Financial Topics Archives | Page 477 of 808

Sep

2023

How to Have a Baby Shower on a Budget

By Diana Kelly Levey | Budgeting & Goals, Financial Independence, money | Comments Off

Congratulations! Someone close to you is going to be a parent, and you have the honor of throwing the baby shower. You are probably excited to come up with some great ideas for the food, the decor, the party favors, and more, and need to sort out the guest list. But along with these organizing responsibilities can come a steep price tag.

The truth is, though, with a bit of planning and creativity, you can host a very fun, very memorable party for the parents-to-be, their friends, and their family without breaking the bank. You might be able to find a venue that’s totally free, create the centerpieces yourself, and otherwise keep costs under control and on budget.

Read on for some inspiration.

Tips for Throwing a Great Baby Shower on a Budget

These inexpensive baby shower ideas can help you throw a memorable celebration for a mom-to-be and help her become better financially prepared for a baby.

Coming up with a Baby Shower Budget

Before you begin the planning process, it can help to determine the total you can spend on the event and then create a budget. You may also want to find out if family members from either side are willing to chip in financially or by offering to help make something for the party. When setting up your baby shower budget, you’ll likely want to include: the venue, invitations, decorations, food and drinks, entertainment and/or games, prizes and party favors.

💡 Quick Tip: Don’t think too hard about your money. Automate your budgeting, saving, and spending with SoFi’s seamless and secure mobile banking app.

Finding a Free (or Low-Cost) Venue

A baby shower doesn’t have to be at a fancy restaurant, hotel, or banquet hall to be festive. It could take place at your, or someone else’s, home. If you’re hosting a baby shower in warm weather. You might consider having it outdoors, such as in your backyard. You could even host a more casual shower with an outdoor barbeque or even a poolside party.

Other low-cost locales options include: a nearby park, the clubhouse of your (or someone else’s) apartment complex, or the meeting room at someone’s place of business.

Recommended: How to Save Money Daily

Limiting the Baby Shower Guest List

Generally, the more people you invite to the shower, the more money you will spend. To keep costs in check, you may want to consider limiting the invite list to the parent-to-be’s closest family and friends.

A smaller group not only cuts down on costs, but can also help to create a more intimate gathering that allows the guest of honor to spend time with each guest. It can be a good idea, however, to run the invite list by the expectant mom to be sure that you don’t exclude any important people.

Going Digital With Invitations

You can save money on baby shower invitations by using a digital service, such as Evite, Punchbowl, or Paperless Post. These sites and apps typically allow you to choose from a range of free baby shower invitation templates or, for a small fee, upgrade to a more elaborate design.

These sites also make it easy to keep track of responses. And, guests will likely appreciate the ability to RSVP with the click of a button. You may, however, want to send paper invites to older guests, particularly if they don’t use an email address often.

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Ditching the Caterer

Feeding guests typically takes up the biggest portion of a baby shower budget. One way to help keep the cost of food down is to forgo the caterer and head to your local warehouse club (like Costco or Sam’s Club). You’ll likely be able to create a delicious spread of appetizers, finger foods, and desserts for a lot less than ordering trays from a catering company or restaurant.

Timing It Right

You can also cut down on food costs by not holding the shower right at lunch or dinner time. That way, guests won’t arrive expecting a full meal, and you’ll be able to serve a lighter menu that includes simple appetizers and snacks. A late-morning party can be particularly wallet-friendly. You might simply offer coffee, juice, fruit, and pastries. Or, you might opt for an afternoon tea and serve sweets and finger sandwiches.

Keeping the Cake Simple

Here’s another way to save money on food: A gourmet bakery cake can look beautiful, but it could easily bust your budget. To cut costs without sacrificing on taste, you might consider ordering a cake at your local grocery store’s bakery or the bakery at a wholesale club, then having it personalized (which the store will often do free of charge).

DIYing Centerpieces

It’s a basic rule of personal finance that you’ll pay more when you farm tasks out versus doing them yourself, whether that means doing car maintenance or decorating for a party.

Fresh flowers look lovely, but they can get expensive if you order arrangements from a professional florist. Instead, you may want to head to your local farmers market, grocery store, or warehouse club to find flowers at reasonable prices that fit your color scheme, then make your own centerpieces.

A simple way to get great results is to use flowers in the same color family (like shades of pink or all white). You can pick up vases at the dollar store, or go with Mason jars, which look trendy and can be used for other purposes after the shower is over.

Printing Decor and Games for Free

Instead of racking up a big bill at the party store, you may want to comb the web for free baby shower printables. You can likely find food signs, games (like baby shower bingo), decorations, and favor tags that you can simply print right from your computer.

Making Edible Favors

Another baby shower budgeting tip for beginners: Sweets can make great favors, and you can easily bake them yourself without spending a lot. You may also find that there is a family member who would be delighted to take on this task. Edible favors can be as simple as iced sugar cookies (in your color scheme) or as elaborate as cake pops that look like baby rattles.

Recommended: Passive Income Ideas

Considering a Virtual Baby Shower

If the guest of honor’s family and friends are spread out all over the country, having a virtual baby shower is one way to include everyone that’s important, and also keep costs down. You can set a celebratory mood by choosing a Zoom background that fits the theme of your shower, and also include a link so guests can download the background as well.

Friends and family can watch the mom-to-be open gifts that were sent to her ahead of time. (In fact, you might save so much by doing a virtual shower that you can be more lavish with gifts. That might help your guests of honor save for the new baby.)

You can also organize games throughout the virtual baby shower and create a digital guest book that attendees can sign and share their words of wisdom for the expecting parents.

The Takeaway

You can plan a memorable baby shower even on a limited budget. And, spending less doesn’t mean the event will be any less special.

Some easy ways to trim the cost of having a baby shower include: hosting the shower in your home or backyard, heading to your local warehouse club (for food, flowers, and even the cake), using free printables for decor and games, and giving homemade sweets as favors.

You can also make a baby shower more affordable by setting a budget and saving up enough money to cover it in advance (so you don’t end up relying on credit cards). Looking for a good place to build your party fund? Look for a bank account with low or no fees and a high interest rate.

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

Photo credit: iStock/vejaa

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

SoFi members with direct deposit activity can earn 4.00% 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.

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

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

SOBK0923004

Sep

2023

Is a Rewards Checking Account Right for Me?

By Timothy Moore | Budgeting & Goals, Financial Independence, money | Comments Off

Checking accounts provide a useful foundation for many people’s daily financial lives, and some offer additional perks beyond the basics. Called rewards checking accounts, these financial vehicles can benefit customers in a variety of ways. Your money might earn interest, cashback, points, airline miles, or other bonuses (or even a combination of these).

For some, this kind of incentive is a good reason to stash their money at a particular financial institution versus another. However, some rewards checking accounts can involve fees and/or minimum balance requirements which may make them less enticing.

To help decide if a rewards checking account is right for you, read on for such information as:

• What are rewards checking accounts?

• How does a rewards checking account work?

• How do you qualify for a rewards checking account?

• What are reward checking accounts’ pros and cons?

🛈 Currently, SoFi does not provide a rewards checking account.

What Is a Rewards Checking Account?

Simply put, a rewards checking account is one that rewards a person for opening and using the account. Those bonuses can take a variety of forms. Consider this:

• A standard, no-frills checking account may have no monthly fees, minimum balance requirements, or minimum opening deposits. However, the perks are generally equally basic: a nonexistent or nominal annual percentage yield (APY), if any no ATM surcharge reimbursements, and often no signup bonus.

• This kind of standard checking account can be attractive for some, but those seeking to earn money for their banking loyalty might prefer a rewards checking account instead.

• Though the specific perks vary by account, you can typically find a checking rewards account that offers a higher interest rate or cash back. You might also be offered airline miles, a signup bonus, free identity theft protection, cell phone insurance, and reimbursement for ATM fees.

How Does a Rewards Checking Account Work?

Some checking accounts with rewards have criteria for earning perks each month. For instance, a bank may require you to:

• Use your debit card for a minimum number of transactions each month

• Maintain an average minimum account balance

• Receive a set number of direct deposits equal to a specified value

• Enroll in services like e-statements or online bill pay

If the reward is a higher APY, you will likely earn that in the form of monthly interest on your bank’s payment schedule, deposited directly into the account. If the checking reward is cash back, the bank may offer multiple ways to redeem the cash within the mobile app. Similar to cashback credit cards, you can often convert points into airline miles or other perks — or just receive cash in your account.

Perks of a Rewards Checking Account

The perks of a rewards checking account will vary by bank but might include:

Cash Back

Cash back is usually expressed as a percentage of the transactions made with a debit card; this might also be structured as points or even airline miles.

Interest

A rewards account may be an interest-bearing checking account. If so, it will offer an APY that is higher than the zero or the very low rate usually offered by most checking accounts.

Signup Bonus

A rewards checking account may pay a one-time bonus for signing up for a new checking account and meeting specific criteria.

ATM Fee Reimbursement

A rewards account may offer refunds for expenses incurred for using out-of-network ATMs.

Other Perks

Among the other rewards you may see offered are ways to earn airline miles, shopping discounts, cell phone insurance, and identity theft protection, among other options.

Some rewards checking accounts may offer a combination of these perks.

Who Should Use a Rewards Checking Account?

A rewards checking account can be a good option if you regularly use your debit card for purchases and keep a substantial amount of money in your checking account. If you do not have a rewards credit card, a rewards checking account can serve as an alternative way to earn money for spending money.

As mentioned, some banks have special requirements for members to earn rewards. Read terms and conditions carefully. If you cannot meet account requirements for the reward, the account might not be right for you, especially if there are monthly maintenance fees.

How to Qualify for a Rewards Checking Account

Qualifying for a rewards checking account may vary depending on the bank, but, as mentioned above, there tend to be common core requirements for earning rewards, such as:

• A minimum number of debit card transactions in a month

• An average daily minimum account balance

• A minimum number (or value) of monthly direct deposits

If an account comes with a signup bonus, the bank likely has a set of requirements you’ll need to meet to snag that cash. This may include enrolling in direct deposit to get you started.

When considering a rewards checking account, it’s wise to read the fine print before opening to ensure you fully understand the requirements. Opening a checking account is typically a simple process, but you do want to make sure you understand the details before you sign up.

Pros of Rewards Checking Accounts

Here are some of the benefits of a rewards checking account, though perks will vary by program:

• Earning potential: Whether through a higher-than-average APY or through cash back on debit card purchases, the main draw of a rewards checking account is often earning money (or more money) for doing the banking you would do anyway.

• Tax implications: In general, the Internal Revenue Service (IRS) sees cash back as a rebate for or discount on something you purchased, so you won’t have to pay taxes on that money. Not a bad deal at all! However, if the reward for the account is a high interest rate or a signup bonus, you should expect to receive an IRS Form 1099 from your bank for that income.

• Fees: Some rewards checking accounts charge monthly fees (some of which might be waivable), but other rewards checking accounts are noteworthy for being fee-free.

Cons of Rewards Checking Accounts

Depending on the individual and their financial style and goals, there may be some downsides to a rewards checking account:

• Limits on rewards: Some bank programs cap the rewards at a set amount each month, meaning there could be a limit to the amount of cash back you can earn.

• Better rewards elsewhere: Rewards credit cards may offer more cash back than a rewards checking account. However, these cards often have credit score requirements that make it more difficult to qualify. You probably need a credit score in the good to excellent range, meaning 670 or above.

• Minimum balance requirements: Some banks have minimum balance requirements to earn the reward. If you cannot meet the requirement or do not wish to keep that much money in a checking account, the account might not be the right fit.

• Fees: While some rewards checking accounts have no fees, others do charge monthly maintenance fees that can make the rewards less attractive or possibly even negate them.

Cashback Checking Accounts vs Credit Cards

You may be wondering whether a cashback checking account or credit card is the better fit for you. See how they stack up here:

Cashback Checking Account	Cashback Credit Cards
Provides a secure hub for daily finances	Provides a line of credit for purchases
May charge fees	Charges interest
Earn cashback typically through debit card use	Earn cashback typically through spending with credit card

Is a Rewards Checking Account Worth It?

A rewards checking account with cash back can be a good fit if the conditions to earn the perks are no problem for you.

• You might already be in the habit of swiping your debit card for everyday purchases or this prospect doesn’t faze you. If so, then a rewards checking account with cash back might be worth it. It can be easy to manage a checking account like this and make your money work harder for you.

• If you like to keep a large sum of funds in your checking account to cover automatic bill payments, you might enjoy the earning potential provided by a high-interest checking account even if it has a higher-than-usual balance requirement.

Is a Rewards Checking Account Right for You?

Each person has a unique financial situation and goals. Here are some considerations that may help you decide if a rewards checking account is right for you:

• If you want to earn interest (or more interest) on cash you have sitting in your checking account, a rewards account might be a good choice for you.

• If there are perks that you could reap for behaviors you engage in (swiping your debit card, receiving direct deposit) or don’t mind adopting, this kind of account could work well for you.

• Not a person who has a rewards credit card? A rewards checking account could give you some of the same perks.

FAQ

What are rewards in banking?

Rewards in banking refer to incentives and perks that account holders receive. They might be a signup bonus for a new account, a higher-than-average interest rate, or checking account cash back in the form of points, miles, or actual cash that can be deposited into your account or, for a credit card, applied toward your statement.

Why do banks offer points or rewards?

Banks offer points or rewards to entice consumers to choose their accounts or cards over competitors. Once you become a member, rewards ensure you continue to engage with the bank’s product, either by depositing more funds into your account or using your debit or credit card for more daily purchases.

Are bank rewards interest?

Bank rewards can come in the form of higher interest. For example, the current national average interest rate for a checking account is 0.43%, while rewards checking accounts may offer a higher than average interest rate, often 1.00% to 3.00% or higher. The interest that you earn is taxable, while cash back typically is not (it’s considered a rebate).

Can you earn points on a checking account?

Some checking accounts do allow you to receive points as a reward. For instance, you might receive one point for every dollar or two you spend with your debit card.

Are bank rewards worth it?

Whether or not bank rewards are worth it depends on your financial situation and preferences. Do you meet the criteria for a rewards checking account (such as swiping your debit card often enough or receiving a certain dollar amount of direct deposits)? Can you handle any requirements such as monthly minimum balance or account fees, if assessed? If so, earning interest or receiving other perks could be a smart, money-wise move.

Photo credit: iStock/Feodora Chiosea

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

SoFi members with direct deposit activity can earn 4.00% 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.

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.

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.

SOBK0723047

Sep

2023

Guide To TFSAs

By Kenny Zhu | Budgeting & Goals, Financial Independence, money | Comments Off

If you’re a Canadian age 18 or older, you may want to open a Tax-Free Savings Account (TFSA). Funds deposited in this kind of tax-advantaged account are not assessed any taxes on any interest earnings, capital gains, or dividends earned on contributions.

TFSAs can be opened at almost any major financial institution across Canada for those age 18 or older with a valid Social Insurance number, or SIN. They can be held in cash, mutual funds, government bonds, guaranteed investment accounts, and sometimes even publicly traded stocks.

In this guide, you’ll learn more about TFSAs, including:

• What is a Tax-Free Savings Account?

• How does a TFSA work?

• How do you withdraw funds from a TFSA?

• What are the pros and cons of TFSAs?

• What are U.S. alternatives to TFSAs?

🛈 Currently, SoFi does not offer Tax-Free Savings Accounts.

What Is a Tax-Free Savings Account?

TFSAs, or Tax-Free Savings Accounts, can be excellent tax-sheltered accounts that allow contributed funds to grow-tax free. That means no taxes on interest earnings, dividends, or capital gains. What’s more, funds can be withdrawn at any time without penalty for account holders. This is a key difference between TFSAs and retirement savings plans, which are designed to be held till a certain age.

If you compare a TFSA vs. RRSP (Registered Retirement Savings Plan), you’ll see that a TFSA allows you to withdraw your contributions and any subsequent earnings over time, tax-free. With an RRSP, a certain percentage of any withdrawals taken out prior to retirement may be withheld.

To look at this from a different angle, any funds contributed into a TFSA can be withdrawn on demand and are not subject to taxation or penalty, as long as all contributions remain beneath your overall TFSA contribution limit. This can make them a smart tax shelter for both short-term and long-term financing needs.

How Do TFSA Contributions Work?

Here’s the scoop on how TFSAs work:

• Tax-Free Savings Accounts allow you to contribute a finite amount, set annually by the Canada Revenue Authority (CRA). As mentioned above, your funds within the TFSA can earn interest, earn dividends and even capital gains without being taxed. The 2023 contribution limit for TFSAs is $6,500. This makes them excellent financial vehicles when it comes to the important goal of saving for the future.

• TFSA limits accumulate and carry over every year. This means that your contribution limits (commonly referred to as your “contribution room”) will stack up annually. This holds true whether or not you’ve completed a Canadian income tax return or even have an existing account at the time. In other words, if this year’s contribution limit is $6,000 and you only contribute $4,000, next year you can save an extra $2,000 over the limit to catch up. So if the limit for the following year was $6,000, your contribution room will be $8,000 (adding the $6,000 and the additional $2,000).

• In fact, you’re allowed to make retroactive contributions for all of the cumulative annual contribution limits dating back to 2009, or when you first turned 18, whichever was more recent.

• Make sure you keep track of your overall contributions, as accidentally overcontributing to the account can result in tax penalties. According to the CRA, overcontributions are subject to a 1% penalty tax on the overcontribution amount each month until it’s withdrawn from the account.

Contributing to a TFSA

To contribute to a TFSA, you’ll want to first figure out what your current annual contribution limit is and then calculate how much additional contribution room you have from years past where you didn’t hit the limit. By the way, there’s no earned income requirement for contributing to a TFSA.

To help you calculate your total TFSA contribution limit, check this table below that outlines all of the annual contribution limits since the program was established in 2009. You’ll also find a cumulative contribution limit to help you back-date your permitted total contribution amount.

Year	Annual Limit	Total Accumulated Limit
2009	$5,000	$5,000
2010	$5,000	$10,000
2011	$5,000	$15,000
2012	$5,000	$20,000
2013	$5,500	$25,500
2014	$5,500	$31,000
2015	$10,000	$41,000
2016	$5,500	$46,500
2017	$5,500	$52,000
2018	$5,500	$57,500
2019	$6,000	$63,500
2020	$6,000	$69,500
2021	$6,000	$75,500
2022	$6,000	$81,500
2023	$6,500	$88,000

If you turned 18 in 2009 or prior and have just begun making contributions this year, your total permitted lifetime contribution limit is $88,000. If you turned 18 after 2009, your contribution room (or limit) will be the sum of the cumulative amounts for all years starting from when you first turned 18.

How to Withdraw Money From a TFSA

When thinking about different types of savings accounts, you may wonder how a TFSA stacks up in terms of how you can withdraw funds. One important point: You can withdraw both contributions and earnings from your TFSA at any time, without fear of tax penalty.

Withdrawals from a TFSA are only logged when you transfer or take savings out of your account. So if you convert your investments into cash and the money remains in your account, this won’t be counted as a withdrawal.

You can withdraw any amount up to the entire balance of your TFSA account (though obviously, you’d like to avoid overdrafting a savings account). One of the best aspects of TFSA withdrawals is that the amount of any withdrawn contributions is automatically added back to your total TFSA contribution room for the following tax year.

However, if you reach your contribution limit in a given year, you won’t be able to make any additional contributions during that year, even if you decide to withdraw funds from the account. Contribution rooms are only recalculated after the beginning of the following year.

Withdrawals can typically be done easily online; check with your account holder for details.

Pros and Cons of a TFSA

Curious about the pluses and minuses of TFSAs? You’re in the right place.

Pros of a TFSA

Here are the main advantages of a TFSA:

• Tax-exempt interest and investment earnings: TFSAs are excellent places to park excess savings to earn a higher rate of return without having to worry about taxes on interest and capital gains. These tax advantages can be a bonus vs. how savings accounts typically work.

• Withdrawal and use flexibility: Unlike RRSPs which may incur a penalty when withdrawn prior to retirement, TFSAs have no restriction on the use of the underlying funds.

• Contribution limits rise annually and do not expire: This means that you won’t miss out on any opportunities to add to your TFSA, even if you don’t have any income to add to your account in the current year.

• Wide range of permitted investments: Unlike what the name suggests, funds deposited in a TFSA can be invested in stocks, bonds, mutual funds and other investments as permitted by the issuing institution.(Remember, though, that these investments may not be insured.)

• Some insurance coverage: Deposits held in cash or GICs are insured by CDIC (Canada Deposit Insurance Corporation) to a maximum of $100,000, which is separate from other holdings by the same customer at the same member institution.

Cons of a TFSA

Yes, there are some downsides to be aware of with TFSAs. Consider these three points:

• Non-deductible contributions: All contributions to TFSAs are made on an after-tax basis. As a result, TFSA contributions can’t be used to reduce your taxable income.

• Day-trading is not permitted: The CRA discourages day-trading in your TFSA account. Depending on the frequency and type of trading activities within your account, it may declare your investment returns to be taxable business income if you’ve failed to follow the rules.

• Not bankruptcy-remote: Unlike RRSPs which are protected from creditors, TFSAs are subject to the whims of any creditors that may seek to pull your assets back in court. This means that the funds in TFSA are fair game in bankruptcies.

• Not always insured: If your TFSA funds are held in the market, they will not be insured by CDIC.

Opening a TFSA in 5 Steps

You can open a TFSA at most major financial institutions in Canada. They’re available at banks, credit unions, and even insurance companies. Some offerings may differ slightly in terms of their permitted investments, so it pays to shop around for the one that best suits your financial goals. Here are the five typical steps to opening a TFSA:

1. Shop Around

Research a financial institution that offers TFSAs; make sure it fits your needs and investing style. The following are the types of TFSA accounts available:

a. Deposit

b. Annuity

c. Trust arrangement

d. Self-directed TFSA.

2. Apply for a TFSA

Once you’ve decided on the right TFSA, contact your chosen institution directly and apply for an account. You may choose to do this in person or online. In some cases, the choice will be yours; in others, the financial institution will dictate how to do so.

3. Gather Documentation

As part of the application process, the institution (issuer) will ask for some personal information. Make sure to have the following items available:

a. Birthdate

b. Social Insurance number (SIN)

c. Government-issued ID

4. Register Your Account

After you’ve provided all the necessary documentation and are approved, your issuer will register the account as a qualifying arrangement with the CRA.

5. Move Funds Into Your Account

You can then set up funds transfers or direct deposits into your TFSA account whenever you’re ready.

Congratulations, you now have a newly formed TFSA!

Keep in mind that while there’s no restrictions on the number of Tax-Free Savings Accounts you can have, your total contribution limit will be shared across all your accounts. Additional TFSAs will not increase your total contribution room.

All contributions will be reported to the CRA by your issuing institution, so remember to keep track of your contributions to avoid running afoul of the tax rules.

Alternatives to TFSAs Available in the US

If you are a U.S. citizen and are looking for an account that is similar to a TFSA, consider these options:

Roth IRA

A Roth IRA is similar to a TFSA in that it is a vehicle designed to help you save for retirement. The contributions grow tax-free; in addition, withdrawals are not taxed. However, contributions are made with after-tax dollars.

Roth 401(k)

If you are employed full-time, your company might offer a Roth 401(k). This is a savings fund that uses after-tax dollars. When you withdraw from the account when you retire, the money is tax-free.

The Takeaway

Anyone who can afford to should consider taking advantage of a Tax-Free Savings Account. TFSAs are versatile tax-advantaged accounts that can be used for both short-term and long-term savings needs. They provide an excellent tax-shelter for your investment earnings that can accumulate over time and be applied to a variety of needs. For those looking for a great savings vehicle, this could be it.

FAQ

Can you lose money in a Tax-Free Savings Account?

Yes, depending on the underlying investments, there’s a possibility that you may lose the principal on your investment. When the principal is invested in securities like stocks, bonds and mutual funds, it is not covered by the Canada Deposit Insurance Corporation (CDIC). However, any uninvested cash in your TFSA is insured for up to $100,000 under the CDIC.

How do tax-free savings work?

Interest, capital gains, and dividends earned in a Tax-Free Savings Account aren’t taxed as long as you adhere to guidelines set by the CRA. As long as you remain beneath the contribution limits and don’t run afoul of any TFSA rules, earnings from your TFSA account won’t be treated as income.

Keep in mind, some exceptions, like dividends earned from U.S.-based equities may still be considered taxable income. You’ll want to thoroughly review and understand the investment guidelines set by the CRA when planning your portfolio.

Is a Tax-Free Savings Account worth it?

Depending on your particular situation and goals, it can indeed be worth it. Your interest, dividends, and your capital gains will grow tax-exempt, and you won’t pay taxes on any withdrawals.

What does TFSA stand for?

The letters TFSA stand for tax-free savings account, which is used to refer to a savings vehicle available in Canada.

Are TFSAs available in the US?

TFSAs are not available in the U.S., only in Canada. However, there are other savings vehicles in the U.S. that may provide similar benefits.

Photo credit: iStock/Vladimir Sukhachev

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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.

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.

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.

SOBK0723020

Sep

2023

What Are IPO Proceeds?

By Laurel Tincher | Growing Wealth, invest, Investing | Comments Off

Initial public offerings (IPO) are a common tool for companies to raise capital, and the funds raised in an IPO are known as IPO proceeds.

When investors purchase IPO stocks, the company gets to keep the proceeds, after paying underwriters, the exchange, and others that helped with the IPO process.

By opening up to public investment, a previously private company can bring in significant funds that can be used for various activities, rather than turning to debt as a means of expansion.

Companies can use the capital brought in through an IPO in a variety of ways, but they must disclose their plans to investors.

Key Points

• Initial public offerings (IPOs) are a common tool for companies to raise capital, with proceeds known as IPO proceeds.

• Companies must disclose their plans to investors for how they will use the proceeds.

• Common uses for IPO proceeds include paying off debt; funding additional research and development; and general corporate purposes.

• Companies must file an S-1 with the Securities and Exchange Commission (SEC) to disclose how they intend to use the proceeds.

• While companies get to keep most of their IPO proceeds, a portion also goes to investment banks, accountants, lawyers, and others who helped them with the IPO process.

IPO Proceeds Defined

When a company holds an initial public offering (IPO) they must publish their plans for how they will use the proceeds. This helps investors understand how the company will use their money, and decide whether they agree with the company’s plans before they invest.

This is important because even though the IPO process is highly regulated, it’s also highly risky. Some companies that issue their stock for the first time can see the stock price soar; others can see it plunge. It’s also possible for the IPO to have an IPO pop, or price spike, before dropping. This kind of volatility is common to IPOs, which is why investors must proceed with caution.

Companies preparing for an IPO file an S-1, a several-hundred-page document, with the Securities and Exchange Commission (SEC) which includes a disclosure about the planned use of IPO proceeds.

They must also show investors a business plan. Potential investors can evaluate the business plan and see if they think they will receive a satisfactory return on their investment if they buy stock in that IPO.

While companies get to keep most of their IPO proceeds, a portion also goes to all investment banks, accountants, lawyers, and others who helped them with the IPO process, including valuing the company and setting an IPO cutoff price. According to PWC, underwriting fees alone eat up 3.5% to 7% of IPO proceeds.

💡 Quick Tip: Keen to invest in an initial public offering, or IPO? Be sure to check with your brokerage about what’s required. Typically IPO stock is available only to eligible investors.

What Are IPO Proceeds Used For?

There are a few areas where companies tend to spend IPO proceeds. Generally companies mention multiple uses in their S-1 filings, and it may also be something that they discuss with investors during their IPO roadshow. These might include:

General Corporate Purposes

General corporate purposes is a very common area companies talk about in their use of proceeds statements. It is a broad category that covers a lot of uses such as capital expenditures, operating expenses, and working capital, and getting more money for this is a major reason that many companies go public. Companies can use this term to describe broad activities without going into detail about their plans.

This allows them to keep their plans private and also lets them keep their options open and decide exactly how to spend money at a later date. Some companies do go into greater detail about the meaning of their general corporate purposes statement.

Research & Development

Companies might also use proceeds from an IPO to fund research and development. They spend funds developing new products and services, which can take years and significant amounts of money. Since R&D is so expensive, it is a major reason companies choose to hold IPOs.

Without R&D, some companies might struggle to keep up with competition and stay relevant in their industry. Some companies go into detail about the types of R&D projects they plan to work on using IPO proceeds, while others keep their plans vague.

Company Growth

Companies often choose to hold an IPO to raise funds for company growth. Company growth plans often appear in their business plan, and can include capital expenditures, working capital, sales and marketing plans to help a company grow its reach and revenue.

Companies want to create long-term, sustainable growth so that a company can stay in business for a long time. Like other uses of IPO proceeds, companies may go into detail about their plans for company growth expenditures or they may keep their plans vague.

💡 Quick Tip: All investments come with some degree of risk — and some are riskier than others. Before investing online, decide on your investment goals and how much risk you want to take.

Acquisitions

Companies can use IPO proceeds to merge with or acquire other businesses, something that can be very expensive. Without holding an IPO a company might not have the funds required to complete an acquisition. Acquisitions and mergers can help a company grow their customer base, eliminate competition, and expand their product and service offerings.

When a company includes an acquisition in its S-1 filing, they must state which company they intend to acquire. If they don’t yet have a company in mind to acquire, they can just list acquisitions as one possible use of IPO proceeds. A company does not have to state the exact company they are interested in acquiring if it will harm the potential of the acquisition plan.

Some companies take a unique path to acquisitions using IPO proceeds, known as a “blank check” IPO or special purpose acquisition company (SPAC). Companies create a shell company that they take public with an IPO and then use the IPO proceeds to complete an acquisition.

Debt Repayment

Another common use of IPO proceeds is to pay off debt. By paying off any existing debts, companies no longer have interest payments, so they reduce their operating costs, and they can also gain access to more funds from loans. Although it can be beneficial to a company to pay off their debts, this use of IPO proceeds is not popular with investors.

Other uses of IPO Proceeds

In addition to the uses described above, there are many other ways companies can use IPO proceeds, including paying taxes and charitable actions.

SEC Requirements on IPO Proceeds

The SEC requires companies file a “use of proceeds” section in their S-1 IPO submission. The S-1 explains to investors the goals of the IPO and what the company plans to do following the IPO, including how they will use proceeds. Requirements for what must be included in the S-1 are fairly broad, so companies can choose how much to share with potential investors, and they have a lot of choice about how they can use IPO proceeds.

There are several specific requirements for what must be included in the S-1, a document scrutinized by investors as part of their IPO due diligence. The “use of proceeds” section must include a brief outline of how proceeds from an IPO will be used. The requirements for what the brief outline includes are broad, giving companies a lot of freedom in what they want to disclose. Companies are allowed to use broad statements about planned use of funds, such as listing the categories described above.

Later sections in the S-1 submission require companies to go into greater detail about spending plans if they plan to use funds for certain activities. Just because a company states they plan to use funds in a certain way doesn’t legally bind them to actually use the funds in that way. However, companies need to inform investors that plans may change later if that is the case.

The Takeaway

With many companies going public per year, knowing how a company is going to use its IPO proceeds — the funds earned from the public offering itself — is important if you’re thinking about investing in that company’s IPO. You can find that and other useful information about a planned IPO in a company’s S-1.

Common uses for IPO proceeds include paying off debt; funding additional research and development; general corporate purposes, and more.

Whether you’re curious about exploring IPOs, or interested in traditional stocks and exchange-traded funds (ETFs), you can get started by opening an account on the SoFi Invest® brokerage platform. On SoFi Invest, eligible SoFi members have the opportunity to trade IPO shares, and there are no account minimums for those with an Active Investing account. As with any investment, it's wise to consider your overall portfolio goals in order to assess whether IPO investing is right for you, given the risks of volatility and loss.

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

FAQ

Who gets the proceeds from an IPO?

When a company holds an IPO, they receive money from banks and institutional investors who have agreed to invest prior to the start of the IPO. The company receives proceeds from the initial sale of stock. Any money exchanged after the IPO from the sale of stock doesn’t go directly to the company.

What are secondary IPO proceeds?

Primary proceeds are those made from the initial sale of stock in an IPO. Secondary IPO proceeds are those made in the stock market following the IPO.

How does an IPO raise money?

An IPO raises money by offering shares of stock in a company to institutional and retail investors. When investors purchase those stocks, the company gets to keep the proceeds, after paying underwriters, the exchange, and others that helped with the IPO process.

Photo credit: iStock/Charday Penn

SoFi Invest®

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Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.

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.

SOIN0623078

Sep

2023

What Is an IPO Roadshow?

By Rebecca Lake | Growing Wealth, invest, Investing | Comments Off

Before a company can sell its shares on an exchange, it first needs to go through the Initial Public Offering (IPO) process. One of the most critical steps in this process is the IPO roadshow, in which the company pitches itself to potential investors.

A roadshow presentation can take place in-person, with meetings in cities across the country, or the company can offer an online event instead. Either way, the goal is the same: to generate interest in the company that will encourage investors to buy in.

Key Points

• An IPO roadshow is a series of meetings or presentations in which key members of a private company pitch the initial public offering to prospective investors.

• Digital roadshows have become increasingly popular and offer an advantage of increased efficiency compared to traditional roadshows.

• The purpose of an IPO roadshow is to generate interest in a company among prospective investors in order to raise capital.

• Virtual IPO roadshow presentations have the potential to reach a broader audience, rather than being limited to a handful of cities.

• Buying IPO stock can help diversify an investment portfolio, but is typically high risk and requires due diligence.

What Is a Roadshow?

In general, a roadshow is a series of meetings or presentations in which key members of a private company, usually executives, pitch the initial public offering, or IPO, to prospective investors. Effectively, the company is taking its branding message on the road to meet with investors in different cities, hence the name.

The IPO roadshow presentation is an important part of the IPO process in which a company sells new shares to the public for the first time. Whether a company’s IPO succeeds or not can hinge on interest generated among investors before the stock makes its debut on an exchange.

There are also some cases where company executives will embark on a road show to meet with investors to talk about their company, even if they’re not planning an IPO.

💡 Quick Tip: IPO stocks can get a lot of media hype. But savvy investors know that where there’s buzz there can also be higher-than-warranted valuations. IPO shares might spike or plunge (or both), so investing in IPOs may not be suitable for investors with short time horizons.

How Roadshows Work

Typically, the roadshow is the third step in the IPO process, following the selection of an underwriter to oversee the process and the completion of due diligence. At this point, the Securities and Exchange Commission (SEC) reviews all of the documents submitted in connection with the IPO, while the company and the underwriting team get ready for the roadshow.

The underwriters and executives taking part in the IPO roadshow work together to decide which cities to visit, which investors to target, and which information to include in the roadshow presentation.

A typical IPO roadshow presentation highlights the most important information the company wants investors to know, including:

• The company’s history and its plans regarding the IPO

• Details about the top executives

• The current vision and mission statement

• Financial performance and earnings history

• Future sales projections and anticipated growth

• IPO goals

A roadshow IPO presentation may include digital media, such as videos or a slideshow. Investors have a chance to ask questions during a Q&A session following the presentation.

The roadshow tour for an IPO can last anywhere for two to four weeks, depending on how many stops the company makes along the way.

New Digital Roadshows

Virtual roadshows have become an increasingly popular alternative to the traditional IPO roadshow. The pandemic forced companies to rethink the way they meet with investors, resulting in a growing number of roadshows taking place online only.

Digital roadshows mean companies forgo a chance to meet with prospective investors face-to-face, but they offer an advantage in terms of increased efficiency. Company executives and underwriters save money and time, since they’re not traveling. Virtual IPO roadshow presentations also have the potential to reach a broader audience, rather than being limited to just a handful of cities.

If a company schedules multiple presentations in a single day, using a virtual format, they can complete the roadshow move through the IPO process more quickly. This could make it easier to determine the price of an IPO if there’s less opportunity for pricing to be affected by volatility. Pricing the IPO typically happens at the conclusion of the road show.

💡 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.

Importance of Roadshows

The IPO roadshow presentation is an opportunity for a company to convince investors that buying stock in their company is a good investment opportunity. The main purpose of an IPO is generally to raise capital and companies can’t do that without interest from investors.

IPO stocks are considered high-risk investments, and while some companies may present an opportunity for growth, there are no guarantees. Like investing in any other type of stock, it’s essential for investors to do their due diligence. While individual investors aren’t included in the IPO roadshow process, they can follow the coverage, to understand new details that might emerge about the company.

Pros and Cons of a Roadshow

If the company goes public and no one buys its shares, then the IPO ends up being a flop, which can affect the company’s success in the near and long term. If the company experiences an IPO pop, in which its price goes much higher than its initial offering price, it could be a sign that underwriters mispriced the stock.

A roadshow is also important for helping determine how to price the company’s stock when the IPO launches. If the roadshow ends up being a smashing success, for example, that can cause the underwriters to adjust their expectations for the stock’s IPO price.

On the other hand, if the roadshow doesn’t seem to be generating much buzz around the company at all, that could cause the price to be adjusted downward.

In a worst-case scenario, the company may decide to pull the plug on the IPO altogether or to go a different route, such as a private IPO placement.

The Takeaway

The IPO roadshow presents an opportunity for a new company to convince investors to invest in their organization. The main purpose of an IPO is to raise capital and companies can’t do that without interest from investors.

While individual investors typically don’t have access to roadshows, eligible investors may still participate in IPO trading. Buying IPO stock can help you to diversify your investment portfolio, and may present growth opportunities — but IPO shares are typically high risk. The key is doing your research to find the right companies to invest in as they go public.

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

FAQ

What is the purpose of a roadshow?

The purpose of an IPO roadshow is to generate interest in a company among prospective investors. The company executives and underwriting can meet with investors in-person or virtually to share details about the IPO, the company’s financials and its goals.

How long after the roadshow is the IPO?

The IPO can take place as little as two weeks after the roadshow is completed. The actual timing depends on a number of factors, including whether the underwriters determine that a price adjustment is needed or if any snags come up involving the filing of key documents.

Are IPO roadshows public?

The IPO roadshow process typically focuses on institutional investors, rather than retail investors. So the roadshow presentations have traditionally been private affairs. But with more companies opting to host virtual roadshows, there’s potential for the general public to be able to view IPO presentations online.

Photo credit: iStock/FreshSplash

SoFi Invest®

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