Dec
10
2024

What Does DD Mean in Stocks?

By | Growing Wealth, invest, Investing, Terminology | Comments Off on What Does DD Mean in Stocks?

DD is a term in stock investing that stands for “due diligence.” It’s the process of researching and evaluating stocks before deciding to buy or sell. Due diligence gives investors a comprehensive understanding of a stock so they can make an informed decision about a trade. Although due diligence is not required, it is highly recommended.

Key Points

•   “DD” means “due diligence,” which is to conduct thorough research on a company’s fundamentals, including market cap, revenue, profit, and industry position, to make informed investment decisions.

•   Due diligence means to analyze financial statements to understand a company’s financial health, profitability, and stability, identifying potential risks and opportunities.

•   Due diligence includes following company news to stay updated on developments, management decisions, and industry trends, aiding in risk assessment and decision-making.

•   Investors conducting due diligence may use analyst reports for insights into complex financial data and market trends, enhancing understanding and investment decisions.

•   It can also include evaluating management and ownership to assess leadership stability and commitment, crucial for long-term investment success.

DD Stock Meaning

Due diligence includes looking at a company’s financial records, comparing it to competitors, considering broader market conditions, and may include factoring in ESG metrics and more. Both quantitative and qualitative analysis is used to evaluate stocks.

Most of the information used for due diligence can be found on company websites, quarterly and annual reports, financial statements, and even on stock brokerage sites and trading apps.

To “DD” a stock means to do research and analysis on the company’s fundamentals before deciding whether to buy stocks. Due diligence can be carried out by individuals, companies, and institutional investors. If an investor buys a stock without doing any research into it, they put themselves at much greater risk of losses.

The process of due diligence has been around for ages, but the term DD has become particularly popular since the rise of meme stocks and trading lingo conceived in forums like the WallStreetBets subreddit.

Even if someone on social media or a professional trader is hyping up a stock and showing their huge profits, that doesn’t mean it’s a good idea to listen to their advice. As such, it may be a good idea to review stock market basics to get a sense of whether the hype is justified.

Some traders have put their entire life savings into trades without doing DD, just based on someone’s advice, and lost money as a result. Hence the term DD stock became commonly used – though it’s important to remember that losses can occur even when due diligence is done.

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Items to Review When Conducting Due Diligence

There are many different measures used to evaluate stocks, and it’s up to each investor to decide how in-depth they want to go in their analysis. Every investor has different goals and risk tolerance, so it’s important to find the stocks that fit one’s particular criteria. For instance, one investor might be looking for stable, relatively low-risk, long-term growth while another might want to go for the potentially highest returns with a higher degree of risk.

Some of the most common items to review when conducting due diligence are:

Market Cap

One of the key factors to look at for due diligence is a company’s market cap. This is the total market value of the company’s shares. It’s also useful to look at how a company’s market cap has changed over time and consider how it might change in the future. For instance, an investor can look at stock price movements, ownership makeup of the company, and the market caps of competitors.

Researching market cap may indicate, for an investor, how volatile a stock might be, how many shareholders might own stock, and how big the end market is.

Large-cap and mega-cap companies tend to have more stable revenue streams and market caps since they are serving larger and broader markets, while mid-cap and small-cap companies may come with more risk and have the potential to see higher returns since they may only be serving a small segment of the market.

Revenue, Profit, and Margin Trends

Analyzing stock trends involves looking at the movement of metrics over time. These metrics include profits, revenue expenditures, profit margin trends, and return on equity. Trends can be monitored over weeks, months, and years.

A good way to start is to find the revenue and net income trends for the past two years, and looking at profit and loss statements. Those can be found on financial news sites and some trading apps that allow investors to search for stocks by name or ticker symbol. These documents may also help you get a sense of which way a stock’s profit margin is trending, if at all.

Investors can see whether trends are consistent or choppy, and if there are major price swings one way or the other. One can also see whether profits are rising, falling, or remaining about the same over time.

Competition

Due diligence also involves looking at a company’s competitors to understand whether the company one is considering investing in is performing better or worse. Competitors are companies in the same industry that are around the same size. In addition to competitors, investors can look at how the industry is performing compared to the overall market, and consider whether any external factors might affect industry performance in the near or long-term future.

Valuation Multiples

Other things to look at in the due diligence process are a company’s price-to-earnings (P/E) ratio, price-to-sales (P/S) ratio, price/earnings-to-growth (PEG) ratio, and overall valuation. Investors can compare the ratios of the company they are researching with those of its competitors.

This step helps figure out whether a company is a value stock or a growth stock, and gain an understanding of its profitability.

Management

The makeup and performance of a company’s management can have a huge effect on its performance. Investors can look at who is on the board of directors, whether the founders are still involved in the company, how long the company has been around, what proportion of shares are owned by managers, and whether major shareholders have been selling off shares.

If the founders and managers don’t own a lot of stock, or are selling it off at high rates, that may be a red flag.

Balance Sheet

A company’s balance sheet shows all of its assets, liabilities, and expenditures. Investors can look at how much debt a company has as well as its available cash balance.

Stock History

Another key part of due diligence is to look at how a stock has changed over time, including its price, liquidity, and dilution. Both short and long-term stock history may provide valuable insights.

Professional Reports

Professional analysts write reports about individual companies, industries, and the overall market. These can provide information that regular or inexperienced investors wouldn’t know.

Expectations and Risks

This step of due diligence involves looking at long-term profit estimates and industry trends. Investors can also look into joint development plans, intellectual property, and roadmaps to try and understand where a company is headed.

It’s critical for investors to also look at the industry and company risks involved with purchasing a stock. These include legal matters, global events, ESG factors, and more.

Ten Steps of Due Diligence

Below are ten steps investors may take when doing due diligence. Each step adds new information that builds upon the previous steps. By the end of the ten steps, an investor should have a solid understanding of the stock and be able to make an informed decision about whether to buy.

1.    Market Cap

2.    Revenue, Profit, and Margin Trends

3.    Industry and Competitors

4.    Valuation

5.    Management and Ownership

6.    Balance Sheet

7.    Stock Price History

8.    Stock Options and Dilution

9.    Expectations

10.    Risks

In the first steps, one simply gathers information without coming to any conclusions about the stock. As more information is gathered, it should start to become more clear what the pros and cons are of buying the stock. Investors can then make their decision accordingly.

The Takeaway

Doing due diligence research is a critical part of investing. Before purchasing any stock or asset, investors should have enough information to make an informed decision. Each of the steps of due diligence helps build a comprehensive picture of a stock’s past and potential future performance.

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

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Comparing Neobanks vs Traditional Banks

By | money, Money & Life, Terminology | Comments Off on Comparing Neobanks vs Traditional Banks

Since coming on the scene in the 2010s, neobanks have challenged the traditional banking model by offering consumers tech-savvy, digital-only bank accounts, often with low (or no) fees and higher-than-average interest rates. Neobanks have also been early adopters of popular perks like early access to paychecks and fee-free overdraft protection.

But neobanks technically aren’t banks (they are financial technology companies) — they don’t typically have a bank charter permitting them, for example, to hold deposits and lend money. As a result, they don’t offer the same range of financial services you’d find at a traditional bank. And if you’re looking for a branch for in-person service, you won’t find one. Here’s a closer look at how neobanks and traditional banks compare.

Key Points

•  Neobanks are a type of fintech company that offer banking services digitally.

•  Neobanks often offer lower fees and higher interest rates than traditional banks, but they lack physical branches and tend to lack a comprehensive range of services.

•  Neobanks are not licensed banks but may partner with chartered banks to provide FDIC insurance on deposits.

•  Neobanks are not the same as online banks which usually have a banking charter.

•  Neobanks emphasize technological innovation, offering advanced digital tools, while traditional banks may be slower to adopt new technologies.

What Are Neobanks?

Neobanks are financial technology (fintech) companies that offer banking services through mobile apps and online platforms. They operate entirely online and, due to reduced overhead, are generally able to offer consumers benefits like lower fees and higher interest rates on deposits.

Though they are called banks, neobanks do not have the required charters to meet the legal definition of a bank. Instead, they partner with chartered financial institutions to offer bank accounts, such as high-yield savings accounts and online checking accounts. Some also offer payment services, credit cards, and other financial services.

While neobanks offer online-only banking services, they are different from online banks. Generally, online banks have a bank charter and provide a broader range of services to their customers, including loans and investing services.

How Do Neobanks Work?

Neobanks operate by using technology to deliver banking services more efficiently and at a lower cost than traditional banks. They often enhance these services with digital features, such as real-time balance updates, spending trackers, and budgeting tools to help customers manage their finances effectively.

You can typically set up an account with a neobank by downloading an app, providing some personal information, and going through identity verification processes. Once your account is open, you manage it entirely online. Customer support is typically provided 24/7 via phone, online chat, in-app messaging, and email. Many neobanks partner with nationwide ATM networks to offer customers fee-free access to cash.

Though neobanks typically aren’t chartered, they will often partner with traditional banks to use their banking licenses, allowing them to offer insured deposit accounts and other regulated banking services. To make sure your deposits are insured by the Federal Deposit Insurance Corp. (FDIC), you’ll want to look for the FDIC logo. Keep in mind, however, that any funds you deposit in a neobank may not be protected while they are in transit to the insured bank account. The FDIC does not cover the failure or closing of a non-bank company or any money that has not been deposited in an FDIC-insured bank.

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What Are Traditional Banks?

Traditional banks are established financial institutions with physical branch networks that offer a wide range of banking services. These services generally include personal and business accounts, auto loans, mortgages, credit cards, and investment products. Traditional banks offer FDIC insurance on accounts, so you can’t lose your money (up to insured limits) even if the bank were to go out of business.

Traditional banks cater to a wide range of customers, from individuals to large corporations. They often have long-standing reputations and a history of customer trust, which makes them a popular choice for many consumers who prefer in-person banking experiences or require access to specialized financial services.

How Do Traditional Banks Work?

Traditional banks operate through a network of physical branches, ATMs, and online banking platforms. Customers can visit a branch for services like opening accounts, depositing checks, applying for loans, or speaking with a financial advisor. Traditional banks also offer online and mobile banking.

In addition to providing basic banking services, traditional banks offer specialized services like wealth management, foreign currency exchange, and business loans. Banks in the U.S. are regulated on either the federal or state level, depending on how they are chartered. Some are regulated by both.

Recommended: Traditional vs. Online Banks

Neobanks vs. Traditional Banks

 

Neobanks Traditional Banks
Physical branches No physical branches (online only) Physical branches and ATMs
Fees/rates Lower or no fees for basic services; higher rates on deposits Fees for services like account maintenance; lower rates on deposits
Products/Services Limited services; may not offer loans/mortgages Offers comprehensive banking services
Customer Service Virtual support only (chat, email, phone) In-person, phone, and online support
Tech Features Advanced technology, innovative tools Slower adoption of new technologies
FDIC Insurance Available if partnered with an FDIC-insured bank FDIC insured
Target Audience Tech-savvy users, younger demographics Broader audience including businesses

How Neobanks and Traditional Banks Are Different

Neobanks and traditional banks differ in several key ways, including their business models, services, and fee structures. Here are some of the main differences:

•  Physical presence: Neobanks operate exclusively online with no physical branches, while traditional banks have physical branches where customers can conduct transactions in person.

•  Fees/rates: Due to lower overhead, neobanks may often offer no- or lower-fee banking services and more competitive interest rates compared to traditional banks.

•  Range of services: Traditional banks generally provide a wider range of offerings, including business accounts, loans, mortgages, and investment products. Neobanks tend to focus on basic banking services, such as online checking accounts, savings accounts, payment services, and secured credit cards.

•  Customer service: Neobanks typically offer customer support through digital channels like chatbots and email, as well as by phone. Traditional banks offer the option of in-person customer service, which can be an advantage for those who prefer face-to-face interactions.

•  FDIC insurance: While both types of institutions may offer FDIC insurance on deposits (up to the legal limit), neobanks do not provide this protection directly.

•  Technological innovation: Neobanks often prioritize user experience and incorporate the latest fintech innovations, such as budgeting tools, spending analysis, and instant transfers. Traditional banks may lag behind in these areas due to legacy systems.

How Neobanks and Traditional Banks Are Similar

Despite their differences, neobanks and traditional banks share some common features:

•  Account types: Both neobanks and traditional banks offer basic banking services like checking and savings accounts.

•  Online and mobile banking: While neobanks operate solely online, traditional banks also offer online and mobile banking options for customers.

•  Security: Both neobanks and traditional banks typically offer state-of-the-art security technologies, including encryption, two-factor authentication, and biometrics (such as fingerprint or facial recognition).

Note: Online banks combine some of the features of traditional banks and neobanks. Like traditional banks, they may be chartered and FDIC-insured banking institutions. Similar to neobanks, they may offer tech-forward online-only banking, low/no fees, and competitive rates on deposits.

Pros and Cons of Traditional Banking for Consumers

Traditional banking offers both advantages and disadvantages. Here are some to consider.

Pros

•  Wide range of services: Traditional banks offer comprehensive financial services, including home and auto loans, credit cards, investment management services, commercial banking, and safe deposit boxes.

•  Physical branch access: Customers can visit branches for in-person assistance, which can make it easier to handle complex transactions or receive personalized advice. Branch access also offers a convenient way to make cash deposits.

•  Reputation and trust: Established banks have built customer trust over decades, providing a sense of security.

•  FDIC insurance: Federally insured banks protect your deposits up to $250,000 per depositor.

Cons

•  High fees: Traditional banks often charge fees for account maintenance, overdrafts, and other services.

•  Low returns: Traditional banks typically pay lower yields on savings and other deposit products compared to neobanks and online banks.

•  Limited technological innovation: Many traditional banks can be slow to adapt to new digital technology and may lack advanced features compared to neobanks.

•  Inconvenience of physical visits: While traditional banks offer online banking services, there may still be times when you need to visit a branch in person, which can be time consuming.

Pros and Cons of Neobanking for Consumers

Neobanking also has both benefits and drawbacks. Here’s a closer look.

Pros

•  Lower fees: Neobanks typically offer fee-free accounts or lower fees compared to traditional banks.

•  Higher APYs: Neobanks typically pay more interest on deposits compared to traditional banks.

•  User-friendly digital experience: Advanced mobile apps and digital tools provide customers with an easy, intuitive way to manage finances.

•  Convenience: Fully online banking can be a major time-saver, allowing you to avoid waiting on lines to see a teller. Many neobanks offer round-the-clock customer service.

Cons

•  Limited product range: Neobanks may not offer a full range of financial services, such as loans, mortgages, or investment products.

•  No physical branches: The lack of in-person support can be a disadvantage for customers who prefer face-to-face interactions.

•  Challenges with cash deposits: Unless the neobank is linked to ATMs that accept cash, you won’t be able to deposit cash into your account.

•  Not FDIC-insured: Neobanks are typically not chartered banks and rely on partnerships with FDIC-insured banks.

The Takeaway

Neobanks and traditional banks both offer banking services, and each has benefits and drawbacks. Neobanks can work well for those seeking a low-cost, technology-driven banking experience, while traditional banks offer more comprehensive services and the convenience of physical branches.

The right choice for you will depend on your personal preferences, financial needs, and comfort with digital banking.

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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

How are neobanks and traditional banks different?

Neobanks are financial technology firms that offer digital banking services through apps and online platforms. They operate without physical branches and focus on low fees, streamlined services, and innovative financial tools. Neobanks are not technically banks, however, and must partner with chartered banks to offer FDIC-insured accounts.

Traditional banks have physical branches, providing in-person services alongside online banking. They are fully licensed, offer a broader range of financial products than neobanks, but tend to charge higher fees and offer lower yields on deposits.

What are the downsides of neobanks?

One potential downside of neobanks is that they’re online-only. As a result, there are no branches you can visit for in-person transactions or assistance. Neobanks also have a narrower range of financial products and services compared to traditional banks. In addition, neobanks technically aren’t banks and must partner with chartered and licensed institutions to offer Federal Deposit Insurance Corporation (FDIC) insurance.

What are some advantages of neobanks?

Neobanks offer a number of advantages, including competitive interest rates on deposits, low (or no) account fees, and 24/7 customer service. Many also offer in-app perks like real-time spending notifications and user-friendly budgeting tools.

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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.


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

This content is provided for informational and educational purposes only and should not be construed as financial advice.

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

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Guide to SARs: Suspicious Activity Reports

By | money, Money & Life, Terminology | Comments Off on Guide to SARs: Suspicious Activity Reports

A suspicious activity report, or SAR, is a document that financial institutions must submit to the federal government when they detect unusual and suspicious activities. SARs serve as an early warning system for the authorities, helping law enforcement detect, investigate, and prevent financial crimes like money laundering, fraud, and terrorist financing.

Here’s a closer look at what a SAR is and what type of financial activity triggers a suspicious activity report.

Key Points

•  Financial institutions file suspicious activity reports (SARs) to alert authorities about unusual or illegal activities.

•  The Financial Crimes Enforcement Network (FinCEN) regulates SARs under the Bank Secrecy Act.

•  Large cash transactions, unusual account activity, and structuring transactions to evade reporting are common triggers for SARs.

•  SARs are held in a database that law enforcement agencies can search, helping them uncover networks and prevent financial crimes.

•  Banks are not allowed to disclose SARs to customers, but many reports never lead to charges or adverse consequences.

What Is a SAR?

A SAR, or suspicious activity report, is the standard document that banks and some other businesses must file with the Financial Crimes Enforcement Network (FinCEN) if they detect unusual behavior by an individual or organization. These reports are housed in a central government database and are designed to pick up illegal activities, such as money laundering, tax evasion, criminal financing, or other types of fraud that would not be flagged under other reports.

SAR filings can be triggered by any type of financial transaction that is out of the ordinary, such as large cash deposits or withdrawals into bank accounts, frequent wire transfers to countries known for criminal activity, structuring transactions to avoid reporting requirements, and any transaction that doesn’t seem to have a legitimate business purpose.

A suspicious activity report will contain details about the suspect transaction, the parties involved, and the reasons why the transaction is considered suspicious. The financial institution is not required to provide proof that a crime has occurred, nor is the institution’s client notified that a SAR related to their account has been filed.

The data contained in SARs is made available to multiple law enforcement agencies and is often combined with other information to build cases and prevent financial crimes.

Who Regulates SARs?

In the United States, the Financial Crimes Enforcement Network (FinCEN), a bureau of the U.S. Department of the Treasury, regulates SARs.

Under the Bank Secrecy Act (BSA) of 1970, banks and other financial institutions must file SARs with FinCEN to help government agencies detect and prevent money laundering and other financial crimes. Traditionally, this meant filing a paper report, but starting in 2013, FinCEN moved its reports entirely online. Businesses and individuals now use the BSA E-Filing System to submit a SAR.

FinCEN sets the rules and guidelines that determine when a SAR should be filed, what information should be included, and how financial institutions should handle suspicious transactions.

Who Can Make SARs?

Generally, financial institutions and businesses engaged in financial services are required to make SARs. This includes banks, credit unions, stock/mutual fund brokers, and different kinds of money service businesses (such as check-cashing companies and money order providers). Other types of businesses that must submit SARs include:

•  Casinos

•  Precious metals and gems dealers

•  Insurance companies

•  Mortgage companies

Essentially, if there is an opportunity to launder money or commit any other type of financial crime, a business or organization (and its employees) are required to be aware of the rules and requirements of SARs.

Who Do SARs Alert?

A suspicious activity report often begins when an employee of a financial institution notices an unusual activity, such as large sums of money being deposited into an account that had never been used for that kind of activity, or an anonymous wire transfer of funds out of the country. The individual would then communicate their observation to a supervisor, who files a SAR.

When a SAR is filed, it goes to the Financial Crimes Enforcement Network, or FinCEN. This regulatory body is in charge of analyzing SARs and providing the resulting intelligence to law enforcement agencies, including the Federal Bureau of Investigation (FBI) and Drug Enforcement Administration (DEA). The information from SARs helps these agencies detect patterns of illegal activity and investigate cases that could otherwise go unnoticed.

Recommended: How Do Banks Investigate Unauthorized Transactions?

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What Triggers SARs?

A variety of situations can trigger the filing of a SAR. These scenarios typically involve activities that seem unusual, inconsistent with normal financial behavior, or indicative of illegal conduct. Here are some common triggers:

Large Cash Transactions

Unusually large cash deposits or withdrawals, especially when they are inconsistent with a customer’s usual banking patterns, can trigger a SAR. Financial institutions are required to report cash transactions exceeding $10,000 per day.

Unusual Account Activity

If there is sudden or unusual account activity, such as rapid transfers between accounts or sudden high-value transactions without an apparent legitimate purpose, a SAR may be filed. This type of activity could suggest money laundering, tax evasion, or fraud.

Recommended: Understanding Savings Account Withdrawal Limits

Structuring Transactions

Structuring occurs when an individual deliberately breaks up large amounts of money into smaller transactions to evade reporting requirements. This is a common tactic used in money laundering and can trigger the filing of a SAR.

Suspicious Wire Transfers

An unusually large number of wire transfers; wire transfers that fall into certain repeated patterns; and wire transfers to or from countries known for financial crime (such as tax evasion or terrorism) can trigger a SAR.

Unexplained Wealth

If a customer suddenly deposits large sums of money into a checking or savings account, or purchases expensive assets without a clear, legitimate source of funds, a SAR may be triggered. This could be seen as a sign of illicit activity, such as drug trafficking, corruption, or fraud.

Transactions Involving Shell Companies

The use of shell companies to conduct financial transactions can be considered suspicious. Shell companies often lack significant assets or operations and may be used to conceal the true nature of financial dealings, prompting a SAR filing.

What Happens When a SAR Is Triggered?

If your financial institution files a SAR due to any of your banking transactions, nothing would happen right away. And since banks are not allowed to disclose a SAR to customers, you would not even be aware of it.

Typically, If there’s no illegal activity involved, FinCEN will not pursue the issue and it will not have any negative impacts on your life. Banks routinely file SARs to avoid being cited for violating their legal responsibilities and many do not lead to adverse consequences. However, if a SAR is suspicious enough, it may gain the attention of federal law enforcement authorities.

If, after conducting an investigation, the government believes illegal activity occurred, it could potentially seek a court order to temporarily freeze your bank account. This is done to keep the funds in question from being withdrawn until the investigation is completed.

Why Suspicious Activity Reports Are Important

SARs play a vital role in combating financial crime. They provide a way for financial institutions to alert regulators to potential illegal activities, giving them an opportunity to investigate and take action before criminal activities escalate. SARs help prevent money laundering, terrorist financing, drug trafficking, tax evasion, and other serious crimes.

SARs also contribute to global efforts to combat financial crime, since the intelligence is often shared across borders. International cooperation is often crucial for investigating and prosecuting transnational criminal organizations, making SARs a valuable tool in global anti-money laundering efforts.

Recommended: Guide to Keeping Your Bank Account Safe Online

Are SARs Confidential?

Yes, SARs are confidential, and strict rules govern how they are handled. The person or organization that files a SAR is prohibited from disclosing the report’s existence or the fact that it has been filed. This confidentiality is crucial to ensure that the subject of the SAR is unaware of the investigation, thereby preventing them from altering their behavior, destroying evidence to cover their tracks, or fleeing.

Violating SAR confidentiality is a serious offense and can lead to legal penalties for the individual or institution responsible. The only parties allowed to know about the SAR are the regulatory authorities and law enforcement agencies involved in investigating the suspicious activity.

Recommended: How to Make Money Fast

The Takeaway

Suspicious activity reports (SARs) are essential tools for detecting and preventing financial crime. These reports enable financial institutions to alert authorities when they encounter transactions that raise red flags for illegal activities such as money laundering, fraud, or terrorist financing.

However, SARs are commonly filed and, in many cases, do not lead to further investigation. As long as you’re not engaging in any illegal financial activities, a SAR should not have any impact on your life or cause any interruptions in your ability to use your checking or savings account.

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

What triggers a suspicious activity report?

A suspicious activity report (SAR) is triggered when a financial institution detects unusual or potentially illegal activity. This can include large cash transactions, sudden changes in account usage, wire transfers to countries known for criminal activity, and structuring transactions (i.e., breaking up large amounts into smaller transactions to evade reporting requirements). The goal is to help government authorities detect and investigate crimes like money laundering, tax evasion, fraud, and terrorist financing.

What happens when you get a SAR?

If a bank or company submits a SAR about you, it is submitted to the Financial Crimes Enforcement Network (FinCEN). The report remains confidential, and you will not be informed. FinCEN reviews the SAR and may share it with law enforcement agencies for further investigation. Not all SARs lead to further investigation, however. A large number are simply routine and don’t lead to any adverse consequences.

What are examples of suspicious activity for SARs?

Examples of suspicious activity that can trigger a SAR include:

•  Large or unusual cash deposits or withdrawals

•  Transactions that seem unusual for the stated business type

•  Transactions inconsistent with a customer’s profile

•  Frequent international wire transfers to high-risk jurisdictions

•  Structuring transactions to avoid reporting thresholds

•  Use of shell companies for significant financial transactions

•  Sudden large asset purchases without a clear source of funds

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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.


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This content is provided for informational and educational purposes only and should not be construed as financial advice.

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

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2024
Financial Charts

Understanding Stock Dilution

By | Growing Wealth, invest, Investing, Terminology | Comments Off on Understanding Stock Dilution

Stock dilution is when a company action increases the number of outstanding shares of its stock, typically reducing the ownership stake of current shareholders. There are a number of ways share dilution can occur. Sometimes companies issue new stock as part of a secondary or follow-on offering in addition to the shares issued as part of its initial public offering (or IPO). A company may create more shares through stock options for employees or board members as part of a compensation or retirement plan.

Whichever way the stock dilution happens, the increase in the number of shares means that each individual stockholder ends up owning a smaller, or diluted, portion of the company. This isn’t necessarily bad news for investors, however, as the issuance of these additional shares may be put toward the company’s debt or into research and development, potentially enhancing the company’s long-term value.

Key Points

•   Stock dilution occurs when a company increases its outstanding shares, reducing the ownership stake of current shareholders.

•   Dilution can be facilitated through secondary offerings, stock options, or conversion of bonds and warrants.

•   While dilution decreases earnings per share and voting power, it can provide capital for growth or debt reduction.

•   The impact of dilution depends on how the raised funds are used; productive use can enhance long-term value.

•   Frequent dilution without good reason can signal poor performance and negatively affect stock prices.

What Is Stock Dilution?

Stock dilution occurs when a publicly-traded company increases the number of shares of stock on the market. Stocks are shares of ownership in a company. Owning even one share of stock is like owning a tiny piece of the operations of a business.

When a company’s board of directors first makes the decision to take a company public, the IPO process allows a set number of shares of that company’s stock to trade on public stock exchanges. This initial number of shares is often called the “float.”

Any further issuance of stock (often referred to as a secondary offering) will result in the outstanding shares being diluted. (The same applies if the secondary offering occurs after a backdoor listing.) While this may or may not affect the price, it does impact current investors’ ownership stake.

Example of Stock Dilution

Here’s an example of stock dilution: Let’s say a company has 10,000 shares of stock as part of its initial offering, and decides to issue 10,000 more shares as a secondary offering to raise more capital. In that case, existing investors could see a dilution factor of 50%. So if they previously owned 5% of the company, they would now own 2.5%.

Owing to a decrease in their percentage of ownership, stock dilution can also reduce the voting power of some shareholders. That may be something to keep in mind if voting power is important to you as you dig deeper into the world of online investing.

How Does Stock Dilution Work?

There are any number of reasons that companies choose to issue secondary shares of stock. A company might want to give rewards to its employees or raise new capital.

Issuing new shares as a method of raising money can be a particularly desirable option because it allows a business to receive an infusion of cash without going into debt or having to sell any assets that belong to the company.

It should be noted that stock splits are separate events that do not result in dilution. And a stock buyback, which reduces the number of outstanding shares, can be a way of enhancing the value of the stock.

When a business has a standard split of its stock, investors who already hold that stock receive additional shares, so their ownership in the company stays the same. Dilution of stock only occurs when new shares are issued and sold to additional investors who hadn’t purchased shares before the secondary offering.

Reasons Why Stock Dilution Occurs

When share dilution occurs, a company usually has its reasons for issuing the additional shares. Those reasons could include:

•   Additional shares may be sold to pay down debt or increase capital for R&D or other purposes.

•   Companies may offer stock options to employees as rewards or bonuses. When employees exercise these options, that increases the number of outstanding shares.

•   A company might issue stock warrants or bonds as another way of raising capital. But when or if these are converted to shares, they can be dilutive.

•   Some shareholders may push for an action that would end up diluting shares, as a way to reduce the power of smaller shareholders.

Is Stock Dilution Bad?

Stock dilution isn’t inherently bad or good, because the repercussions of diluting stock can affect all parties differently. While all shareholders may see their ownership stake decrease, that will affect some more than others.

Even if shareholders are unhappy in the short term, the resulting cash infusion from making more shares available on the market can benefit the company long-term — which in turn might increase the value of the stock.

Stock Dilutions and Stock Price

When a company increases the number of outstanding shares, that action of course has an impact on earnings per share (EPS) as well as dividends — because there are now more shares on the market, or in investors’ hands. And when EPS and dividends effectively become diluted (or reduced) as well, that can impact the price per share.

So instead of looking only at basic EPS, investors should take into consideration convertible securities that may be outstanding as well. By understanding the whole picture, investors can arrive at the diluted earnings per share, which captures a more accurate picture of company fundamentals.

How Does Stock Dilution Affect Investors?

When a company creates new shares of stock, the value of existing shares becomes diluted, meaning they decrease in value. If you’re thinking of cashing out stocks, this is something to consider.

Think of it like a birthday cake. At first, you and seven of your friends agree to each have one slice of cake. But then two of your other friends unexpectedly show up, also wanting cake. Now you have to slice the cake into 10 pieces rather than eight, so each piece will be smaller.

This scenario is similar to what happens when a company issues more shares of stock and stockholders see the value of their shares reduced. The difference is that each share not only becomes like a smaller piece of the cake, but usually (but not always) becomes less valuable and entitles its holder to less company ownership and voting rights.

Stock Dilution and Dividends

For dividend-yielding stocks, dilution can also lead to smaller dividend payouts unless earnings per share rise enough to make up the difference.

Because more shareholders now have to be paid, paying the same dividend yield takes a heavier toll on profits. If a company is only issuing new shares out of an attempt at raising new capital because their business is hurting, then they may have to cut dividends even deeper down the line or halt them altogether.

This will likely have consequences for investors who hold equities for income. Dividend investors will do well to keep an eye on the number of shares outstanding for any stock, as well as how previous dilutions (if any) have affected dividends.

To be clear, dilution doesn’t have to affect dividends. Dilution cuts down on earnings per share (EPS) but not necessarily on dividends per share (DPS), but it’s likely it would.

While EPS measures a company’s profitability per each share of stock outstanding, DPS measures the value of dividends paid out to investors per each share of stock outstanding. A company can choose to keep DPS the same after dilution, although doing so will cut into the profits of their business to a larger extent than before.

The more dividends per share a company pays out, and the more shares there are, the more unsustainable the dividend is likely to become, since a company can only afford to pay so much of its profits out to investors.

The only way for big dividend payments to be sustainable is when a company is either growing rapidly or taking on lots of debt to finance its operations.

Other Stock Dilution Effects

Stock dilution has an impact on more than just the price of a stock or potential dividend payouts.

When additional shares are created, this reduces the stock’s earnings per share (there will be fewer earnings per share with more shares on the market) as well as the voting rights of the shareholder (holders of stocks sometimes get to cast a vote for important company decisions, like the addition or removal of board members).

In fact, income statements issued by companies often show both “basic” and “diluted” earnings per share (EPS) numbers. This allows for shareholders and investors thinking about purchasing the stock to see the effect that dilution would have if the maximum number of potential shares were to come into existence (through the use of unexercised stock options, for example).

Dilution of a stock can also have a positive impact on the stock’s valuation, however. That’s because the issuing of new shares being bought increases the stock’s market cap, as people buy those shares. If this momentum outpaces any selling caused by negative market views of the secondary offering, then share prices could rise.

Beyond the short-term, news-based influence of dilution, the long-term effects of new stock shares coming into existence depends largely on how a company’s management decides to spend the funds they just received.

Pros and Cons of Stock Dilution

While it’s easy to interpret stock dilution as a negative thing from the perspective of those who hold shares before the dilution occurs, the concept isn’t so one-sided.

When done in the right way for purposes that contribute to company growth, dilution can benefit both a company and its shareholders over the long-term.

When done recklessly or in an attempt at covering up bad business performance, dilution can provide a temporary cash flow boost that doesn’t solve any real problems and puts shareholders in a precarious position.

It comes down to whether or not a management team has a good reason for diluting their stock and what they choose to do with the funds raised afterward.

Pros of Stock Dilution

In some ways, dilution of stock can be a good thing. When new shares are used to reward managers and employees, this can indicate a company is growing and performing well, and that it wants to share some of its good fortune.

When new shares are issued at a price higher than what the stock is currently selling for, this can also be a win-win scenario. It indicates demand for shares while minimizing the share dilution that existing shareholders must endure.

Ideally, companies should have a good reason to issue new shares and use the resulting cash infusion in a productive manner. Raising money for a new product, research and development, or bringing on new and valuable employees might be some good reasons for dilution of a stock.

When a company dilutes its stock without good reason, or doesn’t use the proceeds in a productive way, then the cons of stock dilution are all that’s left.

Cons of Stock Dilution

In general, investors don’t take kindly to the concept of new stock shares being issued to internal shareholders, as it usually decreases the value of the stock and the ownership stake of those who already hold shares. To the investing public that has some kind of awareness of this, stock dilution can be seen as negative news.

Some of the things mentioned previously can also be considered cons of stock dilution: a decrease in earnings per share, less voting power for shareholders, or declining share prices.

Recurring, new stock issuances can be perceived as a warning sign by investors. If a company needs to keep diluting its stock to raise money, perhaps their business operations haven’t been performing well.

This perception might lead people to sell shares, resulting in a decline in the stock price. Sometimes this happens when a company merely announces that they might be issuing new shares in the future. The perception can become reality before anything even happens.

Stock Dilution vs Stock Splits

While share dilution and stock splits both increase the number of outstanding shares, a stock split has a different motive and different results.

A company often conducts a stock split to bring down the price per share. For example, a company trading at $200 per share could do a 4-to-1 stock split, bringing down the PPS to $50. Shareholders still hold the same dollar amount, but the number of shares they own has increased, so their ownership percentage doesn’t change.

Stock Dilution

 Stock Split
Increases number of outstanding shares Increases number of outstanding shares
Used for capital infusion or for employee incentives/bonuses Used to reduce the stock price
Investors’ ownership stake is reduced Investors’ stake remains constant

Understanding Corporate Buyback

The opposite of a company creating more shares is when a company buys its own shares back. This is sometimes called a corporate buyback and reduces the number of shares outstanding, usually leading to a rise in the price of a stock (due to the law of supply and demand).

While this might be good for shareholders in the short-term, it can be a bad thing for a company overall, since the money used could have been spent to improve business operations instead.

Sometimes stock can become highly overvalued due to the practice of corporate share buybacks, leading to precipitous drops in prices later on.

Sometimes companies issue public statements detailing their exact plans for dilution as well as their reasons for doing so.

This way, both current and future investors can prepare accordingly. The news alone can sometimes lead to a stock selloff due to the fact that the concept of stock dilution is usually interpreted in a negative way by most investors.

Investors would do well to monitor the amount of shares a company has outstanding. If the number keeps increasing, earnings per share are likely to decline or stay flat while investor’s voting rights diminish in their influence.

And while a drop in share counts can be a good thing, they can cover up a lack of growth by boosting earnings per share without any real underlying growth happening.

The Takeaway

Stock dilution — when a company issues additional shares — is neither good nor bad, but it does have specific consequences for shareholders, who typically see their ownership stake decrease. In some cases, the additional capital raised by the shares in a secondary offering (one that occurs after the IPO) can benefit a company long term by paying down debt or adding to its assets or intellectual capital. But stock dilution can impact earnings per share, as well as dividend payouts, which in turn can impact the price.

But if the company sees a gain, growth, or expansion from the additional revenue, that could boost the stock price. It’s just important for investors to understand what a stock dilution might mean.

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2024

How to Complete the FAFSA Step by Step

By | Student Loans, student_loan, Terminology | No Comments

As a student, you must submit a new Federal Application for Student Aid (FAFSA) each school year to learn the types of federal aid you qualify for, including federal student loans, grants, and work-study programs. Many colleges and states, as well as other student aid programs, use your FAFSA to determine what aid you may be eligible for. So the FAFSA is worth submitting even if you’re not expecting to receive federal aid.

The FAFSA for the 2025-2026 academic year opened on November 21, 2024, and it closes on June 30, 2026. However, it’s best to complete the form as soon as possible since some state and school scholarship programs have different deadlines.

Keep reading for detailed instructions on how to complete the 2025-2026 FAFSA. We’ll walk you through the required fields and highlight changes from previous forms.

Key Points

•   The 2025-2026 FAFSA application process, which is now open, has been streamlined and can be completed in less than an hour.

•   Students must create an account on StudentAid.gov and gather necessary documents like Social Security numbers and tax returns before starting the application.

•   The application requires personal, financial, and educational information, and students can select up to 20 colleges to receive their FAFSA information.

•   Parents of dependent students must also create an account on StudentAid.gov and provide their financial information and consent to transfer tax data from the IRS.

•   After submission, the online FAFSA is processed in 1-3 days, and applicants can track the status online.

Documents You’ll Need

Before you sit down to fill out the online FAFSA application , it’s best to have the following documents or information handy, especially if you want to fill out the FAFSA as quickly as possible. Documents needed include:

•   Completed tax returns

•   Parents’ SSNs if you’re a dependent student

•   Child support records, if applicable

•   Current cash, savings, and checking account balances

•   Investment, business, or farm net worth

Recommended: Who Qualifies for FAFSA? FAFSA Requirements

How to Fill Out the FAFSA in 6 Steps

How to Fill Out the FAFSA

Ready to file the FAFSA? First, check your watch.

Make sure you have enough time to fill out the form. Most people find that it takes less than one hour to complete, including gathering the personal and financial information you need.

Here’s how to fill out the FAFSA step by step.

Step 1: Create an Account

The preferred way to complete the FAFSA is online. You can do this for free — you should never pay any site to file the FAFSA for you.

Create a StudentAid.gov account before you start the FAFSA. Ensure that your name and Social Security number (SSN) look exactly as they do on your Social Security card.

The individuals who must include information on the form — a spouse, a biological or adoptive parent, or your parent’s spouse — must all have an FSA ID (account username and password). However, contributors without an SSN can create an account to fill out their portion of the 2025-2026 form.

A contributor is anyone required to provide information and approval to have their federal tax information transferred directly into the FAFSA form. This person, while not required to pay for a student’s college education, may include a student’s spouse, a biological or adoptive parent, or a stepparent.

Step 2: Provide Personal Information

After logging in, select either “student” or “parent,” depending on whether you are the student or parent filling out the form. We’ll assume that you’re filling it out as a dependent student for the next few steps.

What is a dependent student vs. independent student? Check out the full list of dependent vs. independent qualifications. Independent students will also answer the same basic set of questions and add spouse information if they are married.

You’ll start by filling out basic personal information, such as:

•   Name

•   Birthdate

•   SSN

•   Email address

•   Mobile phone number

•   Mailing address

Next, as a dependent student, you’ll indicate personal circumstances, such as marital status, college or career school plans, and any unusual personal circumstances.

You’ll answer questions about your parents and family size and “invite” your parents to fill out the FAFSA information. You’ll also answer questions about:

•   Gender identity (though you can select “prefer not to answer”)

•   Race and ethnicity (you can also select “prefer not to answer” here)

•   Citizenship status

•   Parent education status

•   Whether a parent was killed in the line of duty

•   Student’s high school completion status

•   High school information

•   Any federal benefits received

Step 3: Add Dependent Student Financials

Next, you’ll fill out information about your tax filing status, tax returns, and assets (including any cash, savings, and checking accounts you have, or businesses, investments, farms, and/or real estate).

Step 4: Select Colleges

In this section, select the colleges you’re considering. You can choose up to 20 colleges or universities where you want your FAFSA recognized. You can search based on city, state, or college name.

Step 5: Review Page and Add Signature

The review page shows the responses you’ve added to the FAFSA. You can review all responses by clicking “Expand All” or show each section individually. Select the question’s hyperlink to edit. Once you invite a parent to the form, you can see the status of the parent invitation.

Finally, you acknowledge the terms and conditions of the FAFSA form and sign, which means you’ve submitted your section of the FAFSA form. It’s not considered complete, however, until a parent signs their portion.

Step 6: Parents Add Information

Once a dependent student invites a parent and they log in, the parent will receive information about onboarding. They will add their:

•   Name

•   Birthdate

•   SSN (if they have one)

•   Email address

•   Mobile phone number

•   Mailing address

The parent must provide consent to transfer federal tax information directly from the IRS into the Parent Financials section.

The FAFSA form will also ask the parent about:

•   Demographic information

•   Marital status

•   State of legal residence

•   Finances

•   Federal benefits

•   Tax filing status

•   Family size

•   Number of kids in college in the household

•   Tax return information

•   Assets

Next, the FAFSA will prompt questions about that parent’s spouse or partner, walk through a review page similar to the student review page, and ask for a signature where the parent acknowledges the terms and conditions of the FAFSA form. Finally, the parent signs that section.

Can a parent fill out the entire form on a student’s behalf, without student consent or signature?

Yes. A parent can fill out the entire FAFSA on behalf of the student indicating from the very beginning that they are filling it out as a parent.

If You Need Additional Help Filling Out the FAFSA

If you need help filling out the FAFSA form, you can click on the white question mark icon next to each FAFSA question to reveal a tip on how to answer that question. You can also learn more about the recently updated form and get the answers to frequently asked questions at the FAFSA Help Center, watch the FAFSA tutorial video, or chat with Aidan, the virtual assistant.

In addition, you can contact the Federal Student Aid Information Center. The Department of Education says it has added more staff to address applicants’ questions, and expanded the hours to provide help.

You can also look at our FAFSA guide for information on the FAFSA process. Finally, you can get help through the financial aid office at the college or career/trade school you plan to attend. They will often walk through the form with you.

Recommended: Avoid These Common FAFSA Mistakes

What Happens After You Submit the FAFSA?

After you hit the “submit” button, your form should be processed in one to three days. At that point, you should receive a copy of your FAFSA submission summary, which summarizes the information you included on your FAFSA form. You can check the status of your FAFSA at any time by logging into your account at StudentAid.gov and clicking on your FAFSA submission in the “My Activity” section of your dashboard.

Types of Government Student Aid

The FAFSA submission summary will also include your Student Aid Index (SAI), which lets schools determine the amount of aid you can receive. It also helps each school determine the financial aid you can receive from that particular institution. The financial aid office at each school will send you a financial aid award letter, which may include types of government aid such as:

•   Direct Subsidized Loans

•   Direct Unsubsidized Loans

•   Work-study

•   Pell Grants

•   TEACH Grants

•   Federal Supplemental Educational Opportunity Grants (FSEOG)

Recommended: How Financial Aid Works

Who Should Complete the FAFSA?

Anyone who could benefit from college financial aid has nothing to lose by filling out the FAFSA. Many students leave money on the table every year by failing to complete it, and low-income families are often less likely to complete the form than wealthier ones.

Even if you’re not eligible for federal aid, it’s worth your while to complete the FAFSA because most schools and states use FAFSA information to award non-federal aid. Non-federal aid includes scholarships, state aid, employee-sponsored aid, and more. Our scholarship tool can help you find scholarships and other aid opportunities that may be available.

To qualify for federal grants, work-study, and different types of student loans, you must be a U.S. citizen or an eligible noncitizen. You’ll need a valid SSN, with few exceptions, and a high school diploma, GED, or another recognized equivalent. You’ll also need to enroll in an eligible educational program and maintain satisfactory academic progress.

You may become ineligible for federal aid if you owe money on a previous federal student grant or are in default on a previous federal student loan.

Some types of federal aid are available only to people who demonstrate financial need. This includes the Federal Pell Grant and Direct Subsidized Loans. For the latter, the government pays the accrued interest while the borrower is in college or during most of their deferment periods.

What If I Don’t Qualify for Any or Enough Aid?

The amount of FAFSA money you receive depends on a variety of factors, including the institution you’re applying to, your assets, your parents’ assets, and more.

Merit aid, based on academic excellence, talent, and/or certain achievements, is also available. Some colleges won’t consider you for any of their merit scholarships until you’ve submitted the FAFSA, according to the Department of Education. Businesses, nonprofits, cultural organizations, and local groups also offer merit scholarships.

In addition, you can look into state grants and scholarships. Every state has its own money and process for distributing aid. Some only require a completed FAFSA; others, a separate application.

Then, there are private student loans, which are issued by banks, credit unions, and online lenders (as opposed to the government). Although private student loans don’t come with the benefits and protections that federal student loans have — like income-driven repayment plans and federal forbearance — they may help bridge funding gaps.

You can check to see what various lenders offer and what types of student loans you’d qualify for.

The Takeaway

Completing the FAFSA application doesn’t have to take hours of your time. In fact, it typically takes less than an hour to complete from start to finish. Use our guide to walk through how to fill out the FAFSA step by step in order to see how much federal aid you’ll qualify for and what types of aid you’re eligible to receive.

If you’ve exhausted all federal student aid options, no-fee private student loans from SoFi can help you pay for school. The online application process is easy, and you can see rates and terms in just minutes. This can help you find an option that works for your financial plan and budget.

SoFi private student loans offer competitive interest rates for qualifying borrowers, flexible repayment plans, and no fees.

FAQ

What’s the due date for the new FAFSA?

The FAFSA form for the 2025-2026 academic year must be submitted by 11:59pm central time (CT) on June 30, 2026. You can submit corrections or updates by 11:59pm CT on Sept. 13, 2026.

Can I fill out FAFSA myself?

Yes, students can complete the FAFSA on their own. The new FAFSA application instructions are easier to understand, and the Department of Education says it has modernized the FAFSA process and improved the user experience and functionality in filling out the online form. You can then invite your parents to enter their information.

How long does it take to fill out the FAFSA?

It typically takes less than an hour to fill out the FAFSA, including reading the FAFSA application instructions. However, it may take you longer to complete if you don’t gather important information ahead of time, such as your Social Security numbers and tax returns.

What disqualifies you from getting FAFSA?

To file the FAFSA, you must meet certain FAFSA requirements. For example, you must demonstrate financial need for need-based federal student aid programs, be a U.S. citizen or eligible noncitizen, have a valid SSN except in certain situations, be enrolled or accepted at an eligible institution as a regular student, maintain satisfactory academic progress, provide consent for federal tax information to go to the FAFSA, sign the certification statement on the FAFSA, and show you qualify to obtain higher education.

SoFi Private Student Loans
Please borrow responsibly. SoFi Private Student loans are not a substitute for federal loans, grants, and work-study programs. We encourage you to evaluate all your federal student aid options before you consider any private loans, including ours. Read our FAQs.

Terms and Conditions Apply. SOFI RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE. SoFi Private Student loans are subject to program terms and restrictions, such as completion of a loan application and self-certification form, verification of application information, the student's at least half-time enrollment in a degree program at a SoFi-participating school, and, if applicable, a co-signer. In addition, borrowers must be U.S. citizens or other eligible status, be residing in the U.S., and must meet SoFi’s underwriting requirements, including verification of sufficient income to support your ability to repay. Minimum loan amount is $1,000. See SoFi.com/eligibility for more information. Lowest rates reserved for the most creditworthy borrowers. SoFi reserves the right to modify eligibility criteria at any time. This information is subject to change. This information is current as of 04/24/2024 and is subject to change. SoFi Private Student loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891. (www.nmlsconsumeraccess.org).

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


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

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


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.

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