Credit Builder Loan vs Secured Credit Card: Which Is Better for You?

Credit Builder Loan vs Secured Credit Card: Which Is Better for You?

If you’re trying to build your credit, you may encounter a bit of a Catch-22: You likely need a good credit history to successfully apply for credit. But how do you do that if you don’t have credit?

Fortunately, products like credit builder loans and secured credit cards can help you build a favorable credit profile if you’re still at the beginning of your journey. Deciding which of these financial products is best will depend on your immediate financial needs and how much cash you have available to put down for a security deposit.

Read on to learn more, including:

•   What is a credit builder loan?

•   How does a credit builder loan work?

•   What are the pros and cons of credit builder loans?

•   What is a secured credit card?

•   How does a secured credit card work?

•   What are the pros and cons of secured credit cards?

•   Which is better of a secured credit card vs. a credit builder loan?

What Is a Secured Credit Card?

Secured credit cards vs. unsecured credit cards may look the same, but they work a little differently.

Instead of setting a credit limit determined by your credit history, secured cards require a cash security deposit. The amount of your deposit is usually the same as your limit.

You can think of it this way: Rather than allowing you to borrow money, the credit issuer is essentially allowing you to spend money you already have. It may sound as if it doesn’t offer any benefit, but remember: This gives you the opportunity to build your credit.

How Secured Credit Cards Work

When you apply for a secured credit card, you’ll provide your basic demographic information along with a cash security deposit to the card issuer. This deposit will usually be at least $200 or $300 and could be more; say, $1,000 or $2,500.

The deposit amount will likely serve as your working credit limit, though you may want to use the card sparingly. Perhaps you swipe or tap it often enough to keep it open and for the credit bureaus to see your positive credit behavior, such as paying in full and on time each month.

Because the cash deposit works as collateral, lowering the risk for the card issuer, you may be able to successfully apply for a secured credit card with a lower credit score or possibly even no credit at all. The same issuer might even automatically review the account to see if it merits a switch to an unsecured card.

Recommended: How to Apply for a Credit Card

Secured Credit Card’s Effect on Credit

Secured credit cards offer you the opportunity to build positive credit history, since your balance, payments, and other information will be passed to the credit bureaus. And because the credit limits are generally lower, it’s a lot harder to fall into a serious debt spiral with a secured credit card than it is with an unsecured one.

Pros and Cons of Secured Credit Cards

Like any financial option, secured credit cards have both pros and cons to consider.

Pros of secured credit cards:

•   It’s a readily available way for those with poor or non-existent credit history to begin building their credit with a low cash deposit.

•   You gain the ability to use the funds immediately while still building credit over time.

•   You may gain some potential credit card benefits, such as fraud protection and credit card rewards, like cash back.

Cons of secured credit cards:

•   You must have the cash deposit available, and it can be in your best interest not to use the entire amount once you have the credit card. That means some of your money is tied up on the card.

•   Interest and penalties may apply if you aren’t able to keep your balance low or paid off in full each month.

•   Card issuers do still run a hard credit inquiry when you apply, which can negatively impact your credit in the short term.

Recommended: What Is the Average Credit Limit and How Can You Increase It?

What Are Credit Builder Loans?

Credit builder loans are another option for people looking to build their credit. They work a little differently than a traditional loan does. Rather than receiving the money you’ve applied for right away, you’ll get the money later, after you’ve repaid the full amount.

How Do Credit Builder Loans Work?

Applying for a credit builder loan is a lot like applying for any other unsecured or secured personal loan. You’ll provide a variety of information, including details about your existing monthly expenses and income, as part of the approval process. (The lender may or may not run a credit check or look into your banking history.)

These loans are typically for relatively small amounts of $300 to $1,000. The term is likely to be between six and 24 months; rates will vary.

If you’re approved, the bank will create a savings account or certificate of deposit (CD) in the amount of the loan. The money is held there rather than paid out to you, and you repay the debt over time. It’s only when you’ve successfully completed repayment that the money be disbursed to you (sometimes including accrued interest).

In this way, it’s kind of like an enforced savings plan: You could slowly put money away into a savings account yourself, but taking out a credit builder loan keeps you accountable.

Plus, your payments are reported to the credit bureaus, which means you have the opportunity to build your credit history and credit report in the meantime. Win-win!

Note: Credit builder loans may not be available at your financial institution. If that’s the case, check credit unions, CDFIs (Community Development Financial Institutions), and online lenders.

Credit Builder Loan’s Effect on Credit

The loan company will report your on-time payments to the credit bureaus, which can help you build your credit. This can make it a lot easier to take out other loans in the future.

Of course, if you fail to pay on time or default, a credit builder loan could have a negative effect on your credit.

Pros and Cons of Credit Builder Loans

Credit builder loans also have both positives and negatives to consider.

Pros of credit builder loans:

•   They are available to people with low or no credit.

•   They may not require a hard credit inquiry.

•   They can help people build credit without risking going into credit card debt.

Cons of Credit Builder loans:

•   You won’t have access to the funds until after you’ve paid the loan off. Credit builder loans might not be right for those who have immediate financial needs.

•   There may be a nonrefundable fee for taking out the loan.

•   These loans can be difficult to find.

Credit Builder Loans vs Secured Credit Cards

Which of these two credit-building options might be right for you? The answer depends on your circumstances, but this table might prove helpful in comparing the options.

Credit Builder Loans

Secured Credit Cards

Your money will be locked up until you pay off the loan You’ll have immediate access to funds but not the full amount of the deposit
May come with a one-time fee, but doesn’t pose the financial risk of revolving debt Can be easy to accrue interest, late fees, and other penalties
Required cash security deposit can be as low as a few hundred dollars Required cash security deposit can be as low as a few hundred dollars
Available to those with poor or non-existent credit Available to those with poor or non-existent credit
Can help build credit history over time Can help build credit history over time

Is a Secured Credit Card or Credit Builder Loan Right for You?

Depending on your specific financial circumstances, either of these products might be a valuable way to enhance or establish your credit. Both are relatively easy to access for those with imperfect financial histories. Although both require an up-front cash deposit, the deposit may only be a few hundred dollars.

If you need to use your money right away, a secured credit card may make more sense; you’ll be able to use your credit card to pay bills and cover other expenses.

A credit builder loan, on the other hand, ties up your money for a longer period of time, but comes with less risk of paying large amounts of interest on revolving debt.

The Takeaway

Credit builder loans and secured credit cards make it possible to create a favorable credit history. A credit builder loan may be a better option for those who have more cash available, whereas a secured credit card helps build credit while (responsibly) spending.

Whether you're looking to build credit, apply for a new credit card, or save money with the cards you have, it's important to understand the options that are best for you. Learn more about credit cards by exploring this credit card guide.

FAQ

What is the difference between a credit builder loan and a secured credit card?

A credit builder loan is a loan that disburses money to the borrower only once the entire amount has been paid to the bank. A secured credit card is a credit card that requires a cash deposit to open. Both of these strategies require an up-front cash investment, but they also give people with poor or nonexistent credit the opportunity to build positive credit history and improve their credit score.

Which is better for building credit: a loan or a credit card?

Both loans and credit cards can build credit over time if the borrower makes their payments on-time and in full. However, both can also pose risk if the borrower is unable to keep up with repayment. Deciding whether to get a credit builder loan or a secured credit card may depend on how soon you need access to your cash.

What is one disadvantage of a credit builder loan?

When you take out a credit builder loan, you won’t have access to the money you’re applying for until the loan’s term is up, which may be as long as 24 months. That means credit builder loans might not be right for people with short-term financial needs to take care of.


Photo credit: iStock/staticnak1983

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

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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Tax-Friendly States That Don't Tax Pensions or Social Security Income

Tax-Friendly States That Don’t Tax Pensions or Social Security Income

There are a grand total of seven states that don’t tax retirement income, and that’s because those states don’t tax income at all. This can be important for seniors to know, as holding onto as much retirement income as possible can be important — whether it’s coming from pensions, Social Security, a 401(k), or elsewhere.

Equally important to know: As of 2023, there are 14 states that don’t tax pensions, and 37 states that don’t tax Social Security benefits. Paying less in taxes can lower the strain on a retiree’s budget and help their money last longer. That becomes especially important when and if inflation shrinks purchasing power — as it has in recent years.

How Much Can State Taxes Take Out of Retirement Income?

Each state taxes income, including retirement income, differently. So, there are different states that don’t tax pensions, and then there are states that don’t tax Social Security, etc.

Accordingly, how much of a bite state taxes take out of retirement income can depend on several factors, including the applicable tax rate where you live, and your specific tax brackets.

Taxes can be an important consideration when choosing where to retire, and when to retire.

Understanding State Income Tax

As of 2023, 43 states tax individual income. Of those, 41 states levy taxes on wage and salary income, while seven states do not assess individual income tax. The state of New Hampshire exclusively taxes dividend and interest income, while Washington taxes capital gains for certain high-income individuals.

In some states, the same tax rate applies to all taxable income. Other states use a graduated tax system with individual tax brackets, similar to the way the federal tax system works.

California has the highest marginal tax rate, at 13.30%. Other states with double-digit tax rates include Hawaii (11%), New York (10.90%), New Jersey (10.75%), and Washington, D.C. (10.75%). Aside from the states that have no income tax, the lowest marginal tax rate belongs to North Dakota, which has an income tax rate of 2.90%.

Further, if you were to look at the average retirement savings by state, it may help provide some more insight into where many retirees live — and why.

💡 Learn more about income tax and how it works.

14 States That Don’t Tax Pensions

Altogether, there are 14 states that don’t tax federal or private pension plans. Some of these are states that have no income tax at all; others have provisions in state law that make them states with no pension tax. Here are which states don’t tax pensions:

State

Pension Tax Policy

Alabama Pension income excluded from state income tax
Alaska No state income tax
Florida No state income tax
Hawaii Pension income excluded from state tax
Illinois Pension income excluded from state tax
Mississippi Pension income excluded from state tax
Nevada No state income tax
New Hampshire Only taxes interest and dividend income
Pennsylvania Pension income excluded from state tax
South Dakota No state income tax
Tennessee No state income tax
Texas No state income tax
Washington Only taxes capital gains for high income earners
Wyoming No state income tax

Keep in mind that state or local government employee pension benefits may be treated differently. New York, for example, specifically excludes pension benefits paid by state or local government agencies from state income tax. If you move to another state, however, that state could tax your New York pension benefits.

37 States That Don’t Tax Social Security

Understandably, many people have questions about Social Security, including whether the program will remain solvent in the future. Another big one: How will taxes affect your benefit amount? That’s why it’s important to know which states don’t tax Social Security.

The good news is that 37 states and the District of Columbia do not tax Social Security benefits. So if you’ve chosen to retire, or at least are thinking about choosing a retirement date (which can affect your total Social Security payouts), you don’t need to worry about it. Similar to the states that don’t tax pensions, these states either have no income tax at all, offer exemptions, or have elected to exclude Social Security benefits from taxable income calculations.

State

Social Security Tax Policy

State

Social Security Tax Policy

Alabama Not included in income tax calculations Nevada No state income tax
Alaska No state income tax New Hampshire Only taxes interest and dividend income
Arizona Not included in income tax calculations New Jersey Not included in income tax calculations
Arkansas Not included in income tax calculations New York Not included in income tax calculations
California Not included in income tax calculations North Carolina Not included in income tax calculations
Delaware Not included in income tax calculations North Dakota Exempt from taxation
Florida No state income tax Ohio Not included in income tax calculations
Georgia Not included in income tax calculations Oklahoma Not included in income tax calculations
Hawaii Not included in income tax calculations Oregon Not included in income tax calculations
Idaho Not included in income tax calculations Pennsylvania Not included in income tax calculations
Illinois Not included in income tax calculations South Carolina Not included in income tax calculations
Indiana Not included in income tax calculations South Dakota No state income tax
Iowa Not included in income tax calculations Tennessee No state income tax
Kentucky Not included in income tax calculations Texas No state income tax
Louisiana Not included in income tax calculations Virginia Not included in income tax calculations
Maine Not included in income tax calculations Washington Only taxes capital gains for high-income earners
Maryland Not included in income tax calculations Washington, D.C. Not included in income tax calculations
Massachusetts Not included in income tax calculations Wisconsin Not included in income tax calculations
Mississippi Not included in income tax calculations Wyoming No state income tax

Montana and New Mexico do tax Social Security benefits, but with modifications and exceptions. Montana will also see a change to its tax rate structure in 2024, and Social Security benefits will be taxed the same as they are at the federal tax level.

8 States That Don’t Tax Capital Gains

Federal capital gains tax applies when an investment or asset is sold for more than its original purchase price. The short-term capital gains tax rate applies to investments held for less than one year. Investments held for longer than one year are subject to the long-term capital gains tax.

States can also tax capital gains, though not all of them do. The states that do not tax capital gains are the same states that do not have income tax or have special tax rules on which income is taxable. They include:

•   Alaska

•   Florida

•   Nevada

•   New Hampshire

•   South Dakota

•   Tennessee

•   Texas

•   Wyoming

As far as how much capital gains are taxed at the state level, the tax rate you’ll pay will depend on where you live. Some states offer more favorable tax treatment than others for capital gains.

12 States That Don’t Tax 401(k), TSP, or IRA Income

Yet another potential area where states can generate tax revenue is by taxing retirement accounts such as 401(k) plans, individual retirement accounts (IRAs), and Thrift Savings Plans (TSPs). In all, there are 12 states that don’t levy taxes on retirement income derived from these sources:

•   Alaska

•   Florida

•   Illinois

•   Mississippi

•   New Hampshire

•   Nevada

•   New Hampshire

•   Pennsylvania

•   South Dakota

•   Tennessee

•   Texas

•   Wyoming

31 States That Don’t Tax Retirement Income From the Military

There are certain states that tax military retirement income, but most do not. In all, 31 states don’t tax military retirement income, including those that don’t have income taxes, and others that have specifically carved out exceptions for military retirement income.

•   Alabama

•   Alaska

•   Arizona

•   Arkansas

•   Connecticut

•   Florida

•   Hawaii

•   Illinois

•   Iowa

•   Kansas

•   Louisiana

•   Maine

•   Massachusetts

•   Michigan

•   Minnesota

•   Mississippi

•   Missouri

•   Nevada

•   New Hampshire

•   New Jersey

•   New York

•   North Dakota

•   Ohio

•   Pennsylvania

•   South Dakota

•   Tennessee

•   Texas

•   Washington

•   West Virginia

•   Wisconsin

•   Wyoming

7 States That Don’t Tax Retirement Income

As covered, there are a lot of different tax levels and tax types — some include different types of retirement income, some just involve plain old income tax itself. As such, it’s not really easy to determine which states don’t tax retirement income whatsoever. But if you were to boil it down to a list that accurately answers the question “which states don’t tax retirement income,” it would mirror the short list of states that don’t tax income at all.

•   Alaska

•   Florida

•   Nevada

•   South Dakota

•   Tennessee

•   Texas

•   Wyoming

In addition, as mentioned above, while New Hampshire and Washington state do tax certain types of income, they don’t really tax most forms of retirement income. So if you live in these states, your Social Security benefits and pension benefits can go further when it comes to covering your retirement expenses.

8 States With Low Retirement Income Taxes

Taking everything into account — taxes on income, pensions, Social Security, military retirement income, and more — there are several states that offer retirees relatively low retirement income taxes. Aside from the seven that don’t tax income at all, these states may be a good option for seniors, as they offer low retirement income taxes in one form or another:

•   Alabama

•   Hawaii

•   Illinois

•   Iowa

•   Mississippi

•   New Hampshire

•   Pennsylvania

•   Washington

Which States Have the Lowest Overall Tax Burden on Retirees?

Again, there is a lot to consider when trying to determine an overall tax burden, especially on retirees. But if you were to whittle down a list of a handful of states in which the tax burden is the absolute least on retirees? It would come down to the states with the overall smallest income tax burden, and a few other factors.

Delaware

Delaware hasn’t been discussed much, and though it does have state income taxes, a few other factors make it particularly appealing for retirees. Specifically, its state income tax rate tends to be relatively low (2.2% – 6.6%), and it has low property taxes, no sales taxes, and no applicable estate taxes.

Nevada

Nevada is a state with no state income taxes — a big win for retirees — and that also has relatively low property taxes, and no estate taxes. It also doesn’t tax income from most retirement accounts, or military retirement income.

Wyoming

Wyoming is similar to Nevada in that it has no state income taxes, low property taxes, and no estate taxes. There are applicable sales taxes, however, but it’s a drop in the bucket compared to the overall tax burdens seen in other states.

Can You Have Dual State Residency?

Generally, most people are residents of just one state. It is possible, however, to have dual residency in two different states. This can happen if you live in each state for part of the year to attend school, or to work.

For example, the state of Virginia distinguishes between residents who maintain a home in the state for 183 days or more during the year and domiciliary residents who claim Virginia as their legal state of residence. Under state law, it’s possible to be a resident of Virginia and a domiciliary resident of another state.

For instance, a college student from California who lives in Virginia during the school year would be a dual resident. However, you can have only one domicile — in this example, it would be California.

If you live and earn taxable income in two different states during the year, you may have to file tax returns in both those states unless a reciprocity agreement exists. Reciprocity agreements protect taxpayers who work in states other than the one in which they’re legal residents from being hit with double taxation.

What to Consider Before Moving to a Tax-Friendly State

Moving to a state that doesn’t tax pensions and Social Security could yield income tax savings, but it’s important to consider the bigger financial picture. Paying no or fewer income taxes on retirement benefits may not be much of a bargain if you’re stuck paying higher property taxes, or your heirs are left with steep inheritance taxes, for instance.

Also, consider the overall cost of living. If everyday essentials such as housing, food, and gas are higher in a state that has no income tax, then your retirement benefits may have less purchasing power overall. If costs end up being higher than you anticipated, you might end up working after retirement to fill any retirement income shortfalls.

The Takeaway

There are a number of states that tend to be more tax-friendly for retirees, and those generally include the states that don’t levy any income taxes. That list comprises states such as Alaska, Nevada, Texas, Florida, and Tennessee. But there are other potential taxes to take into consideration, and states all have different tax rules in regards to pensions, retirement accounts, capital gains, and more.

As such, if you’re hoping to save on taxes during retirement, you’ll need to do a little digging into the specifics to see what might affect you, given your unique financial picture. It’s wise to take into account other tax types as well (property taxes, etc.), and overall cost of living. Doing a thorough cost-benefit analysis before making a decision to move could be beneficial.

If you’re wondering about other ways to help make your retirement savings tax efficient, SoFi can help. With SoFi Invest, you can open a traditional or Roth IRA, and you can build, or add to your investment portfolio right from your smartphone or other device. SoFi doesn’t charge commissions (you can read the full fee schedule here), and SoFi members have access to complimentary advice from professionals.

Help grow your nest egg with a SoFi IRA.

FAQ

What is the most tax-friendly state to retire in?

The most tax-friendly states for retirees are states that don’t tax pensions and Social Security, and have a low tax-profile overall for sales and property tax. Some of the best states for retirees who want to avoid high taxes include Alabama, the District of Columbia, Nevada, and Tennessee.

Which states have no 401(k) tax?

States that do not tax 401(k) distributions are generally the same states that don’t tax income. Those states include Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming. New Hampshire and Washington don’t tax 401(k) distributions either.

Which states do not tax pensions?

States that do not tax pensions include the seven states that have no income tax — Alaska, Florida, Nevada, South Dakota, Tennessee, Texas, and Wyoming — as well as New Hampshire and Washington. Additionally, five states — Alabama, Hawaii, Illinois, Mississippi, and Pennsylvania — exclude pension income from state taxation.

How can I avoid paying taxes on retirement income?

The simplest way to avoid paying taxes on retirement income is to move to a state that has the smallest applicable tax burden on retirement income sources. That would include the short list of seven states that don’t have any sorts of state income tax. You can also consult a professional.

Which states are tax-free for Social Security?

There are a grand total of 37 states that don’t tax Social Security benefits, and that list includes the seven states that don’t tax income at all. Aside from those states, 29 others (and Washington, D.C.) do not, specifically, tax Social Security benefits.


Photo credit: iStock/RapidEye

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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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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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How to Use the Fear and Greed Index To Your Advantage

Guide to the Fear and Greed Index

What Is the Fear and Greed Index?

The Fear and Greed Index is a tool developed by CNN (yes, the news network) to help gauge what factors are driving the stock market at a given time.

If you’ve ever taken a look at how the market is doing on a given day and wondered just what the heck is going on, the Fear and Greed Index may be helpful in deciphering the overall mood of the markets, and what’s behind it.

CNN’s Fear and Greed Index attempts to track the overriding emotions driving the stock market at any given time — a dynamic that typically toggles between fear and greed.

The Index is based on the premise that fear and greed are the two primary emotional states that influence investment behavior, with investors selling shares of stocks when they’re scared (fear), or buying them when they sense the potential for profit (greed).

CNN explains the Index as a tool to measure market movements and determine whether stocks are priced fairly or accurately, with the logic that fear drives prices down, and greed drives them up, or is used as a signal of when to sell stocks.

There are specific technical indicators used to calculate the Fear and Greed Index (FGI), and strategies that investors can use to inform their investment decisions based on the Index.

Understanding the Fear and Greed Index

The Fear and Greed Index uses a scale of 0 to 100. The higher the reading, the greedier investors are, with 50 signaling that investors are neutral. In other words, 100 signifies maximum greediness, and 0 signifies maximum fear.

To give some historical context, on Sept. 17, 2008, during the height of the financial crisis, the Fear and Greed Index logged a low of 12. On March 12, 2020, as the pandemic recession set in, the FGI hit a low of 2 that year.

Seven different types of stock indicators are used to calculate the Fear and Greed Index.

CNN tracks how much each indicator has veered from its average versus how much it normally veers. Then each indicator is given equal weighting when it comes to the final reading. Here are the seven inputs.

1.    Market Momentum: The S&P 500 versus its 125-day moving average. Looking at this equity benchmark relative to its own history can measure how the index’s 500 companies are being valued.

2.    Stock Price Strength: The number of stocks hitting 52-week highs and lows on the New York Stock Exchange, the largest of the world’s many stock exchanges. Share prices of public companies can signal whether they’re getting overvalued or undervalued.

3.    Stock Price Breadth: The volume of shares trading in stocks on the rise versus those declining. Market breadth can be used to gauge how widespread bullish or bearish sentiment is.

4.    Put and Call Options: The ratio of bullish call options trades versus bearish put options trades. Options give investors the right but not the obligation to buy or sell an asset. Therefore, more trades of calls over puts could indicate investors are feeling optimistic about snapping up shares in the future.

5.    Junk Bond Demand: The spread between yields on investment-grade bonds and junk bonds or high-yield bonds. Bond prices move in the opposite direction of yields. So when yields of higher-quality investment-grade bonds are climbing relative to yields on junkier debt, investors are seeking riskier assets.

6.    Market Volatility: The Cboe Volatility Index, also known as VIX, is designed to track investor expectations for volatility 30 days out. Rising expectations for stock market turbulence could be an indicator of fear.

7.    Safe Haven Demand: The difference in returns from stocks versus Treasuries. How much investors are favoring riskier markets like equities versus relatively safe investments or assets, like U.S. government bonds, can indicate sentiment.

The Fear and Greed Index page on the CNN website breaks down how each indicator is faring at any given time. For instance, whether each measure is showing Extreme Fear, Fear, Neutral, Greed, or Extreme Greed among investors.

“Stock Price Strength” might be showing Extreme Greed even as “Safe Haven Demand” is signaling Extreme Fear.

Tracking the Fear and Greed Index Over Time

The Fear and Greed Index is updated often — CNN says that each component, and the overall Index, are recalculated as soon as new data becomes available and can be implemented.

Looking back over the past several years, the Index has tracked market sentiment with at least some degree of accuracy. For example, prior to the COVID-19 pandemic, the market was seeing a bull run and hitting record levels — the Index, in late 2017, was nearing 100, a signifier that the market was driven by greed at that time.

Conversely, the Index dipped into “fear” territory (below 20) during the fall of 2016, when uncertainty was on the rise due to the U.S. presidential election at that time. Note, too, that midterm elections can also affect market performance.

How Does the Fear and Greed Index Fare Against History?

As mentioned, the Index does appear to capture investor sentiment with some degree of accuracy. The past few years — which have been rife with uncertainty due to the pandemic — showed pockets of fear. For example, the Index showed “extreme fear” among investors in early 2020. That was right when the pandemic hit U.S. shores, and absolutely devastated the markets.

However, over the course of 2020, and near the end of the year, the Index was scoring at around 90, as the Federal Reserve stepped in and large-scale stimulus programs were implemented to prop up the economy.

Interestingly, the Index then dipped down into the “fear” realm in late 2020, likely due to uncertainty surrounding the outcome of the U.S. presidential election. It likewise saw a fast swing toward “greed” in the subsequent aftermath.

Again, these largely mirror what was happening in the markets at large, and economic sentiment.

How Does the Fear and Greed Index Fare Against Other Indicators?

While the Fear and Greed Index does fold several indicators into its overall calculations, it is more of an emotional barometer than anything. While many financial professionals would likely urge investors to set their emotions aside when making investing decisions, it isn’t always easy — and as such, investors can be unpredictable.

That unpredictability can have an effect on the markets as investors may panic and engage in sell-offs, or conversely start buying stocks and other investments. Ultimately, it’s really hard to predict what people and institutions are going to do, barring some obvious motivating factor.

With that in mind, there are other market sentiment indicators out there, including the American Association of Individual Investors (AAII) Sentiment Survey, the Commitment of Traders report published by the CFTC (one of several agencies governing financial institutions), and even the U.S. Dollar Index (DXY), which can be used to measure safe haven demand. They’re all a bit different, but attempt to capture more or less the same thing, often with similar results.

For instance, while the Fear and Greed Index showed a state of fear in mid-March, the AAII Sentiment Survey likewise showed a majority of investors with a “bearish” sentiment as well during the same time frame.

And, of course, there are a number of other economic indicators that you can use to inform your investing decisions, such as GDP readings, unemployment figures, etc.

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Dos and Don’ts of Using the Fear and Greed Index

Why is the Fear and Greed Index useful? The same reason that any sort of measurement or gauge has value. In this case, measuring sentiment can help you determine which move you want to make next as an investor, and help you ride investing trends to potentially bigger returns.

Are you being too greedy? Too fearful? Is now the time to think about herd mentality?

Also generally, some investors often try to be contrarian, so when markets appear frothy and the rest of the herd appears to be overvaluing assets, investors try to sell, and vice versa.

💡 Recommended: Should I Pull My Money Out of the Stock Market?

Dos

Use the Index to realize that investing can be emotional, but it shouldn’t be.

You can also use it to determine when to enter the market. Let’s say, for instance, you’ve been monitoring a stock that becomes further undervalued as investor fear rises, that could be a good time to buy the stock.

Don’ts

Don’t only rely on the Fear and Greed Index or other investor sentiment measures as the sole factor in making investment decisions. Fundamentals — like how much the economy is growing, or how quickly companies in your portfolio are growing revenue and earnings (which will be apparent during earnings season) — are important.

For instance, the FGI may be signaling extreme greed at some point, with all seven metrics indicating a rising market. However, this extreme bullishness may be warranted if the economy is firing on all cylinders, allowing companies to hire and consumers to buy up goods.

💡 Recommended: Using Fundamental Analysis on Stocks

What Is the Crypto Fear and Greed Index?

While CNN publishes and maintains the traditional Fear and Greed Index, there are other websites that publish a similar index for the cryptocurrency markets.

The Crypto Fear and Greed Index operates in much the same way as CNN’s Index, but instead, focuses on sentiment within the crypto markets. The Crypto Fear and Greed Index is published and maintained by Alternative.me.

The Takeaway

The Fear and Greed Index is one of many gauges that tracks investor sentiment, and CNN’s Index focuses on seven specific indicators to measure whether the market is feeling “greedy” or “fearful.” While it’s only one indicator, in recent years, it has served as a somewhat accurate barometer of the markets, particularly regarding major events like elections and the pandemic.

But, as with anything, investors shouldn’t rely solely on the Fear and Greed Index to make decisions, though it can be used as one of many tools at their disposal. As always, it’s best to check with a financial professional if you have questions.

Ready to buy and sell stocks, ETFs, or fractional shares on your own? Online trading with SoFi Invest offers an Active Investing platform, where investors can make their own decisions on how they want to build their portfolios.

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

Is the Fear and Greed Index a good indicator?

It can be a “good” indicator in the sense that it can be helpful when used in conjunction with other indicators to make investing decisions. That said, it shouldn’t be the only indicator investors use, and isn’t necessarily going to be accurate in helping determine what the market will do next.

Where can you find the Fear and Greed Index?

The Fear and Greed Index is published and maintained by CNN, and can be found on CNN’s website.

When does it make sense to buy, based on the Fear and Greed Index?

While you shouldn’t make investing decisions solely based on the Fear and Greed Index’s readings, generally speaking, the market is bullish when the Index produces a higher number (greed), and is bearish when numbers are lower (fear).


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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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What to Put for Desired Salary on a Job Application

What to Put for Desired Salary on a Job Application

Salary will always be an important factor in any career decision, whether you’re looking for a new job or choosing which offer to accept. And yet, few questions in the job application process are more uncomfortable than the basic What is your desired salary?

Not sure what to put for a desired salary on a job application? Keep reading for both helpful insights and templated responses.

Key Points

•   Determining a desired salary for a job application requires thorough research into the role, industry, and location.

•   Applicants should consider their education, experience, and special skills when setting a salary expectation.

•   It’s common to state if the salary is negotiable on online applications, often through a checkbox or in a notes section.

•   During interviews, candidates should be prepared to discuss and justify their salary expectations.

•   Email communication about salary can include stating a specific range or a minimum salary, with an openness to negotiation highlighted.

How to Answer Desired Salary on an Online Application

If you’re not sure what to put for desired salary on an application, you likely need to do some research and then think carefully about your answer. It’s true that listing too high a salary can immediately eliminate a candidate if the company can not afford to pay that much. But it’s equally true that lowballing can impact a candidate financially for years.

When deciding what to put for desired salary on a job application, it’s important that candidates don’t simply list the number they want to earn. A salary number should be based heavily on research. Spend time looking into the cost of living in the area, as well as what typical salaries look like for the role, seniority level, and industry you’re applying for. Education level, years of work experience, and special skills should also be taken into account.

When completing an online job application, it’s common to be asked if the salary listed is negotiable. This is usually done in a checkbox format, but if someone is open to negotiation and doesn’t see an option to highlight that fact, there is usually a notes section where flexibility can be mentioned.

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Recommended: What Are the Average Monthly Expenses for One Person?

How to Answer the Desired Salary Question in Interviews

Salary requirements can come up at any stage of the application process, including during the interview. To avoid feeling put on the spot, it’s smart to have an answer ready to go beforehand. As nerve-racking as interviews can be, they’re a great time to discuss salary with a potential employer to make sure both parties are on the same page.

Again, a salary number should be backed by careful consideration and research. Be ready to share an argument for why you chose that number. If the applicant is flexible on salary, that can also be expressed here. Many candidates factor benefits, title, signing bonus, growth potential, and other elements into their decision to accept a job.

If a candidate is pitching a number higher than the employer’s budget, but they’re willing to accept a lower salary if they can work from home three days a week, then they should share that during the job interview.

How to Answer the Desired Salary Question in Emails

Some employers may not ask about a candidate’s salary requirements until after an interview or two, and then do so over email. When it comes to figuring out what to put for the minimum salary desired, many candidates list their current salary or a number slightly higher than that to increase their disposable income.

Some employers may ask for a range. Here, it’s important for candidates to choose a minimum salary they feel is worthwhile enough for them to continue the application process.

Candidates may include a note in the email about salary being negotiable if that is true. But if there really is a minimum the candidate needs to see to consider the job offer, they should make that clear in writing. We all have different expenses and budgets that impact how much we need to make. A spending app can help candidates determine what salary they need to pay all their bills.

Recommended: The Most Rewarding Jobs in America

Declaring a Salary by Email: Templates

If you’re feeling uncomfortable about salary negotiations and you’re not sure what to put for the minimum salary desired, it can help to practice writing it out. You can use these email templates as a script for in-person or phone conversations, depending on how either party brings up salary.

•   Template 1: Salary Range. “Based on market research and cost of living in our area, I’m looking for a new role that will pay in the $80,000 to $90,000 range. I am flexible and am open to negotiation, but can only make a move for a salary in that range.”

•   Template 2: Minimum Salary. “The average salary for my role in the greater Los Angeles area is $65,000. I am currently looking for roles that can accommodate a salary of $65,000 or more.”

•   Template 3: Flexibility. “With ten years of industry experience and a recently earned MBA, I am looking to make a move to a more senior position. Compensation is important to me and I would like to make between $100,000 and $135,000. However, I am also looking for a role that provides schedule flexibility and would be willing to discuss a lower salary in exchange for a minimum of three remote work days a week.”

These templates give candidates an idea of how to get started. But it’s important to customize and flesh them out based on your own research.

When to Discuss Salary

Once you decide how much to quote for your minimum desired salary, you also need to be prepared to discuss it. There is really no wrong time to discuss salary during the job application process. While many candidates wait for the employer to bring it up, it is possible for the candidate to jumpstart the conversation. Some employers will wait until they make an offer to even mention salary.

While it’s generally not advisable to try to negotiate a salary before receiving a job offer, it is perfectly acceptable to ask what salary range they have in mind for the role.

If a candidate has concerns that the company’s budget is not in line with the salary the candidate is aiming for, inquiring early on about the salary range can help them avoid committing to multiple rounds of interviews for a role that isn’t the right fit.

What to Put for Desired Salary: Examples

At some point during a job search, a candidate will encounter a request to share their salary requirements. Once you feel confident you know what to put for a desired salary, you can turn to one of these examples for how to format your request.

•   I need to make a minimum of $XX in order to consider making a move from my current role/company.

•   I am looking for a new role that pays in the $XX to $XX range.

•   I am hoping to make $XX in my next role, but am open to negotiation for the right role.

It’s totally fine to keep salary requirements simple and straightforward to help eliminate any miscommunication.

The Takeaway

To recap, when you’re not sure what to put down for a desired salary, you’ll need to conduct market research into standard ranges for that role, industry, and experience level. You may also want to take local cost of living into account. Once you feel confident you know what to put for your desired salary on a job application, you simply need to communicate that amount clearly and concisely.

If you’re looking to make the most of your current or future salary, you can turn to SoFi for help. With SoFi’s money tracker app, users can monitor all of their money in one place. It’s easy to keep an eye on multiple account balances, set goals, review spending by category, and check on their credit score.

Get the information and tools you need to make the most of your money.

FAQ

What should I put for desired salary per hour?

When deciding what to put for your desired salary for an internship, part-time job, or other hourly role, you’ll need to research what the going rate is in your area. You also need to know what number works for your budget.

What to put for desired salary for part-time job?

Not sure what to put for a desired salary for a part-time job? Do some digging online to see what other roles in the same industry and local area pay to get an idea of a fair number to ask for.

Is desired salary hourly or yearly?

Whether or not someone’s desired salary is hourly or annual typically depends on the type of role they’re applying for or the company’s preference. It can be helpful to have a number in mind for both.


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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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