Financial Topics Archives | Page 92 of 788

Jul

2024

Money Market vs Capital Market: What’s the Difference?

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

The money market is where short-term debt and lending takes place; the capital market is designed for long-term assets, such as stocks and bonds. The former is considered a safer place to park one’s money; the latter is seen as riskier but potentially more rewarding. While the money market and the capital market are both aspects of the larger global financial system, they serve different goals for investors.

Understanding the difference between money market and capital market matters plays a role in understanding the market as a whole. Whether you hold assets that are part of the money market vs. capital market can influence your investment outcomes and degree of risk exposure.

What Is the Money Market?

The money market is where short-term financial instruments, i.e. securities with a holding period of one year or less, are traded. Examples of money market instruments include:

• Bankers acceptances. Bankers acceptances are a form of payment that’s guaranteed by the bank and is commonly used to finance international transactions involving goods and services.

• Certificates of deposit (CDs). Certificate of deposit accounts are time deposits that pay interest over a set maturity term.

• Commercial paper. Commercial paper includes short-term, unsecured promissory notes issued by financial and non-financial corporations.

• Treasury bills (T-bills). Treasury bills are a type of short-term debt that’s issued by the federal government. Investors who purchase T-bills can earn interest on their money over a set maturity term.

These types of money market instruments can be traded among banks, financial institutions, and brokers. Trades can take place over the counter, meaning the underlying securities are not listed on a trading exchange like the New York Stock Exchange (NYSE) or the Nasdaq.

You may be familiar with the term “money market” if you’ve ever had a money market account. These are separate from the larger money market that is part of the global economy. As far as how a money market account works goes, these bank accounts allow you to deposit money and earn interest. You may be able to write checks from the account or use a debit card to make purchases or withdrawals.

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How Does the Money Market Work?

The money market effectively works as a short-term lending and borrowing system for its various participants. Those who invest in the money market benefit by either gaining access to funds or by earning interest on their investments. Treasury bills are an example of the money market at work.

When you buy a T-bill, you’re essentially agreeing to lend the federal government your money for a certain amount of time. T-bills mature in one year or less from their issue date. The government gets the use of your money for a period of time. Once the T-bill matures, you get your money back with interest.

What Is the Capital Market?

The capital market is the segment of the financial market that’s reserved for trading of long-term debt instruments. Participants in the capital market can use it to raise capital by issuing shares of stock, bonds, and other long-term securities. Those who invest in these debt instruments are also part of the capital market.

The capital market can be further segmented into the primary and secondary market. Here’s how they compare:

• Primary market. The primary market is where new issuances of stocks and bonds are first offered to investors. An initial public offering or IPO is an example of a primary market transaction.

• Secondary market. The secondary market is where securities that have already been issued are traded between investors. The entity that issued the stocks or bonds is not necessarily involved in this transaction.

As an investor, you can benefit from participating in the capital market by buying and selling stocks. If your stocks go up in value, you could sell them for a capital gain. You can also derive current income from stocks that pay out dividends.

Recommended: What Is an Emerging Market?

How Does the Capital Market Work?

The capital market works by allowing companies and other entities to raise capital. Publicly-traded stocks, bonds, and other securities are traded on stock exchanges. Generally speaking, the capital market is well-organized. Companies that issue stocks are interested in raising capital for the long-term, which can be used to fund growth and expansion projects or simply to meet operating needs.

In terms of the difference between capital and money market investments, it usually boils down to three things: liquidity, duration, and risk. While the money market is focused on the short-term, the capital market is a longer term play. Capital markets can deliver higher returns, though investors may assume greater risk.

Understanding the capital market is important because of how it correlates to economic movements as a whole. The capital market helps to create stability by allowing companies to raise capital, which can be used to fund expansion and create jobs.

Differences Between Money Markets and Capital Markets

When comparing the money market vs. capital market, there are several things that separate one from the other. Knowing what the key differences are can help to deepen your understanding of money markets and capital markets.

Purpose

Perhaps the most significant difference between the money market and capital market is what each one is designed to do. The money market is for short-term borrowing and lending. Businesses use the money market to meet their near-term credit needs. Funds are relatively safe, but typically won’t see tremendous growth.

The capital market is also designed to help businesses and companies meet credit needs. The emphasis, however, is on mid- to long-term needs instead. Capital markets are riskier, but they may earn greater returns over time than the money market.

Length of Securities

The money market is where you’ll find short-term securities, typically with a maturity period of one year or less, being traded. In the capital market, maturity periods are usually not fixed, meaning there’s no specified time frame. Companies can use the capital market to fund long-term goals, with or without a deadline.

Financial Instruments

As mentioned, the kind of financial instruments that are traded in the short-term money market include bankers acceptances, commercial paper, and Treasury bills. The capital market is the domain of stocks, bonds, and other long-term securities.

Nature of Market

The structure and organization of the money market is usually informal and loosely organized. Again, securities may be traded over-the-counter rather than through a stock exchange. With the capital market, trading takes place primarily through exchanges. This market is more organized and formalized overall.

Securities Risk

Risk is an important consideration when deciding on the best potential places to put your money. Since the money market tends to be shorter term in nature, the risk associated with the financial instruments traded there is usually lower. The capital market, on the other hand, may entail higher risk to investors.

Liquidity

Liquidity is a measure of how easy it is to convert an asset to cash. One notable difference between capital and money market investments is that the money market tends to offer greater liquidity. That means if you need to sell an investment quickly, you’ll have a better chance of converting it to cash in the money market.

Length of Credit Requirements

The money market is designed to meet the short-term credit requirements of businesses. A company that needs temporary funding for a project that’s expected to take less than a year to complete, for example, may turn to the money market. The capital market, on the other hand, is designed to cover a company’s long-term credit requirements with regard to capital access.

Return on Investment

Return on investment or ROI is another important consideration when deciding where to invest. When you invest in the money market, you’re getting greater liquidity with less risk but that can translate to lower returns. The capital market can entail more risk, but you may be rewarded with higher returns.

Timeframe on Redemption

Money market investments do not require you to hold onto them for years at a time. Instead, the holding period and timeframe to redemption is likely one year or less. With capital market investments, there is typically no set time frame. You can hold onto investments for as long as they continue to meet your needs.

Relevance to Economy

The money market and capital market play an important role in the larger financial market. Without them, businesses would not be able to get the short- and long-term funding they need.

Here are some of the key differences between money markets and capital markets with regard to their economic impacts:

• The money market allows companies to realize short-term goals.

• Money market investments allow investors to earn returns with lower risk.

• Capital markets help to provide economic stability and growth.

• Investors can use the capital market to build wealth.

Money Market	Capital Market
Offers companies access to short-term funding and capital, keeping money moving through the economy.	Provides stability by allowing companies access to long-term funding and capital.
Investors can try to use interest earned from money market investments to preserve wealth.	Investors can try to use returns earned from capital market investments to grow wealth.
Money market investments are typically less volatile, so they’re less likely to negatively impact the financial market or the investor.	Capital market investments tend to be more volatile, so they offer greater risk and reward potential.

Deciding Which Market to Invest In

Deciding whether to invest in the money market or capital market can depend on several things, including your:

• Investment goals and objectives

• Risk tolerance

• Preferred investment style

If you’re looking for investments that are highly liquid and offer a modest rate of return with minimal risk, then you may turn to the money market. On the other hand, if you’re comfortable with a greater degree of risk in exchange for the possibility of earning higher returns, you might lean toward the capital market instead.

You could, of course, diversify by investing in both the money market and capital market. Doing so may allow you to balance higher-risk investments with lower ones while creating a portfolio mix that will attempt to produce the kind of returns you seek.

Alternatives to Money and Capital Markets

Aside from the money and capital markets, there are other places you can keep money that you don’t necessarily plan to spend right away. They include the different types of deposit accounts you can open at banks and credit unions. Specifically, you may opt to keep some of your savings in a certificate of deposit account, high-yield checking account, or traditional savings account. Here’s a closer look:

High-Yield Checking Accounts

Checking accounts are designed to hold money that you plan to use to pay bills or make purchases. Most checking accounts don’t pay interest but there are a handful of high-yield checking accounts that do.

With these accounts, you can earn interest on your checking balance. The interest rate and APY (annual percentage yield) you earn can vary by bank. Some banks also offer rewards on purchases with high-yield checking accounts. When looking for an interest-checking account, be sure to consider any fees you might pay or minimum balance requirements you’ll need to meet.

Traditional Savings Accounts

A savings account can be another secure place to keep your money and earn interest as part of the bargain. The different types of savings accounts include regular savings accounts offered at banks, credit union savings accounts, and high-yield savings accounts from online banks.

Of those options, an online savings account typically has the highest interest rates and the lowest fees. The trade-off is that you won’t have branch banking access, which may or may not matter to you.

The Takeaway

There are lots of reasons why people do not invest their money. A lack of understanding about the difference between money market vs. capital market investments can be one of them. Once you understand that the money market typically involves short-term, lower-risk debt instruments, while the capital market likely revolves around longer-term ones with higher risk and reward, you will be on your way to better knowing how the global financial market works.

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FAQ

What are the similarities between a money market and capital market?

Both the money market and the capital market are intended to make it easier for businesses and companies to gain access to capital. The main differences between money markets and capital markets are liquidity, duration, and the types of financial instruments that are traded. Both also represent ways that consumers can potentially grow their money by investing.

How is a money market and capital market interrelated?

The capital market and the money market are both part of the larger financial market. The money market works to ensure that businesses are able to reach their near-term credit needs while the capital market helps companies raise capital over longer time frames.

Why do businesses use the money markets?

Businesses use the money market to satisfy short-term credit and capital needs. Short-term debt instruments can be traded in the money market to provide businesses with funding temporarily as well as to maintain liquid cash flow.

Photo credit: iStock/AndreyPopov

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Jul

2024

Bank Guarantee vs Letter of Credit: What’s the Difference?

By Jacqueline DeMarco | Credit, money | Comments Off

Bank guarantees are often used in real estate contracts and infrastructure projects, while letters of credit are primarily used in global transactions. But a bank guarantee and a letter of credit are quite similar.

With both instruments, the issuing bank accepts a customer’s liability if the customer defaults on the money it owes, and they both, effectively, are a show of good faith from a lending institution that ensures the bank will step up if a debtor can’t cover a debt.

What Is a Bank Guarantee?

Bank guarantees represent a more significant contractual obligation for banks than letters of credit do. With a guarantee, the seller’s claim goes first to the buyer, and if the buyer defaults, then the claim goes to the bank.

Bank guarantees serve a key purpose for businesses. The bank, through their due diligence of the applicant, provides credibility to them as a viable business partner in a particular business dealing. In essence, the bank puts its seal of approval on the applicant’s creditworthiness, co-signing on behalf of the applicant as it relates to the specific contract the two external parties are undertaking.

A bank guarantee is an assurance from a bank regarding a contract between a buyer and a seller. Essentially, the bank guarantee acts as a risk management tool. A bank guarantee provides support and assurance to the beneficiary of the payment, as the bank guarantee means that the bank is assuming liability for completion of the contract.

This means that if the buyer defaults on their debt or obligation, the bank makes sure the beneficiary receives their payment.

Any business may benefit from a bank guarantee, but especially small businesses that would be more affected if a payment from a business partner or customer falls through.

Bank guarantees only apply to a certain monetary amount and last for a set period of time. There will be a contract in place that dictates in which scenarios and at what point in time the guarantee is applicable.

Before taking on a bank guarantee, the bank does research on the applicant to make sure they are credible and will act as a reliable business partner. In a way, a bank guarantee serves as a seal of approval as the bank has good reason (they’re on the hook for the money) to only accept creditworthy applicants.

Types of Bank Guarantees

There are a few different types of bank agreements, here’s a closer look at the main ones.

Financial Bank Guarantee

With a financial bank guarantee the bank guarantees that the buyer repays all debts they owe to the seller and if they fail to pay those various types of debts, the bank has to assume responsibility for the money owed. The buyer will need to pay a small initial fee when the guarantee is issued.

Performance-Based Bank Guarantee

When it comes to a performance-based guarantee, the beneficiary has the right to seek reparations from the bank if contractual obligations aren’t met due to non-performance. If the counterparty doesn’t deliver on promised services, then the beneficiary will have the choice to claim resulting losses caused by the lack of performance.

Foreign Bank Guarantee

Foreign bank guarantees can apply to unique scenarios such as international export situations. In this case, there may be a fourth party involved — a correspondent bank operating where the beneficiary resides.

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What Is a Letter of Credit?

A letter of credit (sometimes referred to as a credit letter) is a document provided by a financial institution such as a bank or credit union that guarantees a payment will be made during a business transaction. The bank acts as an impartial third party throughout the transaction.

When the bank issues a letter of credit, they are assuring that the purchaser will in fact pay for any goods or services on time and in full. If the buyer doesn’t make their payment on time and in full, the bank that issued the letter of credit will guarantee that they will make the payment instead. The bank will cover any remaining overdue balance as long as it doesn’t surpass the full purchase amount.

Letters of credit are commonly used in international trade (but can be used domestically as well) where, understandably, companies require more certainty when making deals across borders. A letter of credit can provide security and confidence to importers and exporters since they know the issuing bank guarantees the payment.

Applicants for letters of credit need to work with a lender in order to secure this backing. The applicant will need to provide a purchase contract, and a copy of the purchase order or export contract (among other documents) during the application process. Applicants will pay a fee to obtain the letter of credit and it usually equates to a percentage of the amount the letter of credit backs.

Types of Letters of Credit

There are multiple types of letters of credit, with some being more common than others, and some applying to unique situations. Here’s a look at the main types.

Commercial Letter of Credit

This type of letter of credit applies to commercial transactions and is commonly used for international trade deals. In this case the bank makes a direct payment to the beneficiary.

Standby Letter of Credit

A standby letter of credit acts as a secondary payment method. The bank will pay the beneficiary if they are able to prove they didn’t receive the promised product or service from the seller.

Revolving Letter of Credit

A revolving letter of credit can help secure multiple transactions when two parties anticipate doing multiple deals.

Traveler’s Letter of Credit

With a traveler’s letter of credit, the issuing bank guarantees to honor letters of credit signed at certain foreign banks.

Confirmed Letter of Credit

This type of letter of credit specifies that the seller’s bank will be the party to ensure that the seller receives payment if the buyer and their issuing bank default on the agreement.

Special Considerations

Bank guarantees and letters of credit differ slightly, but both serve the same purpose: to give confidence and protection during transactions.

Because the financial institutions that back these guarantees confirm that the buyer is creditworthy in the case of a bank guarantee or a letter of credit, the seller can be confident that the transaction should go through as planned if they have one of these agreements in place. If it does not, they know they’ll still receive payment from the institution that backed the agreement.

Key Differences between a Bank Guarantee and Letter of Credit

These are the most important differences to know about a bank guarantee vs. a letter of credit.

Liability

With some letters of credit the bank pays the seller directly so they take on the primary liability.

With a bank guarantee they only pay if the buyer fails to do so, so they take on a secondary liability.

Risk

The bank takes on more risk with a letter of credit as they take on the primary liability, but that means the seller and customer take on more risk with a bank guarantee.

Number of Parties Involved

At least three parties are involved in letters of credit and bank guarantee transactions. To start there is the buyer, seller, and a bank or other type of financial institution. With a letter of credit, a lender also gets involved. Sometimes two banks (more common in foreign transactions) are involved in a letter of credit or bank guarantee.

Payment

With a bank guarantee, the bank only makes payment if the buyer fails to do so. With a letter of credit this is also usually the case, but the bank can be more involved in the transaction, so disputes tend to be resolved faster.

The Takeaway

When considering a letter of credit versus bank guarantee, both can help two parties involved in a transaction feel more confident that the seller will be paid and the buyer will receive the goods or services promised — or they will be reimbursed by the bank that issued the agreement. Each type of agreement may be especially helpful when conducting business across borders.

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FAQ

How is a letter of credit different from a bank guarantee?

When it comes to a bank guarantee vs. a letter of credit, both letters of credit and bank guarantees function very similarly. The main difference is that with a letter of credit the bank takes on more risk than they do with a bank guarantee.

What is a bank guarantee and how does it work?

A bank guarantee is an assurance from a bank that a contract between a buyer and a seller will be executed or they will reimburse the wronged party accordingly.

What is the primary difference between a standby letter of credit and a bank guarantee?

The main difference between a letter of credit and a bank guarantee is risk level. With a bank guarantee the bank takes on less risk than they do with a letter of credit.

Photo credit: iStock/fizkes

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Jul

2024

How Are Financial Institutions Governed?

By Caroline Banton | Family Finances, Life & Career, money | Comments Off

At both federal and state levels, financial institutions are governed by laws that protect consumers against unfair and unscrupulous treatment in the banking and finance sectors. In addition, guidelines are in place to combat fraud and monopolistic behavior, helping to ensure the smooth running of the free-market economy.

Granted, catastrophic historic events — such as the 2008 global financial crisis — occur despite the oversight of robust financial regulatory agencies. Because of this, laws and regulations are constantly being examined and updated to finesse the banking and finance legal framework.

Read on to understand more about finance watchdogs, their roles, and how regulations work to protect the public and the economy from fraud and illicit practices.

What Is Financial Regulation?

Financial regulation is a set of laws, rules, and policies set by governing institutions. These are designed to keep your money safer. Specifically, they aim to maintain confidence and stability in the financial system by eliminating fraud and monopolistic behavior.

In the United States, governing bodies try to balance the need for oversight with a free-market economy, which can be a challenging endeavor.

Why Financial Regulations Are Important

Without regulations, consumers have no protections. They might be subject to fraud, sold bad mortgages, and charged high interest rates and fees on credit cards. Large companies could create monopolies or duopolies, which allow them to control prices.

Laws and policies prevent companies from gaining too much market control and stifling competition, which threatens the free market economy. Regulations also prevent financial institutions from taking risks that put consumer funds in jeopardy.

Here’s a brief history lesson that shows how lack of regulation can negatively impact daily life: The 2008 financial crisis was precipitated by deregulation and the repeal of the Glass-Steagall Act of 1933. This allowed financial institutions to engage in risky hedge fund trading. To fund their investments, the banks created interest-only loans for subprime borrowers, which contributed to more home purchases (including to buyers who would not have otherwise qualified) and quickly rising prices. This created a housing bubble, and millions of people were left bankrupt and couldn’t sell their homes when home prices then plummeted.

But too much regulation can also be a threat to an economy. In a free-market economy, prices are largely determined by supply and demand. Competition among suppliers tends to keep prices at bay as they each try to grab market share.

If regulations become too onerous and costly, companies may use up capital to comply with federal rules. That means they aren’t using those funds to create innovative products. In some cases, specific industries or groups manage to influence regulators and persuade them to introduce or eliminate laws that benefit them and not their competitors.

Types of Financial Regulations

Different agencies focus on the safety and soundness of products and services, transparency and disclosure, standards, competition, and rates and prices for different entities. Here’s a closer look at some of the most important regulations to be aware of:

• Stock Exchange Regulations Laws and rules for stock exchanges ensure that the pricing, execution, and settlement of trades is fair and efficient.

• Listed Company Regulations Listed companies (public companies) are required to prepare quarterly financial statements and submit them to the Securities and Exchange Commission (SEC) and to their shareholders. Investors use this information to inform their trades.

• Asset Management Regulation Financial advisors and asset managers must follow strict rules set by financial services regulatory bodies so that clients are treated fairly and not defrauded. Any company that provides investment advice is considered an investment advisor, and the SEC oversees investment advisors with more $110 million in assets under management (AUM).

• Financial Services Regulation Banking and financial institutions must follow specific guidelines to ensure a functioning banking system. These rules are enforced by The Federal Reserve Board (the Fed), the Office of the Comptroller of the Currency (OCC), the Consumer Financial Protection Bureau (CFPB), and the Federal Deposit Insurance Corporation (FDIC).

Recommended: What Is a Fiduciary Financial Advisor?

Types of Financial Institutions

There are a wide variety of financial institutions in America, some of which you may be familiar with. Here’s the rundown:

• Central banks, like the U.S. Federal Reserve, watch over the country’s monetary policy.

• Retail banks are probably what most people are familiar with. These are banks where the general public can have checking accounts and savings accounts, loans, and other financial services.

• Commercial banks are similar to retail banks (above) but they serve the business community. Large banks may act as both commercial and retail banks.

• Credit unions are similar to banks but they are nonprofits, and members are part owners of them. They offer the same kind of services as banks but may tailor themselves to specific communities.

• Community development financial institutions (CDFIs) are financial institutions that work to build financial knowledge, services, and wealth in communities that are less advantaged.

• Savings and loan associations are organizations that use savings to create housing loans.

• Brokerages manage securities trading (say, stocks and exchange-traded funds, or ETFs), which are regulated though not insured.

• Insurance companies help both businesses and individuals protect themselves from property loss and may provide services such as loans.

• Investment companies function by issuing securities to both businesses and individuals who seek to raise capital.

• Mortgage companies offer home loans and may also manage commercial real estate.

What Is a Financial Regulator?

A financial regulator is an organized governmental or formal body that has the jurisdiction to oversee other entities, such as stock markets, banks, and asset managers. Their mandate is to ensure fairness, protect the public and institutions from fraud, and to facilitate a well-functioning financial sector.

Examples of financial regulators are the Fed, the Securities and Exchange Commission (the SEC), and the Financial Industry Regulatory Authority (FINRA).

How Are Financial Institutions Regulated?

Banks and financial institutions are regulated by the Fed, the OCC, the CFPB, and the FDIC, while asset management companies and stock exchanges answer to the SEC and FINRA. (Also worth noting: Individual stock brokers, investment bankers, and other professionals likely need FINRA securities licenses.) State agencies may enforce regulations on financial institutions, notably insurance providers.

Each of these organizations requires documentation from financial institutions and companies that show compliance with laws. For example, listed companies have to submit quarterly financial statements to the SEC. If they fail to do so, they may be charged with “Failing to Comply” and may lose the ability to trade their shares on the stock market and be forced to pay penalties.

Recommended: FINRA vs. SEC: How are they Different?

The Most Common Financial Regulatory Bodies

The following is a list of the more recognized regulatory agencies and a brief description of what each one does.

The Federal Reserve Board (FRB)

The Fed is the central bank of the United States. As such, it ensures the U.S. economy functions effectively. The Fed is in charge of monetary policy and has the power to increase or decrease interest rates or to instruct banks on the quantity of reserves they must maintain. The Fed also monitors financial systems and their impacts, facilitates efficient settlement of U.S dollar transactions, and upholds laws that protect consumers.

The Federal Deposit Insurance Corporation (FDIC)

The FDIC was created by Congress to support the U.S. financial system. The FDIC insures deposits and monitors financial institutions and their compliance with consumer protection laws. The FDIC also manages bank failures, though they occur very rarely.

The Consumer Financial Protection Bureau (CFPB)

The is a relatively new agency that implements and enforces Federal consumer financial law. CFPB regulations protect consumers by making sure financial products and services are “fair, transparent, and competitive.”

The National Credit Union Association (NCUA)

The NCUA was created by Congress in 1970. The association insures consumer accounts with credit unions with up to $250,000 of share insurance. Enforcement tools of the association include letters of understanding and agreement, administrative orders, and consent orders.

The Securities Exchange Commission (SEC)

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The SEC strives to maintain the public’s trust in the capital markets by insisting on fair practices. Various acts have been passed over time including the Securities Act of 1933, the Sarbanes-Oxley Act of 2002, and the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.

The Commodity Futures Trading Commission (CFTC)

The CFTC was created in 1974 to oversee commodity trading in the agricultural sector. Commodity trading has been subject to government regulation since the 1920s. The CFTC supervises and monitors commodity traders and market activity. The commission investigates and prosecutes wrongdoers and educates customers about their rights and how to avoid fraud.

How Financial Regulators Help Banking in the Way We Know Today

The banking and financial systems operate well under current regulation, but what about digital banking? Digital banking is a recent innovation, and existing banking laws and regulations generally apply to digital start-ups and fintechs. However, there are some regulatory frameworks specifically for digital banking.

An example of protection for digital banking consumers is Electronic Know Your Customer (e-KYC), which is used for digital onboarding and checks that a customer is who they say they are to avoid fraud and money laundering. E-signature is a way for customers to validate transactions remotely.

Another instance is the Electronic Fund Transfer Act (Regulation E) which aims to make applicable electronic transactions compliant with regulations as well as have “readily understandable” consumer disclosures.

The Takeaway

Financial services regulatory bodies like the Fed, the FDIC, and the SEC oversee the banking and finance sectors in the United States. State agencies also play a role. Though many consumers are not aware of the details, these regulatory bodies have jurisdiction over stock markets, commercial and retail banks, investment banks, and asset managers. Their mandate is to ensure fairness for consumers, ensure entities comply with fraud protection rules, and to protect the financial sector and free-market economy.

Which is all good, of course. But if you are looking for a great bank for your personal accounts, see what SoFi offers.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.30% APY on SoFi Checking and Savings.

FAQ

Who regulates financial institutions in the United States?

In the United States, financial institutions are regulated by the Fed, the Office of the Comptroller of the Currency (OCC), the Federal Deposit Insurance Corporation (FDIC), the SEC, FINRA, the CFPB, the NCUA, and the CFTC. State agencies also enforce regulations on financial institutions, especially insurance providers.

What are regulators in finance?

Finance and banking regulators are state- and government-appointed bodies that protect the safety and fair treatment of consumers. They also ensure smooth operations of the finance and banking sectors, the backbone of the economy.

Who regulates investment banks?

U.S investment banks are regulated by the SEC. For regulatory purposes, investment banks were declared separate for commercial banks following the passing of the Glass Steagall Act of 1933.

Photo credit: iStock/assalve

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SoFi members with direct deposit activity can earn 4.30% 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 4.30% 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 4.30% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 10/8/2024. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

*Awards or rankings from NerdWallet are not indicative of future success or results. This award and its ratings are independently determined and awarded by their respective publications.

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

SOBNK-Q324-007

Jul

2024

What Is the Average Salary by Age in Oregon in 2024?

By Marcy Lovitch | Life & Career, Money & Life, relay | Comments Off

Live in Oregon or thinking of moving there? If so, you might be interested in knowing where you stand salary-wise compared to other 49 states.

The latest figures from the U.S. Bureau of Labor Statistics (BLS) reports the average annual income for Oregonians is $66,710, That’s slightly higher than the average annual salary in the U.S. of $65,470. Of course, an individual’s yearly earnings depend on several factors, including their occupation, level of education, age, and professional experience.

Here’s a closer look at the average salary in Oregon by age, city, and county, along with some of the highest paying jobs in the Beaver State:

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Average Salary in Oregon by Age in 2024

As with other states, the highest earners in Oregon fall within the 25 to 64 age range, with a salary decline around retirement time. The salary peaks tend to be commensurate with age and experience. Not surprisingly, entry-level salaries in Oregon tend to be on the lower end of the spectrum.

Age range	Median salary
15-24	$45,239
25-44	$86,934
45-64	$89,663
65 and over	$55,973

Source: Nasdaq

Recommended: U.S. Average Income by Age

Average Salary in Oregon by City in 2024

You don’t need a money tracker to tell you that the city you live in can greatly influence how much you make each year. Oregon is no different. Per ZipRecruiter, here are the average salaries in 10 Oregon cities:

• Myrtle Point: $92,446

• Salem: $76,125

• Gold Beach: $74,126

• New Hope: $70,922

• Nesika Beach: $70,351

• Portland: $69,904

• Melrose: $68,811

• Coquille: $68,534

• Bunker Hill: $68,454

• Eola: $67,962

Average Salary in Oregon by County in 2024

Salaries can vary per county as a result of different factors. These can include whether the county is home to a larger city, where there’s more variety in work opportunities, a need for skilled workers, and the possibility of higher pay.

According to the latest Oregon state government figures, here’s an overview of the average annual salary in select counties:

• Morrow County: $64,067

• Benton County: $62,757

• Sherman County: $57,081

• Linn County: $51,902

• Umatilla County: $50,758

• Douglas County: $50,220

• Tillamook County: $49,350

• Klamath County: $48,488

• Curry County: $44,201

• Wheeler County: $36,359

Examples of the Highest-Paying Jobs in Oregon

A well-paying job can allow you to live a very comfortable lifestyle in Oregon. Oregon’s top paying jobs provide a six-figure salary, and tend to be in the medical field. However, occupations in business, science, and technology also make the list of some of the biggest salaries.

According to the BLS, some of Oregon’s highest-paying jobs are:

• Dermatologist: $481,330

• Anesthesiologist: $444,090

• Orthopedic surgeon: $421,790

• CEO: $371,290

• Obstetricians and gynecologists: $329,680

• Psychiatrist: $287,370

• Pediatrician: $219,110

• Computer and Information Research Scientist: $178,790

• Dentist: $177,440

• Physicist: $169,720

There are other occupations in Oregon with an annual salary of $85,000 or more a year that can allow for a more flexible schedule or be done remotely, such as an art director, financial specialist, web designer, or writer. These are jobs that can easily be work-from-home situations, which can offer opportunities for introverts.

Whatever your current salary, there are always ways to maximize your earnings by monitoring your spending and setting up a budget. A budget planner app can help with both.

The Takeaway

Considering moving to Oregon and wondering if you can afford it? The average annual income for Oregonians is $66,710, which is slightly more than $65,470, the average annual salary in the U.S. There are many counties and towns in Oregon where making this amount of money can provide a nice quality of life, though some cities and certain regions will be more expensive. However, the state is home to many high-earning occupations, and people between the ages of 25 and 64 are in a prime spot for earning a livable salary in the Beaver State.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

What is a good average salary in Oregon?

The median household income in Oregon is $86,780 according to the Federal Reserve Bank of St. Louis. The size of your family, your basic expenses, and the area you live, as well as other factors, can determine how far the money can stretch.

What is the average gross salary in Oregon?

The average annual gross salary in Oregon is $66,710, which breaks down to a monthly salary of $5,559.17 and $2,565.77 biweekly. This translates to $1,282.88 weekly, $256.58 daily, and an hourly wage of $32.07. Since the median rent in Oregon is $2,228 a month, you’ll want to earn more than the median yearly salary in order to be able to cover all of your expenses and possibly have some left over for savings and entertainment.

What is the average income per person in Oregon?

The annual average personal income in Oregon is $65,426, per the latest figures from the Federal Reserve Bank of St. Louis.

What is a livable wage in Oregon?

In order to make a living wage in Oregon, a single adult without children in Oregon needs to make $50,553 a year. This covers the basic cost of living, including housing, transportation, food, and medical care. For two working adults with two kids, the required income needed (before taxes) is $93,735.

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*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

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.

SORL-Q224-1906882-V1

Jul

2024

Is 300K a Good Salary for a Single Person in 2024?

By Jamie Cattanach | Life & Career, Money & Life, relay | Comments Off

The average salary across the United States sits at $63,795, per the Social Security Administration. So an income of $300,000 per year — more than four times that figure — is by most standards a great salary for a single person in 2024.

Of course, even a large amount of money can come up short if you don’t have a solid budget in place or if you lead a particularly expensive lifestyle.

Below, we’ll dive into the various considerations.

Is $300K a Good Salary?

If you’ve just been offered a job with this figure in its compensation package, you may be wondering, “Is $300,000 a good salary for a single person?”

The thing is, there’s really no one-size-fits-all answer to that question. While $300,000 per year is substantially more than most people — or even most U.S. households — make, whether or not it’s comfortable for you depends on your lifestyle choices and expectations.

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Median Income in the US by State in 2024

You may be wondering how much you make compared to your neighbors. Median yearly household income varies significantly by state, ranging from Mississippi’s $52,985 to Maryland’s $98,461. However, nowhere in America does the median household income come anywhere close to $300,000 per year.

State	Median Household Income
Alabama	$59,609
Alaska	$86,370
Arizona	$72,581
Arkansas	$56,335
California	$91,905
Colorado	$87,598
Connecticut	$90,213
Delaware	$79,325
Florida	$67,917
Georgia	$71,355
Hawaii	$94,814
Idaho	$70,214
Illinois	$78,433
Indiana	$67,173
Iowa	$70,571
Kansas	$69,747
Kentucky	$60,183
Louisiana	$57,852
Maine	$68,251
Maryland	$98,461
Massachusetts	$96,505
Michigan	$68,505
Minnesota	$84,313
Mississippi	$52,985
Missouri	$65,920
Montana	$66,341
Nebraska	$71,772
Nevada	$71,646
New Hampshire	$90,845
New Jersey	$97,126
New Mexico	$58,722
New York	$81,386
North Carolina	$66,186
North Dakota	$73,959
Ohio	$66,990
Oklahoma	$61,364
Oregon	$76,362
Pennsylvania	$73,170
Rhode Island	$81,370
South Carolina	$63,623
South Dakota	$69,457
Tennessee	$64,035
Texas	$73,035
Utah	$86,833
Vermont	$74,014
Virginia	$87,249
Washington	$90,325
West Virginia	$55,217
Wisconsin	$72,458
Wyoming	$72,495

Source: U.S. Census Bureau

Average Cost of Living in the US by State in 2024

Just as median income varies significantly depending on which state you’re in, so does the state-by-state cost of living. This means that $300,000 can go a lot further in, say, Arkansas than it would in California.

While these figures are just averages — and the state-wide cost of living can vary substantially depending on which city you live in — here’s the average cost of living in each of the 50 states:

State	Average Cost of Living
Alabama	$42,391
Alaska	$59,179
Arizona	$50,123/td>
Arkansas	$42,245
California	$60,272
Colorado	$59,371
Connecticut	$60,413
Delaware	$54,532
Florida	$55,516
Georgia	$47,406
Hawaii	$54,655
Idaho	$43,508
Illinois	$54,341
Indiana	$46,579
Iowa	$45,455
Kansas	$46,069
Kentucky	$44,193
Louisiana	$45,178
Maine	$55,789
Maryland	$52,651
Massachusetts	$64,214
Michigan	$49,482
Minnesota	$52,849
Mississippi	$39,678
Missouri	$48,613
Montana	$51,913
Nebraska	$37,519
Nevada	$49,522
New Hampshire	$60,828
New Jersey	$60,082
New Mexico	$43,336
New York	$58,571
North Carolina	$47,834
North Dakota	$52,631
Ohio	$47,768
Oklahoma	$42,046
Oregon	$52,159
Pennsylvania	$53,703
Rhode Island	$52,820
South Carolina	$46,220
South Dakota	$48,997
Tennessee	$46,280
Texas	$49,082
Utah	$48,189
Vermont	$55,743
Virginia	$52,057
Washington	$56,567
West Virginia	$44,460
Wisconsin	$49,284
Wyoming	$52,403

Source: U.S. Bureau of Economic Analysis

How to Live on $300K a Year

No matter what you earn, figuring out how to spend (and save) your money takes effort and planning. Although it may seem like, with a six-figure salary, you can just buy whatever you want, if you don’t take the time to lay out how much money you’re actually taking home each month — and how much needs to be set aside for regular, necessary expenses like housing, insurance, food, and utility bills — you could quickly find yourself eating into your savings or even spiraling into credit card debt.

A money tracker is a great way to get a bird’s-eye view of where your funds are really going. This can be a first step toward deciding where you want them to go, rather than letting them whisk themselves away.

How to Budget for a $300K Salary

Whether you’re earning an entry-level salary or sitting in the C-suite, a little bit of budgeting can go a long way. But how?

The first step in budgeting is to determine how much money you make each month, which, in the case of someone earning a $300,000 salary, is about $25,000 before taxes are taken out. Because state taxes can vary significantly, you’ll need to look at your own pay stubs or do the math to determine how much is left afterwards, also known as your “net” income.

Once you know your net income, you can begin to deduct your regular, expected expenses. These include your housing payment (like rent or a mortgage), insurance payments, utility bills, and other recurring regular expenses (like your Netflix subscription). You should also set aside a budget for required monthly expenses that may vary a bit but are still critical, like groceries and fuel, or transportation.

Now, you can subtract your monthly expenses from your monthly earnings to determine how much discretionary income you have to do with what you please, including setting aside at least some of it for savings.

Sounds like too much work to do this all on paper? Fortunately, there are plenty of budget planner apps that can make the process a breeze.

Maximizing a $300K Salary

Just because you earn a lot doesn’t mean you have to spend a lot. And if you’re careful with your over-average salary, you can save money for the future and help safeguard your lifestyle for the long run.

For example, if you saved just 10% of your $300,000 per year salary, that would be $30,000 per year into your emergency fund or investment account. Especially if you choose to invest it, that amount can really add up over a relatively short amount of time — increasing your overall net worth and potentially even giving you the opportunity to retire early!

Quality of Life with a $300K Salary

Because a $300,000 per year salary is so much higher than the average cost of living in most states, most people who earn this much will find themselves able to afford a very comfortable, high quality of living anywhere.

Of course, the money can still go further in some places than others. For instance, on $300,000, you might be able to afford a small mansion in Mississippi — or an 800-square-foot apartment in Manhattan.

Is $300,000 a Year Considered Rich?

Given that the average salary in the U.S. is about 21% of $300,000, yes, many would consider someone earning $300,000 per year by themselves to be rich.

However, in most states, you’d need to make substantially more than $300,000 per year to be in the top 1% of earners. The states where you’d come closest are West Virginia and Mississippi, where the top 1% earn at least $367,582 and $381,919 per year, respectively.

Is $300K a Year Considered Middle Class?

The amount of money you’d need to earn to be considered middle class varies depending on where you live. But according to the Pew Research Center, it’s between about $47,189 and $141,568 per year on average. Which is to say, no, $300,000 per year is not considered middle class in the vast majority of cities and scenarios.

Example Jobs that Make About $300,000 a Year

Don’t make $300,000 per year (yet), and curious about how to make the dream a reality?

You might consider opening your heart to cardiology, which, according to data compiled by SoFi, offers an average salary of $421,330 per year. Medical positions feature prominently among the top-paying jobs, with surgeons, radiologists, dermatologists, emergency medicine physicians, and anesthesiologists all earning more than $300,000 per year.

The Takeaway

A salary of $300,000 is substantially higher than the national average and certainly a “good” salary for a single person in 2024 by most peoples’ reckoning. That said, no matter how much you earn, bad financial habits can bite you in the long run, so don’t forget about your budget.

See exactly how your money comes and goes at a glance.

FAQ

Can I live comfortably making $300K a year?

While everyone’s standard of comfort is individual, given how much higher $300,000 per year is than the average U.S. salary, yes, most people would be able to live comfortably on $300,000 per year. Even for high earners, however, having a budget is important. Making a plan for your money helps ensure you know exactly where each dollar is going rather than watching them fly away on their own.

What can I afford with a $300K salary?

With a $300,000 salary, you could afford a lot of things, including, depending on your overall applicant profile, a home priced close to a million dollars. With a high salary and the opportunity to save up money, you could likely afford luxurious vacations or high-end toys and gadgets, too. Again, though, a higher-than-average salary doesn’t preclude you from overspending or going into debt, so be sure to make a budget that accounts for all your necessary and discretionary expenses.

How much is $300K a year hourly?

For those who work 40-hour weeks 50 weeks out of the year, a $300,000 salary comes out to an hourly rate of around $150.

How much is $300K a year monthly?

A salary of $300,000 per year, divided by 12 months, comes out to roughly $25,000 per month.

How much is $300K a year daily?

A gross annual income of $300,000 per year, divided by 365 days, comes out to about $821.92 per day. Of course, most people don’t work every single day of the year. As an estimate for the normal five-day work week, accounting for weekends and typical American public holidays, an employee might work about 250 days per year, in which case a $300,000 salary comes out to approximately $1,200 per day.

Photo credit: iStock/Dusan Atlagic

SORL-Q224-1906698-V1

Money Market vs Capital Market: What’s the Difference?

What Is the Money Market?

How Does the Money Market Work?

What Is the Capital Market?

How Does the Capital Market Work?

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Differences Between Money Markets and Capital Markets

Purpose

Length of Securities

Financial Instruments

Nature of Market

Securities Risk

Liquidity

Length of Credit Requirements

Return on Investment

Timeframe on Redemption

Relevance to Economy

Deciding Which Market to Invest In

Alternatives to Money and Capital Markets

High-Yield Checking Accounts

Traditional Savings Accounts

The Takeaway

FAQ

What are the similarities between a money market and capital market?

How is a money market and capital market interrelated?

Why do businesses use the money markets?

Bank Guarantee vs Letter of Credit: What’s the Difference?

What Is a Bank Guarantee?

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Types of Bank Guarantees

Financial Bank Guarantee

Performance-Based Bank Guarantee

Foreign Bank Guarantee

What Is a Letter of Credit?

Types of Letters of Credit

Commercial Letter of Credit

Standby Letter of Credit

Revolving Letter of Credit

Traveler’s Letter of Credit

Confirmed Letter of Credit

Special Considerations

Key Differences between a Bank Guarantee and Letter of Credit

Liability

Risk

Number of Parties Involved

Payment

The Takeaway

FAQ

How is a letter of credit different from a bank guarantee?

What is a bank guarantee and how does it work?

What is the primary difference between a standby letter of credit and a bank guarantee?

How Are Financial Institutions Governed?

What Is Financial Regulation?

Why Financial Regulations Are Important

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Types of Financial Regulations

Types of Financial Institutions

What Is a Financial Regulator?

How Are Financial Institutions Regulated?

The Most Common Financial Regulatory Bodies

The Federal Reserve Board (FRB)

The Federal Deposit Insurance Corporation (FDIC)

The Consumer Financial Protection Bureau (CFPB)

The National Credit Union Association (NCUA)

The Securities Exchange Commission (SEC)

The Commodity Futures Trading Commission (CFTC)

How Financial Regulators Help Banking in the Way We Know Today

The Takeaway

FAQ

Who regulates financial institutions in the United States?

What are regulators in finance?

Who regulates investment banks?

What Is the Average Salary by Age in Oregon in 2024?

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Average Salary in Oregon by Age in 2024

Average Salary in Oregon by City in 2024

Average Salary in Oregon by County in 2024

Examples of the Highest-Paying Jobs in Oregon

The Takeaway

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