Mar
24
2025
What Is a Guaranteed Minimum Income Benefit (GMIB)?

What Is a Guaranteed Minimum Income Benefit (GMIB)?

By | Growing Wealth, invest, Investing, Terminology | Comments Off on What Is a Guaranteed Minimum Income Benefit (GMIB)?

A guaranteed minimum income benefit (GMIB) is an optional rider that can be included in an annuity contract to provide a minimum income amount to the annuity holder. An annuity is an insurance product in which you pay a premium to the insurance company, then receive payments back at a later date. There are a number of different types of annuities, with different annuity rates.

A GMIB annuity can ensure that you receive a consistent stream of guaranteed income. If you’re considering buying an annuity for your retirement, it’s helpful to understand what guaranteed minimum income means, and how it works.

Key Points

•   A Guaranteed Minimum Income Benefit (GMIB) is an optional rider in an annuity contract ensuring a minimum income.

•   GMIBs protect annuity payments from market volatility, offering stable income in retirement.

•   These benefits are available in variable or indexed annuities, which tie earnings to market performance.

•   The cost of GMIBs can be high, as adding riders increases the overall expense of the annuity.

•   Evaluating the financial stability of the annuity provider is crucial, as the company’s health impacts the security of the guaranteed income.

GMIBs, Defined

A guaranteed minimum income benefit (GMIB) is a rider that the annuity holder can purchase, at an additional cost, and add it onto their annuity. The goal of a GMIB is to ensure that the annuitant will continue to receive payments from the contract — that’s the “guaranteed minimum income” part — without those payments being affected by market volatility.

Annuities are one option you might consider when starting a retirement fund. But what are annuities and how do they work? It’s important to answer this question first when discussing guaranteed minimum income benefits.

As noted, an annuity is a type of insurance contract. You purchase the contract, typically with a lump sum, on the condition that the annuity company pays money back to you now or starting at a later date, e.g. in retirement.

Depending on how the annuity is structured, your money may be invested in underlying securities or not. Depending on the terms and the annuity rates involved, you may receive a lump sum or regular monthly payments. The amount of the payment is determined by the amount of your initial deposit or premium, and the terms of the annuity contract.

A GMIB annuity is most often a variable annuity or indexed annuity product (though annuities for retirement can come in many different types).

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

How GMIBs Work

Let’s look at two different types of annuities for retirement: variable and indexed.

•   Variable annuities can offer a range of investment types, often in the form of mutual funds that hold a combination of stocks, bonds, and money market instruments.

•   Indexed annuities offer returns that are indexed to an underlying benchmark, such as the S&P 500 index, Nasdaq, or Russell 2000. This is similar to other types of indexed investments.

With either one, the value of the annuity contract is determined by the performance of the underlying investments you choose.

When the market is strong, variable annuities or indexed annuities can deliver higher returns. When market volatility increases, however, that can reduce the value of your annuity. A GMIB annuity builds in some protection against market risk by specifying a guaranteed minimum income payment you’ll receive from the annuity, independent of the annuity’s underlying market-based performance.

Of course, what you can draw from an annuity to begin with will depend on how much you invest in the contract, stated annuity rates, and to some degree your investment performance. But having a GMIB rider on this type of retirement plan can help you to lock in a predetermined amount of future income.

Recommended: Types of Retirement Accounts

Pros & Cons of GMIBs

Guaranteed minimum income benefit annuities can be appealing for investors who want to have a guaranteed income stream in retirement. Whether it makes sense to purchase one can depend on how much you have to invest, how much income you’re hoping to generate, your overall goals and risk tolerance.

Weighing the pros and cons can help you to decide if a GMIB annuity is a good fit for your retirement planning strategy.

Pros of GMIBs

The main benefit of a GMIB annuity is the ability to receive a guaranteed amount of income in retirement. This can make planning for retirement easier as you can estimate how much money you’re guaranteed to receive from the annuity, regardless of what happens in the market between now and the time you choose to retire.

If you’re concerned about your spouse or partner being on track for their own retirement, that income can also carry over to your spouse and help fund their retirement needs, if you should pass away first. You can structure the annuity to make payments to you beginning at a certain date, then continue those payments to your spouse for the remainder of their life. This can provide reassurance that your spouse won’t be left struggling financially after you’re gone.

Cons of GMIBs

A main disadvantage of guaranteed minimum income benefit annuities is the cost. The more riders you add on to an annuity contract, the more this can increase the cost. So that’s something to factor in if you have a limited amount of money to invest in a variable or indexed annuity with a GMIB rider. Annuities may also come with other types of investment fees, so you may want to consult with a professional who can help you decipher the fine print.

It’s also important to consider the quality of the annuity company. An annuity is only as good as the company that issues the contract. If the company were to go out of business, your guaranteed income stream could dry up. For that reason, it’s important to review annuity ratings to get a sense of how financially stable a particular company is.

Examples of GMIB Annuities

Variable or indexed annuities that include a guaranteed minimum income benefit can be structured in different ways. For example, you may be offered the opportunity to purchase a variable annuity for $250,000. The annuity contract includes a GMIB order that guarantees you the greater of:

•   The annuity’s actual value

•   6% interest compounded annually

•   The highest value reached in the account historically

The annuity has a 10-year accumulation period in which your investments can earn interest and grow in value. This is followed by the draw period, in which you can begin taking money from the annuity.

Now, assume that at the beginning of the draw period the annuity’s actual value is $300,000. But if you were to calculate the annuitized value based on the 6% interest compounded annually, the annuity would be worth closer to $450,000. Since you have this built into the contract, you can opt to receive the higher amount thanks to the guaranteed minimum income benefit.

This example also illustrates why it’s important to be selective when choosing annuity contracts with a guaranteed minimum income benefit. The higher the guaranteed compounding benefit the better, as this can return more interest to you even if the annuity loses value because of shifting market conditions.

It’s also important to consider how long the interest will compound. Again, the more years interest can compound the better, in terms of how that might translate to the size of your guaranteed income payout later.

💡 Quick Tip: Are self-directed brokerage accounts cost efficient? They can be, because they offer the convenience of being able to buy stocks online without using a traditional full-service broker (and the typical broker fees).

The Takeaway

As discussed, guaranteed minimum income benefits (GMIB) are optional riders that can be included in an annuity contract to provide a minimum income amount to the annuity holder. Annuities can help round out your financial strategy if you’re looking for ways to create guaranteed income in retirement.

Annuities may be a part of a larger investment and retirement planning strategy, along with other types of retirement accounts. To get a better sense of how they may fit in, if at all, it may be a good idea to speak with a financial professional.

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.

FAQ

What are guaranteed benefits?

When discussing annuities for retirement, guaranteed benefits are amounts that you are guaranteed to receive. Depending on how the annuity contract is structured, you may receive guaranteed benefits as a lump sum payment or annuitized payments.

What is the guaranteed minimum withdrawal benefit?

The guaranteed minimum withdrawal benefit is the amount you’re guaranteed to be able to withdraw from an annuity once the accumulation period ends. This can be the annuity’s actual value, an amount that reflects interest compounded annually or the annuity contract’s highest historical value.

What are the two types of guaranteed living benefits?

There are actually more than two types of guaranteed living benefits. For example, your annuity contract might include a guaranteed minimum income benefit, guaranteed minimum accumulation benefit or guaranteed lifetime withdrawal benefit.

About the author

Rebecca Lake

Rebecca Lake

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


Photo credit: iStock/Luke Chan

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 $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

SOIN0124111

Read more
Mar
23
2025
What Are Vanilla Options? Definition & Examples

What Are Vanilla Options? Definition & Examples

By | Growing Wealth, invest, Investing, Terminology | Comments Off on What Are Vanilla Options? Definition & Examples

Editor's Note: Options are not suitable for all investors. 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. Please see the Characteristics and Risks of Standardized Options.

Vanilla options are put or call contracts that give traders the right to buy or sell an underlying asset at a predetermined price before a set expiration date. The most basic type of options contracts, vanilla options follow standard contract terms (e.g., fixed expiration dates and strike prices) and are traded on exchanges like the Chicago Board Options Exchange (CBOE). This is in contrast to exotic options which allow for more customization and are generally traded over-the-counter (OTC) through a broker-dealer network.

Key Points

•   Vanilla options are standard contracts with fixed features, including expiration dates and strike prices.

•   Vanilla options are traded on exchanges, unlike exotic options.

•   Calls allow options buyers to buy an option’s underlying asset at a fixed price, while puts allow buyers to sell the asset at a fixed price.

•   Premiums are paid for options, representing the cost of the contract.

•   Options can be used for hedging, income, or speculation, with associated risks.

Vanilla Option Definition

The term “vanilla options” refers to standard contracts in options trading. They come with fixed features, including expiration dates, strike prices, and contract sizes.

What Are Options Contracts?

Buying an option is purchasing a contract that represents the right, though not the obligation, to buy or sell an underlying security at a fixed price (the strike price) by a specified date (the expiration).

•   The options buyer (or holder) has the right, but not the obligation, to buy or sell the underlying asset (e.g. stock shares) at a certain price by the expiration date of the contract. Buyers pay a premium for each option contract; this is the cost of the option.

•   The options seller (or writer), who is on the opposite side of the trade, has the obligation to fulfill the contract terms, such as selling or buying the underlying asset at the agreed-upon price (i.e. strike price) if the options holder exercises their contract.

What Are Exotic Options?

To understand what makes an exotic option exotic, let’s review a traditional vanilla options contract and how it works.

When trading a traditional option, the owner can buy or sell the underlying security for an agreed-upon price, either before or at the option’s expiration date. The holder is not, however, obligated to exercise the option, hence the name.

An exotic option typically has all of those features, but with complex variations in the times when the option can be exercised, as well as in the ways investors calculate the payoff. For those features, they typically charge a higher price than traditional options. Also, unlike standard vanilla options which are traded on an exchange, exotic options are usually traded in over-the-counter (OTC) markets.


💡 Quick Tip: Before opening any investment account, consider what level of risk you are comfortable with. If you’re not sure, start with more conservative investments, and then adjust your portfolio as you learn more.

What are the Different Types of Vanilla Options?

There are two types of vanilla options: calls and puts.

Calls

A call option allows an investor to buy 100 shares of an underlying stock or other security at the agreed-upon strike price. A call option gives a buyer a way of profiting from a stock’s price increase without having to purchase the underlying 100 shares. The call buyer only pays a premium per share, which is much lower than the price of the stock.

The profit from a call option is determined by both the premium an investor pays and whether they’re able to exercise the option to buy the underlying asset at the lower strike price. (On the opposite side of the trade, the call writer is obligated to sell the buyer the shares if they decide to exercise.)

A call option buyer can also sell the call option for a premium. By selling the option itself, an investor doesn’t have to take delivery of the underlying shares and may profit from the increasing value of the option.

Note: If the price of the stock falls instead of rises, the maximum loss for the buyer is limited to the cost of the premium paid. However, the potential loss for the option writer can be substantial — theoretically unlimited — since the stock price could continue rising with no cap.

Puts

A put option is essentially the inverse of a call option. Instead of giving the buyer the right to purchase an asset at a fixed price, a put allows the buyer to sell an asset at a fixed price before expiration. Investors may buy puts to try to profit from a stock’s decline, or to hedge against losses on stocks they already own.

For example, if a stock’s price declines before the option’s expiration and falls below the strike price, the buyer can exercise the option, selling the stock for a higher price than the market price. Their profit is reduced by the premium paid for the option.

Protective puts involve purchasing a put option while simultaneously holding shares of the underlying stock. This strategy ensures the investor can sell at a predetermined price even if the stock declines, limiting potential losses. If the stock price rises, they still benefit from the gains, minus the cost of the put premium.

Puts do come with risk. If the stock price rises instead of falls, the put option expires worthless and the buyer’s maximum loss is limited to the premium paid. The put writer, however, faces substantial losses if the stock price plummets.

Recommended: Popular Options Trading Terminology to Know

Characteristics of Vanilla Options

Like all investments, purchasing vanilla options carries a level of risk and volatility. Option buyers risk losing the entire premium paid if the option expires worthless. Call writers risk unlimited losses since stock prices could rise indefinitely, while put writers may be forced to buy the asset at the strike price even if the market price is significantly lower.

Premiums

Whether you are interested in buying a vanilla call or put, you will pay a premium in addition to what you would pay to purchase the stock with the call (should you choose to exercise the option). The premium is nonrefundable, so if you don’t exercise the option, you’ve lost what you paid for the premium.

Volatility

The volatility of an option determines its price. Higher volatility generally results in a higher premium because there is more opportunity for a profit (as well as the risk of loss).

Risk Level

Like most other types of investments, buying options are not without risk. If a stock is lower in price on the market than a call option, the option is worthless. And if a stock has a higher price on the market, the put option won’t net more return on investment.

However, a vanilla option may sometimes be less risky than buying a stock outright for buyers, since the only thing you’re guaranteed to spend is premium. For option writers, however, the risk can be significantly higher. A call writer faces potentially unlimited losses if the stock price keeps rising, while a put writer may be forced to buy the asset at the strike price, even if the market value is significantly lower.

Pros and Cons of Vanilla Options Trading

Options trading is complex and involves risks, but for experienced investors who understand the fundamentals, options can be a useful tool for hedging, income, or straight speculation — as long as you know the risks.

Pros

•   Options trading allows investors to put up a smaller amount of money upfront, which can help minimize potential losses. For buyers, the maximum risk is limited to the premium paid for the option.

•   Selling options allows the writers to collect premiums, although there is the risk of significant losses. (Again, when selling a call option, potential losses can be unlimited if the underlying asset’s price continues to rise with no cap.)

•   Some investors offset risk with options. For instance, buying a put option while also owning the underlying stock allows the options holder to lock in a selling price, for a specified period of time, in case the security declines in value, thereby limiting potential losses.

Cons of Options Trading

•   A key risk in trading options is that losses can be outsized relative to the cost of the contract. When an option is exercised, the seller of the option is obligated to buy or sell the underlying asset, even if the market is moving against them.

•   While premium costs are generally low, they can still add up. The cost of options premiums can eat away at an investor’s profits.

•   Because options expire within a specific time window, there is only a short period of time for an investor’s thesis to play out. Securities, like stocks, do not have expiration dates.

thumb_up

Pros:

•   Less money upfront than owning an asset outright

•   Potential for income

•   Hedging portfolio risk

thumb_down

Cons:

•   Potential for outsized losses

•   Premiums can add up

•   Limited time for trades to play out

Examples of Vanilla Options

If you’re considering vanilla options as part of your options trading strategy, here are a few examples to illustrate how they work for both calls and puts.

Example of a Vanilla Call Option

A call option allows you to purchase a stock at a certain price within a specified time period. Bullish investors who expect a stock to go up in price typically purchase call options.

For our example, let’s say you’re interested in a stock that trades at $53 per share, and you can buy a call option with a strike price of $55 per share. The premium for the option is $0.15 per share, or $15 total for 100 shares of the stock.

Your breakeven point is the strike price plus the premium. In this case, that would be $55.15. If the stock trades above this price, your option is profitable. Let’s say that, after two weeks, the stock is trading at $59 per share. It is now “in the money” because the market price exceeds the strike price.

At this point, you have two choices. You can either exercise the option and buy the shares at $55 per share (and then sell them at the market price of $59 per share), or you can sell the option contract itself based on its intrinsic value (roughly $4 per share or $400 for the contract, less any transaction costs).

Each approach allows you to realize a profit from the rising stock price without owning it outright until you purchase the call option, if you choose to do so.

Example of a Vanilla Put Option

A put can act as a form of insurance, allowing you to protect against losses if the price of the stock you’re holding falls. It’s also one way that investors might short a stock. Here’s an example.

Let’s say you own 100 shares of a stock that is currently trading at $25 per share. You buy a put option at a premium of $1 per share that expires in two months at a strike price of $30. So in total, you paid $100 for a premium for 100 shares.

In a month, the stock price drops to $18 per share. This is a good time to exercise your put option, selling your 100 shares at the strike price of $30 per share, rather than the market price of $18 per share.

The Takeaway

Vanilla options, which are simply standard puts and calls, can be a way to diversify your investment portfolio and potentially hedge against other losses. While investors are not able to sell options on SoFi’s options trading platform at this time, they can buy call and put options to try to benefit from stock movements or manage risk.

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®.


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.

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.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
Claw Promotion: Customer must fund their Active Invest account with at least $50 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

SOIN-Q125-121

Read more
Mar
23
2025
Introduction to Options Volume and Open Interest

Introduction to Options Volume and Open Interest

By | Growing Wealth, invest, Investing, Terminology | Comments Off on Introduction to Options Volume and Open Interest

Editor's Note: Options are not suitable for all investors. 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. Please see the Characteristics and Risks of Standardized Options.

Options volume measures the total number of contracts traded during a session, while open interest indicates how many contracts remain open at the start of each trading day. Traders use these metrics to evaluate market liquidity, investor activity, and potential price trends.

Understanding how these metrics work, how they’re calculated, and what they can reveal about the market can help investors sharpen their trading strategies.

Key Points

•   Option volume monitors all transactions in real-time, reflecting market activity.

•   Open interest measures the number of open contracts at the start of a trading session.

•   Volume serves as an indicator of liquidity and cash flows in the market.

•   Open Interest provides confirmation of cash flows and market sentiment.

•   Technical traders use both volume and open interest to validate trends and make decisions.

How Is Option Volume Calculated?

Option volume differs fundamentally from stock volume. In stock investing, volume represents the number of shares trading hands. Typically, trading volumes for stocks are much lower compared to options volumes.

Options volume frequently surpasses the total contracts outstanding represented by open interest. Options volume is calculated in real-time after every transaction. This information is typically reported within the options chain, and will be updated as frequently as your particular brokerage and account provides.

Every contract traded is counted toward total volume.

•   Buying 10 call contracts increases option volume by 10 during the trading session.

•   Selling those same 10 call contracts to a second investor, increases volume by another 10. Closing those 10 call contracts increases volume by another 10.

Recommended: Popular Options Trading Terminology

How Is Open Interest Calculated?

Open interest is calculated the same way for options trading as it is for futures trading. This information is also reported within the options chain, but it’s updated once daily prior to the market opening and will not change during the course of a trading session.

Open interest represents all contracts that remain open and nets out trades from the previous session that offset one another.

Using the same trades as above:

•   If you buy to open 10 calls, open interest does not change during the trading session.

•   If you then sell these calls to a second investor, the open interest does not change.

•   If this second investor then closes these 10 calls, the open interest decreases by 10, since the contracts are no longer active.

However, at the end of the session, the Options Clearing Corporation (OCC) nets out any offsetting trades and reports only the remaining open contracts.

In this example, since the options were opened and closed on the same day, and despite having changed hands, the net effect on open interest is zero.

What Do Option Volume and Open Interest Indicate About Options?

As far as assessing what these two data points indicate, it depends on whether you consider yourself a “fundamental” trader or a “technical” trader.

•   Traders who use fundamental analysis believe in analyzing company and market data to evaluate the intrinsic worth of a stock. They look at corporate metrics such as profits, operating margins, and debt ratios, as well as some limited market data.

•   Traders using technical analysis focus primarily on market data, and use this data to predict market sentiment and price movements.

Fundamental Analysis

Fundamental traders look at the open interest as an indicator of liquidity in the market. Higher open interest typically corresponds with narrower bid-ask spreads, indicating greater liquidity.

Taken together, these two factors result in faster order execution and more competitive pricing.

Fundamental traders view options volume as an early indicator of trading activity. But the direction of this activity — whether investors are opening or closing positions — becomes clear only after comparing open interest from the previous day. An increase in open interest can confirm new money entering positions, and declining open interest can indicate positions are being closed.

Recommended: What Are Calls vs Puts?

Finally, user-friendly options trading is here.*

Trade options with SoFi Invest on an easy-to-use, intuitively designed online platform.

*Check out the OCC Options Disclosure Document.

Technical Analysis

Technical traders also look at open interest and options volume as indicators of liquidity and cash flows, but their analysis doesn’t stop there.

Technical traders look at these increased cash flows and liquidity improvements and believe that the strength in the options volume and open interest indicate confirmation of the trends occurring in the price of the underlying asset.

For example, if the underlying asset is seeing price increases and call volumes and open interest are also increasing, then the technical trader sees confirmation of the trend and these factors reinforce the likelihood of the trend continuing.

Conversely, slowing changes in options volume and open interest may signal that current underlying market trends could be weakening.

Unusual Volume and Open Interest

Although the following phenomenon falls under technical trading, it should really be its own brand of trading.

Experienced traders sometimes interpret sudden spikes in volume and open interest as signs that institutional or well-informed market participants are taking positions. However, these spikes do not always indicate a clear trend and can be misleading. These interpretations can be speculative. Institutional investors often have access to more data and advanced strategies, but their trades do not always indicate a clear direction for the market. Retail investors should be cautious when assuming that increased activity reflects a predictable trend.

It’s also important to consider why these investors may have made the decisions they have. For example, it might be part of a single position, multiple investment types, or a combination trade, all of which could involve different goals than those of a retail investor.

Option Volume

 Open Interest
Total of all transactions during a trading session Total of all open contracts at the start of a trading session
Updated continuously after every transaction Updated once per day prior to the trading session
Opening a transaction increases the volume Opening a transaction will increase Open Interest
Closing a transaction increases the volume Closing a transaction will decrease Open Interest
Indication of liquidity Indication of liquidity
Indication of cash flows Confirmation of cash flows

The Takeaway

By tracking changes in options volume and open interest, investors may gain insights into market trends and liquidity. For instance, rising open interest coupled with increasing volume may signal that a price trend could continue.

Conversely, declining open interest could indicate weakening market momentum or trend reversals. Investors who integrate these signals into their trading strategies may enhance their ability to make informed and timely decisions.

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®.

Explore SoFi’s user-friendly options trading platform.

Photo credit: iStock/BartekSzewczyk

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.
Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
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.

*Borrow at 11%. Utilizing a margin loan is generally considered more appropriate for experienced investors as there are additional costs and risks associated. It is possible to lose more than your initial investment when using margin. Please see SoFi.com/wealth/assets/documents/brokerage-margin-disclosure-statement.pdf for detailed disclosure information.

SOIN-Q125-067

Read more
Mar
21
2025

Cash Stuffing: What Is It and Why Is It So Popular?

By | money, Terminology | Comments Off on Cash Stuffing: What Is It and Why Is It So Popular?

Cash stuffing, also referred to as money stuffing, is a viral budgeting method that involves using cash to pay for things like gas, groceries, and other discretionary purchases. Popularized on TikTok, cash stuffing has become a hot money hack for curbing impulsive spending.

While it might look brand-new, money stuffing is an updated take on the cash envelope budgeting method. With the cash envelope method, you’re simply adding cash to different envelopes that represent individual budget categories.

Does cash stuffing keep you from overspending? And how do you get started? Here’s a closer look at how this budgeting trend works.

What Is Cash Stuffing?

Cash stuffing is a budgeting method that requires you to use cash for discretionary spending instead of a debit or credit card. You add cash to individual envelopes labeled with different categories and then use those funds to make purchases. Once the envelope is empty, you can’t spend any more money in that category until your new budget period (say, the next month or next pay period) begins.

The idea behind cash stuffing is to keep spending in check. It plays into the psychology of money, which suggests that spending cash is more painful mentally and emotionally. Also, using cash may make you more mindful about your spending. Perhaps, when you think about pulling out a 10-dollar bill to buy a bubble tea, you’ll decide it’s not really worth the expense (or at least not today).

Cash stuffing can be a way to help you spend less. It may be easy to swipe your debit or credit card without thinking about the dollar amount. That’s harder to do when you’re having to count out cash pulled from your wallet or bank account each time you want to spend.

Get up to $300 when you bank with SoFi.

No account or overdraft fees. No minimum balance.

Up to 3.80% APY on savings balances.

Up to 2-day-early paycheck.

Up to $3M of additional
FDIC insurance.


How Does Cash Stuffing Work?

Cash stuffing is a revamped version of the cash envelope method. In terms of the actual process, it works like this:

•   First, you decide which budget categories you want to assign to your envelopes. For instance, you might include entertainment, coffee, and massages. (You can also use folders or pouches in a budget binder; whatever works for you is a good choice.)

•   Next, figure out how much cash should be added to each envelope for the budgeting period.

•   At the beginning of the budgeting period, you “stuff” each of your envelopes with the allotted amount of cash.

•   Throughout the budgeting period, you spend down the cash in each envelope.

When you reach the end of the budgeting period, you start the process all over again. If you have cash left over from the previous period, you can roll it over or apply it to another financial goal, like building your emergency fund. That’s a plus if you struggle with finding motivation to save money.

Meanwhile, you’d still use your debit cards, credit card, or bank account to pay expenses not assigned to your cash envelopes. For example, you might set up an automatic payment from checking to cover your student loan payment and pay your electric bill online using your debit card.

Examples of Cash Stuffing

Cash stuffing is ideal for budgeting categories that are not fixed and may fluctuate from month to month. Some of the categories you might assign to your cash stuffing envelopes include the purely discretionary as well as those that combine needs and wants:

•   Gas

•   Groceries

•   Clothing

•   Personal care

•   Entertainment

•   Dining out

•   Hobbies and recreation

•   Extracurriculars, if you have kids

•   Pet care

•   Travel

•   Gifts

•   “Fun” money

You could also include a miscellaneous envelope to cover any expenses that don’t fit into another budget category.

Why Did Cash Stuffing Get So Popular?

Cash stuffing breathed new life into the cash envelope budgeting method largely thanks to social media. On TikTok, #cashstuffing and its related hashtags currently have about 3 billion views. There are countless clips of users, which largely include members of Gen Z, stuffing their monthly cash envelopes.

Part of the appeal of cash stuffing lies in its simplicity. Once you figure out your budgeting categories and envelopes for the month, all you have to do is repeat the process.

Cash stuffing can work with lots of different budget systems, including:

•   The 50/30/20 budget rule

•   Zero-based budgeting

•   Pay yourself first budgeting

It can also be an easy way to save money if you’re disciplined about keeping track of your cash envelopes and curtailing unnecessary spending. Cash stuffing requires you to be intentional with where and how you spend, so you don’t run out of cash midway through the month.

People who struggle with using credit cards responsibly can reduce their odds of racking up high-interest debt, since they’re using cash to pay in place of plastic. Cash stuffing puts you in control of where your money goes, instead of leaving you to wonder at the end of the month where it all went.

Pros of Cash Stuffing

Cash stuffing has some advantages, especially for people who are navigating budgeting for beginners. You don’t have to be a member of Gen Z to appreciate its usefulness either.

Here are some of the main upsides of cash stuffing.

•   It’s simple. Cash stuffing is an uncomplicated way to budget for discretionary expenses. All you need to get started is a stack of envelopes and some cash.

•   Encourages saving. Stuffing cash envelopes can promote a savings habit if you’re challenging yourself to spend less than what you’ve allocated to individual budget categories. The money you don’t spend can be put into a savings account, perhaps one earmarked for your emergency fund.

•   Track spending. As you spend down the cash in your envelopes, you can easily see at a glance how much cash you have left. You can write down each expense as you go to get an idea of where you tend to spend the most.

•   Avoid debt. Minimizing your dependence on debt is key to creating a financial plan that works. The cash stuffing system can help you break away from credit cards if you’re reliant on them and help you learn to live within your means.

Cons of Cash Stuffing

Is cash stuffing right for everyone? Not necessarily, as there are some drawbacks to keep in mind.

•   It’s time-consuming. Once you get your cash stuffing system in place, you can set it and forget it. But there is some upfront planning that’s required to get your system started, and you have to revisit it each month to restuff your envelopes.

•   You could still overspend. There’s no rule that says you can’t dip into one cash envelope to cover expenses for another envelope. That could make it all too easy to blow your budget.

•   Less protection. Losing a credit card or debit card is a pain, but there are built-in protections if someone uses your card to make unauthorized transactions. Cash, on the other hand, offers no such benefit. If you lose it or it’s stolen, it might be gone for good.

•   Missed opportunities for growth. Saving money is a good thing, and the cash stuffing method could help you do that. But you could be missing out on earning a great interest rate if you’re keeping all of your money in cash, versus depositing some of it into a high-yield savings account.

Pros of Cash Stuffing

 Cons of Cash Stuffing
Cash stuffing is a simple way to start budgeting money each month. Setting up your cash stuffing system initially can take time.
It could help you build a savings habit if you have money left over each month. Cash stuffing isn’t a guarantee that you won’t overspend.
Cash stuffing makes it easy to see where your money goes. Carrying cash can put you at greater risk for theft or losing money.
Using cash to spend can help you avoid high-interest credit card debit. Cash doesn’t have a chance to earn interest the way it would at a bank.

Tips on Getting Started With Cash Stuffing

If you’re ready to give cash stuffing a try, getting started isn’t that difficult. Here are a few tips for making the most of the cash stuffing budgeting method.

•   Review your budget, and break down all of your individual spending categories.

•   Decide which of those budget categories you want to use cash to pay for each month, noting which expenses you’ll pay for using your debit or credit card.

•   Calculate how much cash you should assign to each category, based on how much you’ve spent on average in the previous three to six months.

•   Choose the cash stuffing system that works best for you (i.e., cash envelopes, a budget binder, folders, etc.).

•   Decide which day of the month you’ll stuff your envelopes, based on when you get paid.

It’s also a good idea to give yourself a cash cushion when setting up a cash stuffing system. Depending on how regular your paychecks are, it may take a pay cycle or two to get used to stuffing envelopes. Keeping a few hundred dollars extra in checking that you don’t touch can help you cover any gaps in your budget until you’ve found your cash stuffing groove.

Alternatives to Cash Stuffing

Cash stuffing is one way to track and manage spending each month. If you’d rather not carry around cash, you could still apply the same basic premise in a different way.

Here are some alternatives to cash stuffing.

•   Use gift cards or prepaid debit cards. Instead of putting cash into separate envelopes, you could purchase gift cards for a set amount each month. For example, you might buy a gift card for $500 to your favorite grocery store in order to make a month’s worth of weekly food runs. That can keep you from overspending, without having to carry cash.

•   Try a budgeting app. Budgeting apps sync with your bank account and credit card accounts to track your spending. They also allow you to divide up expenses into individual budget categories each month. You could set your categories then assign each one a dollar amount, but instead of using cash, you’d use your debit card to pay for those expenses instead. (Your bank’s app may offer tools to help with this.)

•   Open a dedicated account. If you’d like to use a debit card to cover discretionary expenses, you might open a separate checking account just for that purpose. You could link it to the account where you deposit your paychecks, and then transfer over a set amount of money each payday. One thing to keep in mind, however, is that overspending could put you at risk of overdraft fees.

The Takeaway

Cash stuffing is one way to tackle the task of budgeting and to get in the habit of tracking spending regularly. It involves designating your discretionary spending categories, allocating your budget for those expenses, and then using cash (and only cash) to pay for those purchases. This can help you avoid overspending and high-interest credit card debt.

Having the right checking and savings account can help you manage your budget better, too.

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


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

FAQ

Is cash stuffing better than debit cards?

Cash stuffing can be better than using debit cards in the sense that it forces you to keep track of what you spend. Using cash to pay requires you to be intentional or mindful with your money since you don’t have an unlimited amount of money to work with.

Is cash stuffing better than credit cards?

Cash stuffing can be preferable to credit cards if you’re worried about accumulating high-interest debt. When you pay with a credit card, you’re using the credit card company’s money, which has to be repaid later with interest. When you pay with cash, you’re not creating debt or incurring interest charges.

Is cash stuffing a fad or a long-term strategy?

Cash stuffing has become a viral trend, but the idea behind it is a tried and true budgeting method. It’s possible to use cash stuffing or cash envelope budgeting for the long-term to manage your money and keep tabs on what you’re spending each month.

About the author

Rebecca Lake

Rebecca Lake

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


Photo credit: iStock/MarsBars

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2025 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

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

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

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

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

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

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

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

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

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

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


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

SOBK0123020

Read more
Close modal

See what SoFi can do for you and your finances.

Select a product below and get your rate in just minutes.

Student Loan
Refinancing

Personal
Loans

Online
Investments

Other

Terms and conditions apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. To qualify, a borrower must be a U.S. citizen or other eligible status, be residing in the U.S., and meet SoFi's underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates reserved for the most creditworthy borrowers. If approved, your actual rate will be within the range of rates at the time of application and will depend on a variety of factors, including term of loan, evaluation of your creditworthiness, income, and other factors. If SoFi is unable to offer you a loan but matches you for a loan with a participating bank, then your rate may be outside the range of rates listed above. Rates and Terms are subject to change at any time without notice. SoFi Personal Loans can be used for any lawful personal, family, or household purposes and may not be used for post-secondary education expenses. Minimum loan amount is $5,000. The average of SoFi Personal Loans funded in 2023 was around $33K. Information current as of 2/26/24. SoFi Personal Loans originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org). See SoFi.com/legal for state-specific license details. See SoFi.com/eligibility for details and state restrictions.

✝ To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

©2025 Social Finance, LLC All rights reserved.
TLS 1.2 Encrypted
Equal Housing Lender