When a student fills out the Free Application for Federal Student Aid (FAFSA®) form, it’s important that they understand their dependency status. A student’s dependency status will affect the information they need to report on their FAFSA.
Dependent students have to report both their own and their parent’s information during this process. Independent students will only have to report their own information, the exception being if they are married. In which case, they will provide their spouse’s information as well.
Here’s how it works for independent vs. dependent students.
The Difference Between Independent and Dependent Students
There are a few key differences between independent and dependent students.
What Is an Independent Student?
An independent student meets one or more of the following criteria. They are:
• 24 years old or older
• Married
• A graduate or professional student
• A veteran
• A member of the armed forces
• An orphan
• A ward of the court
• Someone with legal dependents other than a spouse
• An emancipated minor
• Someone who is homeless or at risk of becoming homeless
What Is a Dependent Student?
Basically, a dependent student is any student who doesn’t meet the criteria to be considered an independent student. The U.S. government bases their federal student aid programs on the belief that it is primarily the student and their family’s responsibility to pay for the student’s higher education pursuits.
Even though it may not be the case in reality, dependent students are assumed to have the support of their parents which is why the parents’ information must be included in the student’s FAFSA form. Providing this information gives FAFSA a more complete picture of the family’s financial strength.
Just because someone is considered a dependent student does not mean that their parents have to contribute financially to their higher education costs, but the government assumes that parents will contribute in some way if financially possible.
Determining Dependent or Independent Student Status
While that brief overview begins to paint a picture of what it looks like to be a dependent or independent student, the Federal Student Aid office, which is an office of the U.S. Department of Education, asks key questions that help students determine their official status.
Their answers to the questions on the FAFSA form will help determine whether they are considered a dependent or independent student. The questions do change slightly each year, but are published by the Federal Student Aid office.
These questions include things like:
• As of today, are you married?
• Are you a veteran of the US armed forces?
• At any time since you turned age 13, were both your parents deceased, were you in foster care, or were you a dependent or ward of the court?
These questions can help guide students to determine whether or not they qualify as an independent or dependent student. Essentially, if a student answers “yes” to any of the questions in the FAFSA, they are considered an independent student.
Dependent Students
Students that answered “no” to all of the questions above are considered to be dependent students and while applying for federal student aid must provide information about their parents on the FAFSA form.
Students who are considered a dependent student by the FAFSA but are not in contact with their parents and don’t know where they live, can discuss their situation with the financial aid office at the college or career school they are planning on attending.
Their school’s financial aid administrator will usually be able to help them determine next steps. The same process applies if a student has left home due to an abusive situation. They will fill out the FAFSA form and contact their school’s financial aid office for assistance.
Even if a dependent student doesn’t live with their parents, they still need to provide accurate information about their parents. If their parents won’t provide the information they need, the student risks having their application rejected which may make them ineligible to receive any federal student aid.
Students in these circumstances may be able to qualify for an unsubsidized loan at most, but this option depends on what the financial aid office at their specific college decides.
Even if a student’s parents won’t help pay for college, if they answered “no” to all of those questions, they are still considered dependent.
Independent Students
Students that answered “yes” to any of the above questions are considered to be independent students during the federal student aid process. Independent students do not have to provide information about their parents on the FAFSA form.
When Federal Student Aid Falls Short
Colleges use the FAFSA to determine a student’s federal aid eligibility. While the FAFSA is a great place to start, sometimes federal aid can’t fully cover the cost of a college education. This is where private student loans can step in and cover the expenses that gift aid and Federal loans could not.
SoFi strongly believes students should exhaust all of their Federal grant and loan options before they look at private loans. Once a student has exhausted their options, they can look at SoFi private student loans which are easy to apply for, allow students to add a cosigner to their application in minutes, and never have fees.
No origination fees, no late fees, and no insufficient fund fees. Ever. With flexible repayment plans and exclusive rate discounts, SoFi Private Student Loans can provide a good option for covering the costs of attending college.
The Takeaway
In order to fill out the FAFSA, students will need to determine if they are an independent or dependent student. For example, students aged 24 and older, those attending graduate school, students who are married, or who have dependents are all generally considered independent students.
For a full list of questions to help you determine whether or not you are a dependent student, check out this resource from the Federal Student Aid website.
The distinction between independent and dependent students is important because they are required to submit different information to the FAFSA. Dependent students are required to submit their parent’s information in order to be considered for federal aid opportunities. This is the case even if a dependent student’s parents are not contributing financially to tuition costs. Independent students are not required to submit any of their parent’s financial information.
In situations where federal aid may not cover the cost of college, private student loans could be an alternative option to look into.
Learn more about SoFi’s competitive student loan rates.
SoFi Loan Products
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.
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.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student Loans are not a substitute for federal loans, grants, and work-study programs. You should exhaust all your federal student aid options before you consider any private loans, including ours. Read our FAQs.
SoFi Private Student Loans are subject to program terms and restrictions, and applicants must meet SoFi’s eligibility and underwriting requirements. See SoFi.com/eligibility-criteria for more information. To view payment examples, click here. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change.
Blue chip stocks are generally issued by large, well-established companies that have a history of steady growth. These companies are typically financially sound, they’re generally considered lower risk, and many blue chip stocks also pay dividends.
In other words, blue chip stocks are the big, stable ocean liners of the equity markets, not the smaller more volatile jet skis. When you’re constructing a portfolio, you may want to consider these large-cap stocks in the slow-but-steady corner of your equity allocation as part of your diversification strategy.
A Closer Look at Blue Chip Stocks
First, let’s answer the obvious questions: Why blue? Why chips? The origin of the term “blue chip stocks” is believed to originate with the game of poker, where traditionally the blue chips have the highest value.
While there is no fixed definition for blue chips, generally speaking, blue chip stocks are chiefly known for being stable and reliable. Blue chip companies can also share some other characteristics.
Common Traits of a Blue Chip Stocks
• They’re well-known. Blue-chip stocks aren’t limited to a single industry, but can be found in grocery aisles and on entertainment channels. Companies like Disney, Coca-Cola, and IBM are all considered blue chip stocks.
• They’re industry leaders. Often a stock has earned its blue-chip reputation by innovating over time, and becoming a market leader — often being among the top three companies in a given sector.
• They’re worth billions. Many blue chip companies have a market cap of $10 billion or more, but many are larger. Market capitalization is a measure of a company’s value, and it’s calculated by multiplying the share price by the number of shares outstanding.
• They’re well established. Most blue chip stocks are not newcomers. Rather they’ve demonstrated a history of financial stability, which can make them an important part of a defensive investment strategy.
• They’ve weathered different market conditions. Owing to their longer histories, many blue chip stocks have overcome various market challenges, but that does not make them “safe” investments.
• They’re on an index. You’ll often find blue chip stocks listed on the Dow Jones Industrial Average, S&P 500 Dividend Aristocrats, or the Bridgeway Blue Chip 35 Index.
• They pay dividends. Blue chip stocks typically pay out dividends, or a share of the company’s profits, to shareholders.
💡 Quick Tip: Did you know that opening a brokerage account typically doesn’t come with any setup costs? Often, the only requirement to open a brokerage account — aside from providing personal details — is making an initial deposit.
10 Historically Blue Chip Stocks
Here are 10 companies that have been historically considered blue chip. This list does not include all blue chips, but is a selection of some that are well known:
• 3M
• Coca-Cola
• UnitedHealth Group
• IBM (International Business Machines)
• Johnson & Johnson
• JP Morgan Chase
• Microsoft
• Procter & Gamble
• UPS (United Parcel Service)
• Walmart
These companies have been around for decades, and because of their consistent performance history, they’re considered blue chip stocks today. You may want to consider them when you’re thinking about portfolio diversification.
In addition, a few newcomers (or relatively new companies) have joined the blue chip party, such as Amazon, Apple, and Alphabet.
Advantages and Disadvantages of Investing in Blue Chip Stocks
Like any investment strategy, blue chip stocks have their potential benefits and drawbacks. Before investing in blue chip stocks, you may want to weigh the positives and negatives of these types of stocks on your overall investment strategy.
Advantages
Blue chip stocks have their fair share of benefits:
• They have a track record. Typically, blue chip stocks have been around for a while and are listed in some of the most well-known stock indexes. Some of these indexes can have stringent rules that only the most financially stable companies could meet.
• They’re big. Many of these companies are global in reach, and have the potential to grow faster, secure bigger loans, and continue to compete in the market. Thus, blue chip stocks may be more stable than smaller companies in their sectors — but with the resources to innovate and maintain their status.
• They can be lower risk. Blue chip stocks are often considered low risk because of their size and market history in the market. Many of them also pay dividends, which benefits investors.
• They’re highly liquid. Because these companies trade frequently, but are typically not volatile, investors can generally be confident in these stocks’ value when selling.
• They’re easy to follow. The companies behind many blue chip stocks tend to be well known, which means announcements and news around them is likely to make the front page of the financial section.
Disadvantages
There’s no such thing as a “sure thing,” especially in investing, and the drawbacks of blue chip stocks prove this point. Here are a few cons to keep in mind when considering blue chips for your portfolio.
• They may fall harder. The old adage “the bigger they are, the harder they fall” may apply here. Just because a blue chip stock has a solid history does not ensure a profitable future.
• Limited growth. Though these companies typically have longevity on their side, they are often past their prime growth years. This is why blue chip companies also have a reputation for being low risk.
• They may be expensive. Blue chip stocks tend to be well-known brands and often a highly desirable part of people’s investment strategies. For that reason, you’re unlikely to get a deal on them.
💡 Quick Tip: How to manage potential risk factors when you invest? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.
Investing in Individual Blue Chip Stocks
Like a well-balanced meal, investing in blue chip stocks can be one part of a healthy investment strategy. Those looking to make blue chip stocks a part of their balanced investment diet may first consider investing in individual stocks.
If the price per share is too steep for an investor’s budget, they might want to consider fractional share investing, which allows the purchase of a fraction of a stock instead of the whole share, starting at just $5. Restrictions do apply for fractional shares.
Choosing to invest in an individual stock might be a good way to get a feel for the market, or it might be a way to take a more active investment strategy. Either way, a brokerage can handle an investor’s single blue chip stock purchase.
Blue Chip Funds: An Alternative to Individual Stocks
If no individual stock strikes your fancy, but you still want to get into the blue chip game, you might consider investing in index funds or ETFs that focus on blue chip stocks.
Index funds and ETFs typically hold a diversified basket of stocks, often in line with a stock market index that tracks a segment of the market. Choosing an index fund or ETF that tracks large-cap stocks, the S&P 500, or the Dow Jones Industrial average can be one way to invest in a wide range of blue chip companies and add diversification. Investing in a blue chip fund or an ETF is investing in a portfolio of companies that a broker has selected.
The Takeaway
A company’s stock earns a blue chip designation when they have a strong performance history, consistent returns, excellent financials, and they’re considered industry leaders.
For investors who are ready to start investing, blue chip stocks can be a solid choice — but typically not one that’s likely to deliver a lot of growth or big returns. That said, blue chips are often viewed as being conservative. Being conservative can be an important part of an investment strategy, but it’s like a balanced diet. It may not be healthy to eat the same thing day after day, just as it’s not wise to invest only in bigger, more conservative options — but include other investments as well.
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.
There are limitations with fractional shares to consider before investing. During market hours fractional share orders are transmitted immediately in the order received. There may be system delays from receipt of your order until execution and market conditions may adversely impact execution prices. Outside of market hours orders are received on a not held basis and will be aggregated for each security then executed in the morning trade window of the next business day at market open. Share will be delivered at an average price received for executing the securities through a single batched order. Fractional shares may not be transferred to another firm. Fractional shares will be sold when a transfer or closure request is initiated. Please consider that selling securities is a taxable event.
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
The “Greeks” in options trading — known as delta, gamma, theta, and vega — are metrics that help traders understand the value and pricing of a given options contract.
Because options are derivatives, the value of each contract — the premium — depends on a complex interaction of different factors, including time to expiration, price volatility, and changes in the value of the underlying security. Each of these factors is represented by a Greek letter.
While there are a number of options Greeks to explore, delta, gamma, theta, and vega are the four main Greeks in options trading.
Options Greeks may sound like a foreign language, but to options traders the Greeks are essential to understanding how, or if, they’re making any money, since it can be so difficult to understand the true value of an option.
A Quick Look at Options
“Options” is short for “options contracts,” which are a type of investment that traders buy and sell much like stocks and bonds. But options are derivatives — that is, they aren’t really assets in and of themselves. Instead, their value (or lack thereof) derives from another underlying asset, typically a specific stock.
Traders buy different types of options, when they think that stock prices will go up (a call) or down (a put). They also use options to hedge or offset investment risks on other assets in their portfolio.
In a nutshell, though, traders typically buy options through an investment broker. Those options give investors the option, but not the obligation, to buy or sell a security at a later date, and at a specific price. Investors can buy an option for a price, called a premium, and then buy or sell that option.
So, while an option itself is a derivative of another investment, it can gain or lose value, too. For example, if an investor were to buy a call option on Stock A — basically, a bet that Stock A’s share price will increase — the value of that call option would go up if Stock A’s price goes up.
But the opposite would be true if an investor purchased a put option on Stock A, betting that Stock A’s price would go down. Similar to shorting a stock, the investor would effectively lose their bet (and see the value of their option fall) if Stock A’s share price increased.
💡 Quick Tip: Options can be a cost-efficient way to place certain trades, because you typically purchase options contracts, not the underlying security. That said, options trading can be risky, and best done by those who are not entirely new to investing.
Finally, user-friendly options trading is here.*
Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.
Options traders use these letters to describe their option positions and make their best guess as to what might happen next with those positions as they relate to the underlying stocks.
In short, the Greeks look at different factors that could impact the price of an option. Calculating the Greeks isn’t an exact science. Traders use a variety of formulas, usually by a mathematical model. Because of that, these measurements are usually all theoretical.
Here’s a look at the most common Greeks used by traders.
Delta measures how much an option’s price will change if the underlying stock’s price changes. Specifically, it measures the option’s price change in relation to every $1 change in the underlying stock. It’s usually expressed as a decimal, like “0.50,” for example.
So, if an option has a delta of 0.50, in theory, that means that the option’s price will move $0.50 for every $1 move in the stock’s price. Another way to think of delta is that it gives an investor an idea as to the probability that they’ll make money from an option. If delta is 0.50, for example, that can equate to a 50% chance or so that an option will expire in the money — that an investor’s bet will have paid off.
Gamma
The second Greek, gamma, tracks the sensitivity of an option’s delta. If delta measures how an option’s price changes in relation to a stock’s price, then gamma measures how delta itself changes in relation to a change in the stock’s price.
Think of an option as a car going down the highway. The car’s speed would be its delta. The car’s acceleration would be its gamma, as acceleration is measuring the change in speed. Gamma is also typically expressed as a decimal. If we go back to our earlier example — that delta is 0.50 — and delta changes to 0.6, then gamma would be 0.1.
Theta
Theta measures an option’s sensitivity to time. It gives investors a sense of how much an option’s price decreases the closer it gets to expiration.
Similar to the “car on a highway” analogy, it may be useful to think of an option as an ice cube sitting on a countertop. The ice cube melts away — or, the option’s time value diminishes — and the melting becomes more rapid over time.
Theta is typically expressed as a negative dollar amount, and represents how much value an option loses each day as it approaches expiration.
💡 Quick Tip: The best stock trading platform? That’s a personal preference, of course. Generally speaking, though, a great platform is one with an intuitive interface and powerful features to help make trades quickly and easily.
Markets are volatile, and securities (and their derivatives) are subject to that volatility. Vega attempts to measure how much an option’s price will change as it relates to the underlying security’s volatility.
Volatility refers to the turbulence a security’s value experiences. We don’t know what level of volatility a security or option will experience in the future, however, so there’s a certain amount baked into the mix — that’s implied volatility. It’s the expected future level of volatility.
Changes in stock volatility can change an option’s value. That’s what vega is measuring — not volatility itself, but the option’s sensitivity to volatility changes.
And like delta and gamma, vega is expressed as a number, rather than a dollar figure.
5 Main Options Greeks: Overview
In summary, here’s how an investor may use this data when analyzing the risk and reward of an options contract.
Name
Symbol
Definition
How investors might think about it
Delta
∆
Measures the sensitivity of an option’s price to a change in the price of the underlying security.
For example, if the delta is 0.50 means that the option’s price will move $0.50 for every $1 move in the stock’s price.
It can also indicate a 50% chance or so that an option will expire in the money right now. This probability may change over time and isn’t a guarantee.
Gamma
γ
Measures the rate of change for delta. It tells you how quickly delta will change as the stock price changes.
Think of an option as a car on the highway with its speed (delta) and acceleration (gamma, often expressed as a decimal). A stock trading at $10 with a delta of 0.4 and gamma of 0.10 means that a $1.00 increase in the stock’s price will adjust the delta by 0.10, increasing it to 0.50 and vice versa with a $1 decrease it will decrease delta to 0.3 impacting how quickly the value of the option will increase or decrease with further price movements.
Theta
θ
Measures the sensitivity of an option’s price to the passage of time.
An option’s theta is like an ice cube melting on a countertop – the time value diminishes as it melts and the melting becomes more rapid over time. This is expressed as a negative dollar amount. For example, a theta of -1 indicates that the option will lose $1 per day until it reaches the expiration date.
Vega
ν
The change in an option’s value as implied volatility goes up or down by 1 percent.
Measures the sensitivity of an option’s price to a change in interest rates.
If an option has a rho of 1.0, a 1% increase in interest rates leads to a 1% increase in value. Options most sensitive to interest rate changes are those at-the-money or with the longest time to expiration.
Other Options Terminology to Know
The specific options (a call versus a put, for example) and the underlying stock’s performance determines whether an investor comes out ahead on their bet. That brings us to a few other key options terms that are important to know:
In the Money
A call option is “in the money” when the strike price is below the market price. A put option is “in the money” when the strike price is above the market price.
Out of the Money
A call option is “out of the money” when the strike price is above the market price. A put option is “out of the money” when the strike price is below the market price.
At the Money
The option’s strike price is the same as the stock’s price.
The Takeaway
There’s no getting around it: Options, and the Greeks, can get complicated, and may not be the best investment strategy for beginners. But experienced traders, or those willing to spend time to learn how to understand options, find them a valuable tool in creating an investment strategy.
Investors who are ready to try their hand at options trading despite the risks involved, might consider checking out SoFi’s options trading platform offered through SoFi Securities, LLC. The platform’s user-friendly design allows investors to buy put and call options through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.
Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors. Currently, investors can not sell options on SoFi Active Invest®.
Invest with as little as $5 with a SoFi Active Investing account.
Photo credit: iStock/photolas
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes. 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.
Undertakings for Collective Investment in Transferable Securities (UCITS) are a category of investment funds designed to both streamline and safeguard investment transactions. UCITS are usually structured like traditional mutual funds, exchange traded funds, or a money market fund.
The European Union (EU) regulates UCITs, but they are widely available to non-EU investors. U.S. investors, for example, can buy shares of UCITS through U.S.-based fund managers, although local, EU-based money managers run the funds. Because they undergo a high level of regulatory scrutiny, many view UCITS as a relatively safe investment.
What Is a UCITS Fund?
UCITS funds are a type of mutual fund that complies with European Union regulations and holds securities from throughout the region. They emerged as part of an effort by the European Union to consolidate disparate European financial investments into one central sector, governed by the EU, with a “marketing passport,” that enables financial services firms across the EU to invest in multiple countries under a common set of rules and regulations.
The EU launched UCITS for two primary reasons:
1. To structure a single financial services entity under the EU umbrella that allowed for the cross-sale of mutual funds across the EU, and across the globe.
2. To better regulate investment asset transactions among all 28 EU member countries, giving investors inside and outside of the EU access to more tightly regulated investment funds.
Fundamentally, UCITS funds rules give EU regulators a powerful tool to centralize key financial services issues like types of investments allowed, asset liquidity, investment disclosures, and investor safeguards. By rolling the new rules and regulations into UCITS, EU regulators sought to make efficient and secure investment funds available to a broad swath of investors, primarily at the retail and institutional levels.
For investors, UCITS funds offer more flexibility and security. Not only are the funds widely viewed as safe and secure, but UCITS funds offer a diversified fund option to investors who might otherwise have to depend on single public companies for the bulk of their investment portfolios.
💡 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.
A Brief History of UCITS
The genesis of UCITS funds dates back to the mid-1980’s, with the rollout of the European Directive legislation, which set a new blueprint for financial markets across the continent. The new law introduced UCITS funds on an incremental basis and has been used as a way to regulate financial markets with regular updates and revisions over the past three decades.
In 2002, the EU issued a pair of new directives related to mutual fund sales — Directives 2001/107/EC and 2001/108/EC, which expanded the market for UCITS across the EU and loosened regulations on the sale of index funds in the region.
The fund initiative accelerated in 2009 and 2010, when the Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 clarified the use of UCITS in European investment markets, especially in coordination of all laws, regulations, and administrative oversight. The next year, the European Union reclassified UCITS w as investment funds regulated under Part 1 of the Law of 17 December 2010.
In recent years, “Alt UCITS” or alternative UCITS funds have grown in popularity, along with other types of alternative investments.
Get up to $1,000 in stock when you fund a new Active Invest account.*
Access stock trading, options, alternative investments, IRAs, and more. Get started in just a few minutes.
*Probability of Member receiving $1,000 is a probability of 0.028%.
How Does a UCIT Fund Work?
Structurally, UCITS are built like mutual funds, with many of the same features, regulatory requirements, and marketing models.
Individual and institutional investors, who form a collective group of unit holders, put their money into a UCIT, which, in turn, owns investment securities (mostly stocks and bonds) and cash. For investors, the primary goal is to invest their money into the fund to capitalize on specific market conditions that favor the stocks or bonds that form the UCITS. UCTIS funds may provide one way for American investors to get more international diversification within their portfolios.
A professional money manager, or group of managers, run the fund, and they are singularly responsible for choosing the securities that make up the fund. The UCITS investor understands this agreement before investing in the fund, thus allowing the fund managers to choose investments on their behalf.
An investor may leave the fund at any point in time, and do so by liquidating their shares of the fund on the open market. American investors should know that the Internal Revenue Service may classify UCITS as passive foreign investment companies, which could trigger more onerous tax treatments, especially when compared to domestic mutual funds.
💡 Quick Tip: How to manage potential risk factors in a self directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.
UCITS Rules and Regulations
UCITS do have some firm regulatory and operational requirements to abide by in the European Union, as follows:
• The fund and its management team are usually based on a tax-neutral EU country (Ireland would be a good example.)
• A UCITS operates under the laws mandated by the member state of its headquarters. After the fund is licensed in the EU state of origin, it can then be marketed to other EU states, and to investors around the world. The fund must provide proper legal notification to the state or nation where it wants to do business before being allowed to market the fund to investors.
• A UCITS must provide proper notice to investors in the form of a Key Investor Information Document, usually located on the fund’s website. The fund must also be approved.
• A UCITS must also provide a fund prospectus to investors (also normally found on the fund’s web site) and must file both annual and semiannual reports.
• Any time a UCITS issues, sells, or redeems fund shares, it must make pricing notification available to investors.
The Takeaway
As discussed, Undertakings for Collective Investment in Transferable Securities (UCITS) are a category of investment funds designed to both streamline and safeguard investment transactions. Note that while UCITS are usually structured like traditional mutual funds, exchange traded funds, or a money market fund.
UCITS may be an interesting type of investment for U.S. investors looking to diversify their portfolios. As with any investment, investors must conduct thorough due diligence on the UCITS, which should include a review of fund holdings, past performance, management stability, fees, and tax consequences.
Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).
For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.
Photo credit: iStock/kupicoo
SoFi Invest®
INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE
SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below:
Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.
Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.
Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
Do you ever have trouble keeping up with when bills are due and paying them on time? Welcome to the club. It can be a challenge for many busy people, but paying bills on time is important. Doing so helps you dodge those pricey late fees and maintain your credit score.
For many people, a solution to this challenge is to set up automatic bill payments. This can be done through an automatic payment system, usually referred to as “autopay.” This means that, without needing to remember any dates, write any checks, or click on any payment links, your recurring bills are seamlessly taken care of.
This can be a game-changer that helps you enjoy stronger financial management status and less money stress. But it might not be right for everyone. As with most financial tools, there are pros and cons to using autopay.
So what is autopay? And how do you set it up? Learn the answers to these questions, along with the pros and cons of autopay, so you can determine whether to consider using this option.
What Is Autopay?
What many people call “autopay” is a scheduled, regular transfer of money, usually monthly. These payments are generally transferred from the payer’s bank account (or credit card) to a vendor, or what is known as a payee.
When you link an account to a particular bill or vendor, autopay usually works over an electronic payment system called ACH.
Autopay is typically set up in one of two ways.
• The first is through the company receiving the payment.
• The second is through a bank’s online bill-pay portal.
When you link an account to a particular bill or vendor, autopay usually works over an electronic payment system called Automated Clearing House (ACH). Sometimes automatic payments are referred to as “ACH payments” instead of autopay. If you were to use your credit card, the recurring payment would simply show up as a charge on your card.
💡 Quick Tip: Make money easy. Open a checking account online so you can manage bills, deposits, transfers — all from one convenient app.
How Does Autopay Work?
Here’s a closer look at how autopay works. When autopay is set up, you are authorizing debits to occur on a regular basis. You will not be responsible for sending the funds. Some people may see this, however, as not being in control of their money.
When autopay is set up, either the payee is authorized to deduct funds from your bank account or your bank will send the funds for you.
You do need to pay attention to when your funds are whisked out of your account. If you aren’t on top of your finances, you could wind up in overdraft and getting assessed overdraft or NSF fees, plus late charges.
Autopay vs. Scheduled Payments
You may hear the terms autopay and scheduled payments used interchangeably but they are actually quite different.
• Autopay means that payments have been set up in advance to happen regularly on a certain date. You establish the date and the frequency and then don’t need to do anything else to transfer the funds on a recurring basis.
• With a scheduled payment, however, you are manually setting when you want a payment to be made and for how much. You can do this regularly, of course, but it requires more effort on your part to transfer funds.
Autopay vs. Bill Pay
Here’s another situation in which you may hear two terms (autopay and bill pay) used interchangeably. There is a slight difference, however.
Bill pay refers to the process in which your bank initiates payments from your account to the payee. In other words, the payee is not authorized to go in and deduct the money; your bank is instead providing this service.
Setting Up Autopay
Here is some more detail on setting up autopay so you can have your bills taken care of more easily.
1. Looking at Vendor Requirements
You can think of autopay as either pushing money from your account to the vendor, or the vendor pulling money from your account.
Many vendors require you to set up autopay through their website, so your first step may be to look into their requirements. If you are currently receiving a paper bill, they often include instructions on where you can go online to set up autopay — looking there is a good place to start.
For example, if you have a $1,800 monthly mortgage payment, you may be able to provide your mortgage company with your checking account information (such as your bank account number and routing number). They can pull the money for payment automatically. This is the “pull” version of automated payments as the vendor is pulling the money out.
2. Choosing the Day Your Payment Is Made
You generally get to choose the day that the payment is made — you could consider doing this a few days before the bill is due. This should give the automated payment time to move through the ACH system, including when the due date lands on a weekend.
Also, you’ll likely want to be cognizant that you aren’t setting up any automatic payments until you’re sure that any necessary deposits are made. For example, if you need your paycheck to cash before making a rent payment, making sure to give your paycheck at least a few days to settle in your account may be the pragmatic choice. Or you could see if the payee is willing to move your bill’s due date slightly to better accommodate your needs.
Setting Up ACH Payments
Another potential option is to set up an ACH transfer through your bank; this is the bill pay option mentioned above. Doing this typically requires logging onto your bank account’s website and navigating to the bill pay section.
If you go through your bank, you may need to provide them with the information for the vendor, such as the account number and mailing address. You can usually find this information on your bill or monthly statements.
Using the same example as above, you would enter the information for your mortgage lender into your bank’s bill pay portal. Similarly, the money would be sent via ACH on the date you’ve picked to send the money to the vendor.
You may want to consider selecting a date a few days prior to the due date to avoid a late payment. This is the “push” method of automated payments as you are pushing the money out of your account to the vendor.
Get up to $300 when you bank with SoFi.
No account or overdraft fees. No minimum balance.
Up to 4.00% APY on savings balances.
Up to 2-day-early paycheck.
Up to $2M of additional FDIC insurance.
Pros and Cons of Autopay
Autopay can be a wonderful tool for many people looking to simplify their finances. But it won’t be for everyone. Here’s a look at some of the pros and cons of using autopay.
Pros of Autopay
Consider these upsides of autopay:
Convenience: Gone are the days of sitting down to write a check for every last outstanding bill. In fact, these days you don’t even need to log into a computer every time a bill comes due. With autopay, you can pay all or most of your bills without lifting a finger.
This means no more having to log online to pay bills while you’re on vacation or busy with work or family. There is something beautiful about the convenience of the “set it and forget it” method to financial management, if you can make it work.
Improving Your Finances: We don’t need to tell you that it is a smart idea to pay your bills on time.
Not only can autopay help you to avoid frustrating late fees, but taking care of your bills right away may help you to avoid agonizing or allowing it to take up precious room on your to-do list.
Paying your bills on time may help your credit score.
Also, paying your bills on time may positively impact your credit score. Currently, debt payment history is the single biggest factor in terms of determining your score. It makes up 35% of a FICO®️ Score.
That means that paying debt-related bills, such as a mortgage, car loan, or credit card bill, on time, could potentially positively impact your FICO®️ Score.
Learning Good Behavior: If you can take the philosophy behind automatically paying your bills and apply it to your savings strategy, this may help your overall financial success. Just as you can automate the payment of your bills, you can automate your savings to retirement and other savings accounts.
If you don’t automatically set money aside, it can be far too easy to spend the money that lands in your checking account. Warren Buffett famously recommended that people “spend what is left after saving, do not save what is left after spending.”
Other ways to use automatic payments? Pay down debt aggressively or save for your future (even beyond a 401(k) if you have one). In either of these scenarios, you could simply set up an automatic transfer of funds as you would with autopay, but direct the funds toward your financial goal.
That way, the money is whisked from your checking account before you’ve even had the chance to consider spending it.
Potentially Saving Money: Vendors and service providers want to get paid on time. Therefore, some vendors or service providers offer a discount for customers that set up autopay, which could save you money.
For example, you may receive an interest rate discount if you set up autopay for a loan. Other vendors may provide a discount on their product or service if you use autopay.
Possible Overdraft Fees: If there isn’t enough money in your account to cover a bill, an ill-timed automatic payment could cause your account to overdraft. According to the FDIC (Federal Deposit Insurance Corporation), overdraft fees can average $35 a pop, depending on your bank.
You’d need to be especially careful if you leverage multiple checking or savings accounts with fluctuating balances or tend to keep your account balance close to zero. In the latter situation, you might benefit from keeping a cash cushion in your account.
Late Fees: Consider the transaction time when setting up your autopay in order to avoid annoying late fees. Late payment fees will vary by vendor but could be costly.
While giving yourself, for example, a four-day buffer could be a good start, it’s important to check with each vendor to determine their recommended timeline. Finally, after you’ve set up autopay, monitoring payments during the first few months to be sure they happen on time can help ease the transition.
Potentially Reinforcing Bad Habits: For some people and in some specific cases, it may not be a good idea to have your finances on autopilot. For example, those who are actively paying off credit card debt may want more control over how much they pay towards their debt each month.
There is almost always an option to autopay the “minimum payment” on a credit card, which may be tempting. There is no penalty when you pay the minimum payment, so it is certainly better than doing nothing.
But, it is much better to pay off the balance in full, if possible. When you do not pay the balance in full, the card will accrue interest, costing you money over time.
If you aren’t at a place where you can pay off the entire balance quite yet, you may want to try and set your autopay for an amount that’s more than the minimum payment so you can make progress on the balance. (And you may want to try to stop using your card in the meantime if this is the case.) If this won’t work for you, you may want to remain in manual control of payments.
Paying for Things You Don’t Need: Subscription services are sneaky. Amounts may seem small and you hardly notice them on a monthly basis, but they can wreak havoc on your annual budget. It is too easy to forget that you are paying for something, especially when you don’t use the service.
If you take advantage of the perks of autopay, don’t forget to reassess your subscriptions every few months to determine whether you actually need the thing you’re paying for. One example: You might not realize how much entertainment you are signed up for, and could save money on streaming services by dropping a platform or two.
Potentially Less Monitoring of Your Accounts: One issue with using autopay could be that you develop a sense of false security that your personal finances are running just fine. You might not check in with your money and review your spending as often as you might. This could have a negative impact. How often should you monitor your checking account? For many people, a couple or a few times a week is a good pace.
💡 Quick Tip: Most savings accounts only earn a fraction of a percentage in interest. Not at SoFi. Our high-yield online savings account can help you make meaningful progress towards your financial goals.
Should You Use Autopay?
The digital age can be confusing and overwhelming, but this is one case where it may help to simplify our lives. Managing money can be a tedious task, and paying bills is just one part of it.
By streamlining the bills portion, you may find that using autopay gives you more freedom to focus your attention on other financial goals.
That said, autopay won’t be right for everyone and in every circumstance. For example, autopay might not be a great idea for those who haven’t organized their bills and tend to overdraft their accounts. It may not make sense for someone who is between jobs or out of work.
Autopay could potentially be difficult to manage for freelancers or other workers with variable income throughout the month. Ideally, a person would have some cash buffer for bills in any of these scenarios, but that is not the way it always works out in the real world.
💡 Quick Tip: When you overdraft your checking account, you’ll likely pay a non-sufficient fund fee of, say, $35. Look into linking a savings account to your checking account as a backup to avoid that, or shop around for a bank that doesn’t charge you for overdrafting.
The Takeaway
Autopay can be a convenient way to get your bills taken care of with less time, energy, and stress. However, in some cases, it can have its downsides, so it’s wise to know the pros and cons and continue to monitor your money carefully if you do sign up for autopay.
Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even access their paycheck up to two days early.
Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.
FAQ
What should you not put on autopay?
It can be wise not to put bills that fluctuate on autopay. You are less likely to wind up with an overdraft situation that way. For instance, if your energy bill is usually $100 a month but goes up to double that during the winter or summer, that might throw off your personal finances if you autopay your bills.
When should I set up autopay?
It can be wise to set up autopay when you are familiar with your finances and cash flow and feel confident that automating your payments won’t lead to an overdraft situation. You might also consider signing up if there is a bonus or perk for you, such as a discount or a lower interest rate.
Why do people not use autopay?
Some people do not feel comfortable with autopay; they would rather be in control of making payments individually and maintaining that control over their finances. Also, some people may have bills that fluctuate considerably and they may therefore prefer to pay manually to avoid overdrafting.
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.
Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .
