living within your means, spending in line with your priorities, and working towards your future goals.

A simple way to get started is to collect the last few months of financial statements and calculate the average amount coming in (after taxes) each month, and average amount going out each month. Subtract the latter from the former and see what you get. If you’re spending more than you are bringing in, or it’s so close there is little left over for saving, you may want to take a closer look at your spending.

There are many different types of budget but one simple guideline you might consider is the 50/30/20 budget. With the approach, you divide your monthly take-home income into three categories: 50% goes to needs (essentials), 30% goes to wants (nonessentials), and 20% to savings and debt repayment (beyond the minimum payment).

2. Track Your Spending

Keeping tabs on how much you are spending each month, and on what, is crucial to financial wellness. Indeed, tracking spending can be both eye-opening and motivating. You might notice, for example, that you’re spending more than you think for certain things, or that your spending is out of line with your priorities. You might also spot some immediate areas for improvement.

One easy way to track spending is to put a budgeting app on your phone (many are free for the basic service). Budgeting apps typically connect with your financial accounts (including bank accounts, credit cards, and investment accounts), track spending, and categorize expenses so you can pinpoint exactly where your money is going.

3. Create a Plan for Debt

Credit cards and similar high-interest consumer loans can drag down your financial health by making it harder to meet your monthly expenses — and even harder to save for future goals. Paying off high-interest debt is an important investment in your financial future.

If you have multiple balances racking up high interest charges, here are two popular strategies that can help you whittle them down to zero.

The snowball method: With the snowball method, you list your debts by size then put an extra monthly payment towards the loan with the smallest balance, while continuing to pay the minimum on the others. Once the smallest debt is paid, you put your extra payment towards the next smallest balance, and so on.

The avalanche method: Using the avalanche method, you list your debts in order of interest rate then focus extra payments towards the debt with the highest interest rate, while continuing to pay the minimum on the others. Once that debt is paid off, you put your extra payments to the debt with the next-highest interest rate, and so on.

4. Look for Ways to Cut Expenses

Trimming back your expenses helps you increase your disposable income, giving you more money to put toward your goals. It also makes it easier to stick with your budget and avoid going into debt.

You might comb through your expenses to look for some easy ways to cut back. While you may assume your “needs” costs are fixed, it may be possible to shop around for a better price on certain monthly essentials, like insurance or a phone plan. Or, maybe you don’t need to drive to work but could spend less by taking public transportation or carpooling with a coworker.

It’s often even easier to find places to cut back in your nonessential sending. For example, you might decide to get take-out less often and cook more nights a week, get rid of streaming services you rarely watch, and/or jog outside instead of going to a gym. Every dollar you save is one more you can put towards saving and debt repayment.

5. Automate Saving

Tackling financial health can feel overwhelming, and it’s not likely something you want to be thinking about all the time. Fortunately, it’s easy to put one of the best financial health-boosters — saving at least something each month — on autopilot.

There are two ways to do this: One is to have a portion of your direct deposit go right into a savings account. The other is to set up a recurring transfer from your checking to your savings on the same day each month (ideally, right after you get paid). You can’t spend what you don’t see. And, chances are, you won’t even miss it.

To help your savings grow faster, consider putting this money in an online savings account. Since online institutions generally have lower overhead than traditional brick-and-mortar banks, they tend to offer better rates and low (or no) fees.

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Build Your Emergency Fund

Without an emergency cash cushion, an unexpected expense (like a car repair or large medical bill) or loss of income can quickly derail your finances. You may be forced to rack up expensive credit card debt. This can put you in a debt spiral that can be difficult to get out of, and take a long-term toll on your financial health.

Even if you do have an emergency fund, it’s wise to periodically check in to make sure it’s sufficient. A good rule of thumb is to keep at least three- to six-months’ worth of living expenses in the bank. (If you’re self-employed or work seasonally, you may want to aim for six- to 12-months worth of expenses.) Ideally you want to keep this money in a savings account that earns a competitive rate but allows you to easily access your money when you need it.

Invest More of Your Income

If you’re putting just a small percentage of your paycheck into your 401(k), or other retirement fund, consider stepping it by 1% or 2% right now. While 1% is a small percentage of your annual earnings today, after 20 or 30 years it can make a big difference in your account balance when you retire. That’s because the longer you give your money a chance to grow, the better.

You might also ask your employer to automatically increase your contribution by a set percentage each year. As your income increases, those extra percentage points of income likely won’t be missed — but they’ll have a big impact on your retirement savings. Your future self will thank you.

Recommended: When Should You Start Saving for Retirement?

The Takeaway

Just as with your physical health, establishing and maintaining good habits is key to achieving good financial health.

Some habits that can significantly boost financial wellness include setting up a simple budget, tracking spending, automating savings, building an emergency cash reserve, paying down expensive debt, and investing more of your earnings.

No matter what your income or current state of financial health, putting some smart money habits into place now can go a long way toward boosting your financial security, reducing stress, and building wealth over time.

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

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

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

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

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

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

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.

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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Dec
07
2023
What Is the Coupon Rate of a Bond?

Understanding the Coupon Rate of a Bond

By | Growing Wealth, invest, Investing | Comments Off on Understanding the Coupon Rate of a Bond

A bond’s coupon rate represents the annual interest rate paid by the issuer, as determined by current market interest rates and based on the bond’s face value. Bond issuers typically pay coupon rates on a semiannual basis.

The coupon rate of a bond can tell an investor how much interest they can expect to collect on a yearly basis. The bond coupon rate is not the same as the bond yield, which investors who buy bonds on the secondary market use to estimate the total rate of return at maturity.

Investment-quality bonds can help with diversification in a portfolio while providing a consistent stream of interest income. Understanding the coupon rate and what it means is important when choosing bonds for your portfolio.

What Is the Coupon Rate?

Bonds represent a debt where the bond issuer borrows money from investors and agrees to pay interest at regular intervals in exchange for the use of their capital. Both governments and non-government entities, like corporations, may issue bonds to raise capital to fund various endeavors.

The coupon rate of a bond is usually a fixed interest rate, typically paid out twice per year. That said, there are some variable-rate bonds, as well as zero-coupon bonds (more on those below). Investors often use the term “coupon rate” when discussing fixed-income securities, including bonds and notes.

Recommended: How Does the Bond Market Work

The Role of Coupon Rates in Bond Investments

Investors can buy individual bonds, bond funds, or bond options, which are derivatives similar to stock options.

The coupon interest rate tells you what percentage of the bond’s face value, or par value, you’ll receive yearly. The rate won’t change during the life of the bond, which is why some bonds are worth more than others on the secondary market.

Coupon rates are typically lower for investment-grade bonds and higher for junk bonds, due to their higher risk.

Example of a Bond’s Coupon Rate

Assume you purchase a bond with a face value of $1,000. The bond has a coupon rate of 4%. This means that for each year you hold the bond until maturity, you’d receive $40, regardless of what you paid for the bond.

If you buy a bond on the secondary market, the story changes somewhat. That’s because bonds trade either at a premium to the par value (higher than the face value), or at a discount to par (lower than the face value). Because the coupon rate of the bond stays the same until maturity, it may represent a higher or lower percentage of the par value — this is called the yield.

History of the Term Coupon

Bond holders used to get literal coupons as a way of collecting their interest payments. This is no longer the case, as interest is paid on a set schedule to the investor directly.


💡 Quick Tip: How do you decide if a certain trading platform or app is right for you? Ideally, the investment platform you choose offers the features that you need for your investment goals or strategy, e.g., an easy-to-use interface, data analysis, educational tools.

Calculating the Coupon Rate

The bond coupon rate formula is fairly simple:

Bond coupon rate = Total annual coupon payment/Face or par value of the bond x 100

To apply the coupon rate formula you’d need to know the face or par value of the bond and the annual interest or coupon payment. To find this payment, you’d multiply the amount of interest paid by the number of periodic payments made for the year. You’d then divide that by the par value and divide the result by 100.

Recommended: How to Buy Bonds: A Guide for Beginners

Step-by-Step Calculation of the Coupon Rate

Say you have a bond with a face value of $1,000, which pays $25 in interest to you twice per year.

•   To find the annual coupon payment you’d multiply $25 by two to get $50.

•   You’d then divide the $50 annual coupon payment by the $1,000 par value of the bond. 50 / 1000 = 0.05

•   Then multiply the result by 100 (0.05 x 100) to find that your bond has a coupon rate of 5%.

The Impact of Market Interest Rates on Coupon Rates

How is the coupon rate determined? This is where current market interest rates come into play.

How Interest Rate Fluctuations Affect Bonds

Interest rates can influence coupon rates. An interest rate is the rate a lender charges a borrower. Individual lenders determine interest rates, often based on movements in an underlying benchmark rate. When discussing bond coupon rates and interest rates, it’s typically in the context of changes to the federal funds rate. This is the rate at which commercial banks lend to one another overnight.

Movements in the federal funds rate directly influence other types of interest rates, including coupon rates and bond prices on the secondary market.

When interest rates rise, based on changes to the federal funds rate, that can cause bond prices to fall. When interest rates decline, bond prices typically rise. When bond prices change that doesn’t impact the coupon rate, which stays the same. But a bond’s price is an important consideration for investors who trade on the secondary market because it impacts the yield to maturity.

Strategies for Investors in a Changing Rate Environment

Bond prices can move up or down based on the coupon rate, relative to movements in interest rates.

When interest rates are higher than the bond’s coupon rate, that bond’s price may fall in order to offset a less attractive yield. If interest rates drop below the bond’s coupon rate, the bond’s price may rise if it becomes a more attractive investment opportunity.

When comparing coupon rates and bond prices, it’s important to understand the relationship between the bond’s face value and what it trades for on the secondary market. If a bond is trading at a price above its face value, that means it’s trading at a premium to par. Conversely, if a bond is trading at a price below its face value, that means it’s trading at a discount to par.

An investor who purchases a bond with the intent to hold it until it reaches maturity does not need to worry about bond price movements. Their end goal is to collect the annual interest payments and recover their principal on the assigned maturity date, making it a relatively safe investment as long as the issuer fulfills their obligation.

Investors looking to buy bonds and resell them before they mature, however, may pay attention to which way bond prices are moving relative to the coupon rate to determine whether selling would yield a profit or loss.

Understanding Coupon Rate vs. Yield

Coupon rate tells investors how much interest a bond will pay yearly until maturity. But there are other metrics for evaluating bonds, including yield to maturity and interest rates. Understanding the differences in what they measure matters when determining whether bond investments are a good fit and what rate of return to expect.

Coupon Rate vs. Yield to Maturity

A bond’s yield to maturity or current yield reflects the interest rate earned by an investor who purchases a bond at market price and holds on to it until it reaches maturity. A bond’s maturity date represents the date at which the bond issuer agrees to repay the investor’s principal investment. Longer maturity dates may present greater risk, as they leave more room for the bond issuer to run into complications that could make it difficult to repay the principal.

When evaluating yield to maturity of a bond, you’re looking at the discount rate at which the sum of all future cash flows is equal to the price of the bond. Yield to maturity can be quoted as an annual rate that’s different from the bond coupon rate. In figuring yield to maturity, there’s an assumption that the bond issuer will make coupon and principal payments to investors on time.

The coupon rate is the annual interest earned while yield to maturity reflects the total rate of return produced by the bond when all interest and principal payments are made.

Coupon Rate vs Interest Rate

While coupon rate and interest rate seem similar, they are distinct. The coupon rate is set by the issuer of the bond, and the amount paid to the bondholder is tied to the face value.

But the prevailing interest rate set by the government is what determines the coupon rate. If the central bank, i.e. the Federal Reserve, sets the interest rate at 6%, that will influence what lenders are willing to accept in the form of the coupon rate.

Also, the price of a bond on the secondary market hinges on the coupon rate. A higher-coupon bond is more desirable than a lower-coupon bond, so its price will be higher.


💡 Quick Tip: It’s smart to invest in a range of assets so that you’re not overly reliant on any one company or market to do well. For example, by investing in different sectors you can add diversification to your portfolio, which may help mitigate some risk factors over time.

Variable-Rate and Zero-Coupon Bonds

Not all coupon rates are fixed. Investors can also consider whether buying variable-rate bonds or zero-coupon bonds might make sense.

Fixed vs. Variable Coupon Rates and Investment Impact

Although bonds typically offer fixed-income payments, some bonds do offer coupon rates that adjust periodically. For that reason these bonds are sometimes called floating-rate or adjustable-rate bonds.

In these cases, the coupon rate adjusts according to a formula that’s linked to an interest rate index such as the SOFR (Secured Overnight Financing Rate), the new benchmark in the U.S. that has largely replaced the LIBOR (London Interbank Offered Rate).

Although these are income-producing bonds, and there is always the possibility that they could offer a higher yield under the right conditions, they are not technically fixed-income instruments, which is something for investors to bear in mind. In addition they come with the risk of default.

Zero-Coupon Bonds Explained

Some bonds, called zero-coupon bonds, don’t pay interest at all during the life of the bond. The upside of choosing zero bonds is that by forgoing annual interest payments, it’s possible to purchase the bonds at a deep discount to par value. This means that when the bond matures, the issuer pays the investor more than the purchase price.

Zero-coupon bonds typically have longer maturity dates, which may make them suitable when investing for long-term goals. This type of bond may experience more price fluctuations compared to other types of bonds sold on the secondary market. Investors may still have to pay taxes on the imputed interest generated by the bond, though it’s possible to avoid that by investing in zero-coupon municipal bonds or other tax-exempt zero-coupon bond options.

The Takeaway

Investing in bonds can help you create a well-rounded portfolio alongside stocks, and other securities, which is why knowing the coupon rate of a bond is important. The coupon rate is the interest rate paid by the issuer, and it’s fixed for the life of the bond — which makes it possible to create a predictable income stream, whether you buy the bond at issuance or on the secondary market.

As you get closer to retirement, bonds can be an important part of your income and risk management strategy, whether you’re investing through an IRA, a 401(k), or a brokerage account.

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


Invest with as little as $5 with a SoFi Active Investing account.

Photo credit: iStock/Inside Creative House

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

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
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.

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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Dec
06
2023
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Budgeting for the Cost to Build a Deck

By | Budgeting & Goals, Home Ownership, personal_loan | No Comments

A deck can turn your backyard into a dream destination. But the reality is, building one isn’t cheap.

A new 320-square-foot wood deck can set you back around $19,248, according to the latest estimates from Remodeling Magazine’s Cost vs. Value Report. A composite deck of the same size runs around $24,677. On average, a typical homeowner will spend between $30 and $60 per square foot to have a deck professionally built, according to Angi. But project costs can vary based on where you live, the materials you use, the size of the deck, and other factors.

Whatever your deck plans entail, you’ll want to make sure you’re financially prepared. Here’s a closer look at the factors that can impact how much you could pay to have a professionally built deck added to your home.

Get an Idea of Labor Costs

No matter what kind of deck you’re building, count on labor taking up a big chunk of the budget. Generally speaking, it’s around 50% of the overall project costs, though some estimates put that figure closer to 70% (The rest of the budget typically goes toward covering the cost of materials and other smaller expenses.)

One way to get a rough idea of how much you’ll pay for labor is to use the rule of two. This method involves estimating the total cost of the project (labor plus materials) and dividing that amount by two. The result is the estimate of labor costs.

The rule of two also works the other way around. Let’s say you get a quote from a contractor who will be building your deck. To get an idea of the total cost of the project, simply multiply the labor cost you’ve been quoted by two.

While this method can provide a solid starting point as you plan your budget, it doesn’t factor in any unexpected costs that may crop up as your deck is being built.


💡 Quick Tip: With home renovations, surprises are inevitable. Not so with SoFi home improvement loans. There are no fees required, and no surprises.

Consider the Decking Materials

Another important factor to consider is the material you want to use for your deck. More durable decking material will likely cost you more, but could save in the long run with minimal upkeep or less-expensive repairs. Here’s a look at the average cost of common materials, according to Angi:

•   Pressure-treated wood: $15 to $25 per square foot

•   Composite decking: $4 to $12 per square foot (materials only) or $25 to $54 per square foot (for an installed deck)

•   Bamboo: $3 to $10 per square foot

•   Cedar: $4 to $9 per square foot

•   Redwood: $5 to $35 per square foot

•   Metal: $15 to $20 per linear foot

Of course, price is just one factor. You’ll also want to think about the climate where you live. Do you get a lot of snow in the winter? Is it very humid in the summer? Be sure whatever decking material you choose can stand up to the environment.

Choose a Design That Fits Your Budget

After materials and labor, the actual design of a deck can influence the overall cost of the project. To help keep prices low, you may want to stick with a simple design, traditional, squared-off corners, or even a smaller deck.

One affordable option? A ground-level deck, which sits within 30 inches from the ground. Because it’s so low, this type of deck requires fewer materials and structural reinforcements. And you won’t need to add a railing or stairs, which can be additional savings.

Factor In Additional Costs

While labor, materials, and design are the major players in a construction budget, there are other costs you’ll want to consider.

Permits are one example. Most towns and cities require permits for additional structures like decks. Deck contractors are usually well-versed in this process, and most will include the price of permits in their quotes.

If you’re building the deck yourself — or your contractor won’t pull a permit — you’ll need to handle the red tape yourself. Start by calling your local building department and explaining the project to them. If a permit is required, they can explain how the process works and provide you with the correct application form.

It’s also a smart move to factor in any costs you may incur once the deck is built. For instance, the new addition could increase your home insurance premiums. (Your agent can explain what changes, if any, you’ll need to make to your policy.)

You may also be hit with a higher property tax bill, since the addition of a permanent fixture like a deck typically increases a home’s value. To get an estimate of the change, contact your local building and tax departments.

Comparison Shop

Construction is similar to plumbing or automotive repair in that if you aren’t an expert, it can be hard to gauge the price. Whether you’re hiring a contractor or a carpenter, it can help to ask for bids from a few local professionals to ensure you have the right person for the job — and your budget. Ask potential candidates to provide photos of their projects and names of previous clients you can call.

For a long-term investment like a deck, going with the cheapest option might not be the best strategy. While there are ways to potentially lower the cost of a new deck, be sure you’re not sacrificing quality for price. After all, this is something that you and your family will hopefully be using for years.

Ways to Pay For a New Deck

While a deck brings comfort and enjoyment, the cost of building one can be significant. Here are some common financing options to explore.

Personal Loan

If you need to access funds quickly, don’t want to use your home as collateral, and can afford to make the monthly payments, consider a personal loan.

With this type of loan, you borrow a lump sum from a lender, which you’ll pay back with interest. The money can be used for almost anything, including paying for a new deck. Personal loans are usually unsecured, which means they don’t require collateral. Instead, a lender will consider a borrower’s creditworthiness.

Most lenders offer a personal loan amount of $50,000, though some lenders, including SoFi, offer lending amounts up to $100,000. Repayment terms are usually two to seven years, and interest rates are typically fixed.



💡 Quick Tip: Before choosing a personal loan, ask about the lender’s fees: origination, prepayment, late fees, etc. SoFi personal loans come with no-fee options, and no surprises.

Fixed-Rate Home Equity Loan

If you’ve built up equity in your home and have a one-time cash need, you may want to look into a fixed-rate home equity loan.

This loan type is fairly straightforward: You receive a lump-sum payment from the lender, which you’ll repay over a period of time with a set interest rate. The term of these loans typically spans five to 15 years, and the amount you borrow must be repaid in full if you sell your home. If you’re unable to make the payments, you could risk losing your house.

Note that the closing costs may be similar to the cost of closing on a home mortgage. As you’re comparison shopping, be sure to ask about the lender’s closing costs so you can prepare your budget accordingly.

Home Equity Line of Credit (HELOC)

If your deck addition turns into an ongoing project, and you want some flexibility to pay as you go, then a home equity line of credit (HELOC) may be a good fit.

A HELOC is revolving debt, meaning that as you pay down the loan balance, you can borrow it again during the draw period. That’s when you can use, or draw, funds against the line of credit, typically 10 years. After that, you can no longer draw funds. (Another important time period to keep in mind? The repayment period, which is the amount of time you have to repay the loan in full.)

Note that unlike a fixed-rate home improvement loan, a HELOC’s interest rate is variable. This means it changes to reflect the current interest rate, which could cause your monthly loan payment amounts to vary.

No-Interest Credit Cards

With a no-interest, or 0% APR, credit card, you won’t be charged any interest on your purchases for a set period of time. Some cards also extend the temporary 0% APR to balance transfers.

A no-interest credit card comes with low borrowing costs, which could make it an attractive way to finance a new deck. But qualifying for one of these cards can be difficult. And when the promotional period ends, a potentially high APR will start accruing on the remaining balance.

The Takeaway

Adding a deck onto your home can be a great way to enjoy your backyard and add to the value of your home. When budgeting for the cost to build a deck, you’ll want to factor in labor, materials, design, and extra expenses like permits, insurance premiums, and property taxes. Enlisting the help of a reputable, licensed contractor or carpenter can help ensure you get the deck you want, at a price you can afford.

There are some common ways to finance a new deck, and each has its own set of pros and cons. With a personal loan, you may be able to get a lump sum fairly quickly. A fixed-rate home equity loan may have lower rates and longer repayment terms than a personal loan, but you’ll need to use your house as collateral. A HELOC allows you to pay as you go, which could be handy if the construction project runs long. And a no-interest credit card offers low borrowing costs, but a potentially high APR kicks in once the promotional period ends.

Think twice before turning to high-interest credit cards. Consider a SoFi personal loan instead. SoFi offers competitive fixed rates and same-day funding. Checking your rate takes just a minute.


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


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SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

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

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

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

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Dec
05
2023

A Guide to Keeping Your Data Safe: Top 11 Cyber Security Tips

By | Credit, credit card | Comments Off on A Guide to Keeping Your Data Safe: Top 11 Cyber Security Tips

Of course, there’s a risk in handing over sensitive data. Identity theft is on the rise — the Federal Trade Commission received more than 1.1 million reports of it in 2022 alone. And the total number of data breaches has more than tripled, according to a 2022 report from Verizon.

The good news is, there are steps you can take to help protect your personal information. Some of these you’ll only need to do once, others are a habit that you’ll get the hang of with time.

Let’s take a closer look.

1. Use Strong Passwords

One of the most basic ways to protect yourself online is to use a unique password for each of your accounts — email, social media, mobile banking, you name it. Aim for passwords that are simple for you to remember but difficult for others to guess.

To create a strong password, keep the following tips in mind:

•   Use a combination of upper- and lower-case letters, symbols, and numbers.

•   Longer is usually better — aim for a password that’s at least six characters long.

•   Never use personal information like your name, birthday, or email address.

•   Random passwords are usually difficult for hackers to crack. Use a password generator if you need help.

💡 Quick Tip: Make money easy. Enjoy the convenience of managing bills, deposits, and transfers from one online bank account with SoFi.

2. Turn On Two-Factor Authentication

Take advantage of two-factor authentication (2FA) when possible. 2FA involves using one authentication method plus your username and password. Examples of 2FA include sending a numerical code to your phone or email, using fingerprint ID, or identifying you via facial recognition.

Certain accounts add an extra layer of protection by using authenticator apps like Google Authenticator, Authy, or Microsoft Authenticator. Typically, these apps generate a verification passcode, which you’ll need to enter when you log in.

3. Always Use a Secure Connection

There were concerns in the not-so-distant past about using a public wifi network to get online, as it could make your information vulnerable to hackers. But today, connecting through a public network is usually considered safe. That’s because most websites protect data through encryption, a process that involves scrambling information so it can only be deciphered using a unique encryption key.

To make sure your connection is encrypted, look for either a lock symbol or “https” to the left of the URL in a browser.

4. Know the Signs of a Phishing Scam

Phishing is the oldest trick in the book. Unfortunately, it also happens to be fairly successful.

Phishing emails and text messages can take many different forms: a link to confirm financial information, an alert about suspicious activity or log-in attempts on one of your accounts, an invoice you don’t recognize, a coupon for a free prize.

One effective way to help prevent falling for these scams? Be cautious about emails that have an attachment or embedded link, and don’t click or download anything from a source you don’t recognize. Keep in mind that legitimate companies usually won’t send you a link to change or update your payment information. If you’re not sure whether a message is authentic, you can call the company directly to confirm.

5. Check Your Credit Report

Checking your credit report regularly is a simple way to help protect your identity and financial security. You can request a free credit report from each of the three major credit reporting agencies, Equifax, Experian, and Transunion, by visiting AnnualCreditReport.com . It will detail all the information about your financial history, including credit card debt, student loans, missed payments and more.

When you receive your credit report, make sure all of the information is accurate. If you notice anything that is incorrect, report it to the credit bureaus and dispute any inaccurate information.

💡 Quick Tip: Check your credit report at least once a year to ensure there are no errors that can damage your credit score.

6. Monitor Your Credit Card and Bank Accounts

Keeping tabs on your credit card and bank accounts doesn’t just help with tracking your spending. It’s also a good way to spot mysterious charges.

Sometimes, a scammer will start with a small, unassuming charge and then quickly escalate their spending when they feel that a person isn’t paying attention. Look for strange names and keep tabs on every purchase, no matter how small.

7. Make Social Media Profiles Private

At first glance, this might seem like an unnecessary step. After all, if someone has your social security and your address, what more do they need? But strengthening your privacy settings on your social media accounts can go a long way to protecting your data in the future. Hackers can use photos, comments, and more to learn about you, which could make it easier for them to break into your accounts.

8. Tap Into Online Tools for Help

As data security becomes more important, the government is getting involved. If you think, or know, that your identity has been stolen, you can visit Identity Theft , the Federal Trade Commission’s website dedicated to cyber security protection. There are resources to help you troubleshoot ongoing issues, create a plan to protect your identity, report identity theft, and more.

9. Update Software

Yes, updating apps, web browsers, and operating systems takes time and may temporarily disrupt your work. But the reward — protecting your data — is worth the few extra minutes. Many times, software updates include new features or improved security.

Set updates to happen automatically so you always have the latest and greatest version.

10. If Your Identity Has Been Stolen, Consider Placing a Credit Freeze on Your Files

By placing a credit freeze or security freeze on your files, you can prevent a potential hacker from opening a new account in your name. The freeze restricts access to your credit report, which makes it difficult for a cyber criminal to open up any accounts.

Freezing your credit does not affect your credit score. However, as long as the freeze is in place, you won’t be able to open any new accounts in your name. If you’re planning to rent an apartment, apply for a job, or buy insurance, you’ll likely need to temporarily lift the freeze for a certain amount of time or for a specific party.

Check with the credit reporting company in advance to find out the costs and lead times. The process is daily involved, as you’ll have to request a credit freeze with all three agencies.

Also, it’s worth mentioning that a credit freeze doesn’t prevent a hacker from adding charges to your existing accounts

11. Consider Placing a Fraud Alert on Your File If You Suspect Identity Theft

This is a much easier option than placing a full credit freeze, as it only requires creditors to confirm your identity instead of freezing all your credit in the future. It may be a good step to take if you are concerned that someone might have been able to access your personal data but lack proof

The Takeaway

Data breaches and identity theft happen, but by taking some simple precautions, you can help keep your personal information from falling into the wrong hands.

Cybercrime isn’t just disruptive, it can also be expensive. That’s why SoFi has partnered with Blink by Chubb to help protect your finances with cyber insurance. Apply in just minutes and get your quote.

SoFi helps you safeguard your digital life.

Photo credit: iStock/ozgurcankaya

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

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

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

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