Aug
08
2024
The Growth of Socially Responsible Investing

Guide to SRI Investing

By | Growing Wealth, invest, Investing | No Comments

Socially responsible investing (SRI) strategies help investors put their capital into a range of securities — e.g., stocks, bonds, mutual funds — that focus on socially positive aims: e.g., clean energy, air and water; equitable employment practices, and more.

Despite market volatility driven by interest rate changes and geopolitical conflicts in recent years, SRI investing strategies have garnered steady interest from investors.

Various analyses of SRI funds suggest that the philosophy of doing well by doing some good in the world may have an upside worth exploring.

Key Points

•   Socially responsible investing (SRI) involves allocating capital into securities that promote positive social and environmental outcomes, aiming for both impact and financial returns.

•   The popularity of SRI has grown, with a notable increase in assets allocated to ESG-focused ETFs, rising from $5 billion in 2006 to $480 billion in 2023.

•   Different investing strategies exist within the realm of SRI, including impact investing, ESG investing, and sustainable investing, each with distinct criteria and goals.

•   Historical phases of SRI have evolved from exclusionary strategies to proactive investing, ultimately leading to a focus on measurable impacts and accountability.

•   Recent data indicates that sustainable funds often perform on par with traditional funds, suggesting that ethical investing can also be financially advantageous.

What Is Socially Responsible Investing?

While SRI investing goes by many names — including ESG investing (for environmental, social, and government factors), sustainable, or impact investing — the fundamental idea is to channel capital into entities that are working toward specific environmental and/or social policies in the U.S. and worldwide. The aim of SRI is to generate both positive changes across various industries, while also delivering returns.

Generally, investors that embrace SRI strategies find ways to assess an organization’s environmental and social impact when deciding whether to invest in them. However, there are important distinctions between the various labels in this sector of investing.

Socially responsible investing can be seen as more of an umbrella term (similar to impact investing). Within SRI, some strategies focus specifically on companies that meet certain criteria — either by supporting specific practices (e.g., green manufacturing, ethical shopping) or avoiding others (e.g., reducing reliance on fossil fuels).

For that reason it’s incumbent on each investor to assess different SRI options, to make sure they match their own aims. This is no different from the due diligence required for anyone starting to invest.

Interest in SRI Investing Strategies

The tangible merits of socially responsible investing have always been subject to debate. But in the last couple of years there has been criticism of some of the underlying principles of SRI, as well as questions about the overall financial value of this investing approach.

Nonetheless, the value of global assets allocated to ETFs with an ESG focus have shown steady growth in the last two decades. As of November 2023, according to data from Statista, the value of these assets was $480 billion — a substantial increase since 2006, when the value of those assets was about $5 billion.

And according to a report published in 2023 by Morningstar, a fund rating and research firm, investors in conventional funds as well as SRI funds are likely to see returns over time.

Recommended: Beginner’s Guide to Sustainable Investing

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SRI vs ESG vs Other Investing Strategies

While the various terms for SRI investing are often used interchangeably, it’s important for investors to understand some of the differences.

Impact Investing

Impact investing is perhaps the broadest term of all, in that it can refer to a range of priorities, goals, or values that investors may want to pursue. To some degree, impact investing implies that the investor has specific outcomes in mind: i.e. the growth of a certain sector, type of technology, or societal issue.

Impact investing may also refer to strategies that avoid certain companies, products, or practices. This could include so-called sin stocks (e.g. alcohol, tobacco), companies that adhere to principles that are in opposition to an investor’s or institution’s belief system, and more.

Socially Responsible Investing

SRI or socially conscious investing are two other broad labels, and they’re typically used to reflect progressive values of protecting the planet and natural resources, treating people equitably, and emphasizing corporate responsibility.

While SRI can be considered a type of impact investing, there may be impact investing strategies that are diametrically opposed to SRI, simply because they have different aims.

ESG Investing

Securities that embrace ESG principles, though, may be required to adhere to specific standards for protecting aspects of the environment (e.g. clean energy, water, and air); supporting social good (e.g. human rights, safe working conditions, equal opportunities); and corporate accountability (e.g. fighting corruption, balancing executive pay, and so on).

For example, some third-party organizations have helped create ESG metrics for companies and funds based on how well they adhere to various environmental, social, or governance factors.

Investors who believe in socially responsible investing may want to invest in stocks, bonds, or exchange-traded funds (ETFs) that meet ESG standards, and track ESG indexes.

Sustainable Investing

Sustainable investing is often used as a shorthand for securities that have a specific focus on protecting the environment. This term is sometimes used interchangeably with green investing, eco-friendly investing, or even ESG.

Unlike ESG — which is anchored in specific criteria having to do with a company’s actions regarding environmental, social, or governance issues — the phrase “sustainable investing” is considered an umbrella term. It’s not tied to specific criteria.

Corporate Social Responsibility (CSR)

Last, corporate social responsibility (CSR) refers to a general set of business practices that may positively impact society. Often, companies establish certain programs to support local or national issues, e.g. educational needs, ethical labor practices, workplace diversity, social justice initiatives, and more.

Ideally, CSR strategies work in tandem with traditional business objectives of hitting revenue and profit goals. But since CSR goals are specific to each company, they aren’t formally considered part of socially responsible, sustainable, or ESG investing.

A Focus on Results

Investors may want to bear in mind that, with the steady growth of this sector in the last 20 or 30 years, there are a number of ways SRI strategies can come together. For example, it’s possible to invest in sustainable pharmaceuticals and even green banks.

Either way, the underlying principle of these strategies is to make a profit by making a difference. By putting money into companies that embrace certain practices, investors can support organizations that embody principles they believe in, thereby potentially making a difference in the world, and perhaps seeing a financial upside as well.

Socially Responsible Investment Examples

These days, thousands of companies aim — or claim — to embrace ethical, social, environmental, or other standards, such as those put forth in the United Nations’ Principles of Responsible Investing, or the U.N.’s 17 Sustainable Development Goals. As a result, investors today can choose from a wide range of stocks, bonds, ETFs, and more that adhere to these criteria.

Understanding SRI Standards

In addition, there are also standards set out by financial institutions or other organizations which are used to evaluate different companies. It may be useful when selecting stocks that match your values to know the standards or metrics that have been used to verify a company’s ESG status.

Depending on your priorities, you could consider companies in the following sectors, or that embrace certain practices:

•   Clean energy technology and production

•   Supply chain upgrades

•   Clean air and water technology, products, systems, manufacturing

•   Sustainable agriculture

•   Racial and gender equality

•   Fair labor standards

•   Community outreach and support

Exploring Different Asset Classes

Investors can also trade stocks of companies that are certified B Corporations (B Corps), which meet a higher standard for environmental sustainability in their businesses, or hit other metrics around public transparency and social justice, for example. B Corps can be any company, from bakeries to funeral homes, and may or may not be publicly traded.

Companies issue green bonds to finance projects and business operations that specifically address environmental and climate concerns, such as energy-efficient power plants, upgrades to municipal water systems, and so on.

These bonds may come with tax incentives, making them a more attractive investment than traditional bonds.

Another option for investors who don’t want to pick individual SRI or ESG stocks is to consider mutual funds and exchange-traded funds (ETFs) that provide exposure to socially responsible companies and other investments.

There are a growing number of index funds that invest in a basket of sustainable stocks and bonds. These funds allow investors to diversify their holdings by investing in one security.

There are numerous indexes that investors use as benchmarks for the performance of socially responsible funds. Three of the most prominent socially responsible indexes include: the MSCI USA Extended ESG Focus Index; Nasdaq 100 ESG Index; S&P 500 ESG Index. (Remember, you cannot invest directly in an index, only in funds that track the index.)

Recommended: Portfolio Diversification: What It Is and Why It’s Important

The Growing Appeal of Socially Responsible Investments

While many investors find the idea of doing good or making an impact appealing, the question of profit has long been a point of debate within the industry. Do you sacrifice performance if you invest according to certain values?

Unfortunately, the lack of consistency in terms of what constitutes a sustainable or socially/environmentally responsible investment has made it difficult to compare SRI strategies to conventional ones. One financial company may use one set of criteria when developing its sustainable offerings; another company may use its own proprietary set of standards.

That said, as the universe of sustainable offerings continues to grow, it’s possible to create more apples-to-apples comparison sets. According to Morningstar data, sustainable equity funds saw median returns of 16.7% for 2023 versus 14.4% for traditional equity funds. The relative outperformance of SRI strategies was consistent across equity fund styles and most market caps, but particularly large-cap equities. Over 75% of SRI and conventional funds include large-cap equities.

In addition, sustainable fund assets under management (AUM) globally were up 15% over 2022, growing to $3.4 trillion.

The Evolution of Responsible Investing

Socially conscious investing is not a new concept: People have been tailoring their investment strategies for generations, for a number of reasons, not all of them related to sustainability. In fact, it’s possible to view the emergence of socially conscious investing in three phases.

Phase 1: Exclusionary Strategies

Exclusionary strategies tend to focus on what not to invest in. For example, those who embrace Muslim, Mormon, Quaker, and other religions, were (and sometimes still are) directed to avoid investing in companies that run counter to the values of that faith. This is sometimes called faith-based investing.

Similarly, throughout history there have been groups as well as individuals who have taken a stand against certain industries or establishments by refusing to invest in related companies. Non-violent groups have traditionally avoided investing in companies that produce weapons. Others have skirted so-called “sin stocks”: companies that are involved in alcohol, tobacco, sex, and other businesses.

On a more global scale, widespread divestment of investor funds from companies in South Africa helped to dismantle the system of racial apartheid in South Africa in the 1980s.

Phase 2: Proactive Investing

Just like exclusionary strategies, proactive strategies are values-led. But rather than taking an avoidant approach, here investors put their money into companies and causes that match their beliefs.

For example, one of the earliest sustainable mutual funds was launched in 1971 by Pax World; the founders wanted to take a stand against chemical weapons in the Vietnam war and encourage investors to support more environmentally friendly businesses.

This approach gained steady interest from investors, as financial companies launched a range of funds that focused on supporting certain sectors. So-called green investing helped to establish numerous companies that have built sustainable energy platforms, for example.

Phase 3: Investing With Impact

With the rise of digital technology in the last 30 years, two things became possible.

First, financial institutions were able to create screening tools and filters to help investors gauge which companies actually adhered to certain standards — whether ethical, environmental, or something else. Second, the ability to track real-time company behavior and outcomes helped establish greater transparency — and accountability — for financial institutions evaluating these companies for their SRI fund offerings.

By 2006, the United Nations launched the Principles for Responsible Investment (PRI), a set of global standards that helped create a worldwide understanding of Environmental, Social, and Governance strategies.

ESG became the shorthand for companies that focus on protecting various aspects of the environment (including clean energy, water, and air); supporting social good (including human rights, safe working conditions, equal opportunities); and fair corporate governance (e.g. fighting corruption, balancing executive pay, and so on).

Why Choose Socially Responsible Investing?

While the three phases of socially responsible investing did emerge more or less chronologically, all three types of strategies still exist in various forms today. But the growing emphasis on corporate accountability in terms of outcomes — requiring companies to do more than just green-washing their policies, products, and marketing materials — has shifted investors’ focus to the measurable impacts of these strategies.

Now the reasons to choose SRI strategies are growing.

Investors Can Have an Impact

The notion of values-led investing is that by putting your money into organizations that align with your beliefs, you can make a tangible difference in the world. The performance of many sustainable funds, as noted above, indicates that it’s possible to support the growth of specific companies or sectors (although growth always entails risk, and past performance is no guarantee of future results).

Socially Responsible Strategies May Be Profitable, Too

As discussed earlier, the question of whether SRI and ESG funds are as profitable as they are ethical has long been a point of debate. But that skepticism is ebbing now, with new performance metrics suggesting that sustainable funds are on par with conventional funds.

Socially Responsible Investing May Help Mitigate Risk

The criteria built into ESG investment standards may also help identify companies with poor governance practices, or those with exposure to environmental and social risks that could lead to financial losses.

Do Retirement Accounts Offer Socially Responsible Investments?

Generally speaking, individual retirement accounts may include socially responsible or ESG investment options. For example, when investing in different types of IRAs, e.g., a traditional, Roth, or SEP IRA, investors typically have access to all the securities offered by that financial institution, including stocks, bonds, and ETFs that may reflect ESG standards. The choice is up to individual investors.

That hasn’t always been the case with employer-sponsored 401k or 403b plans. But in 2023, the Department of Labor issued a rule allowing plan fiduciaries to consider ESG investment options for plan participants.

While some plans may now offer socially responsible or ESG investments, there is a push from some lawmakers to restrict or eliminate the availability of these funds. ERISA standards for retirement plans dictate that the investment options offered by employer-sponsored plans “must be based on risk return factors that the fiduciary prudently determines are material to investment value.” Some lawmakers argue that ESG funds are higher risk and not suitable for employees in company plans.

The Takeaway

Socially responsible investing is a broad term that can mean different things to different groups, but no matter which term you use — socially conscious investing, impact investing, ESG investing — it comes down to the compelling idea that by investing your money in organizations that match your values, you can make a difference in the world.

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FAQ

Is socially responsible investing profitable?

Socially responsible investing can be profitable, as multiple reviews of fund performance have shown over the last several years. That said, some believe that the financial strength of ESG or SRI strategies is debatable. While any investment strategy has its own risks, it’s best to assess them according to your own aims.

What is the difference between ESG investing and socially responsible investing?

Socially responsible investing is considered a broad term that can encompass a range of practices and standards. ESG investing stands for environmental, social, and governance factors, is a set of principles that is often used to assess how well companies meet specific, measurable criteria. While there is no single industry-wide metric for ESG standards, investors can consider various proprietary tools.

How many socially responsible investment opportunities are there?

It’s impossible to say how many SRI opportunities there are, as the stocks, bonds, and other securities that embrace ESG standards continue to grow. More than 120 new sustainable funds entered the SRI landscape in 2021, in addition to 26 existing funds that took on a sustainable mandate.

What is the socially responsible investment theory?

The theory behind socially responsible investing can be summed up by the old saying about “Doing well by doing good.” In other words, by investing in companies that support positive social and environmental products and policies, it’s possible to help investors realize a profit.

How do you start socially responsible investing?

Investors who are interested in SRI or ESG investing can begin by getting to know companies that adhere to certain eco-friendly or socially responsible standards. In addition, many financial institutions offer clients a way to screen for stocks or mutual funds that have an ESG focus.

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Aug
08
2024
Understanding Low Float Stocks

Understanding Low-Float Stocks

By | Growing Wealth, invest, Investing | Comments Off on Understanding Low-Float Stocks

Low-float stocks are companies with a relatively small number of shares available for public trading. It doesn’t mean the company has very few shares in total.

A company’s float, or floating shares, are those available after subtracting closely held and restricted shares from all outstanding shares. In some cases, a company has a lower float, meaning there are relatively few shares for the public to trade.

low-float stocks are considered more volatile and have higher spreads. But a company’s float can change owing to various conditions.

Key Points

•   Low-float stocks refer to shares with limited availability for public trading, resulting in increased volatility and potential price swings based on market demand changes.

•   The float of a stock is calculated by subtracting closely held and restricted shares from the total number of outstanding shares, revealing the shares accessible for trading.

•   Various factors contribute to a company’s low float, including control by insiders, family ownership, stock buybacks, and stock-based compensation, each affecting liquidity and volatility.

•   Day traders often favor low-float stocks due to their potential for significant short-term gains, but the high volatility also presents substantial risks that require careful evaluation.

•   Monitoring news catalysts and technical indicators is essential for trading low-float stocks, as these factors can lead to dramatic price movements and influence trading strategies.

Stock Float: Quick Recap

The float of a stock measures the number of shares of a particular stock. It indicates the number of shares of stock available for trading. The measure doesn’t include closely held shares, those owned by controlling investors, employees, or company owners.

Calculating floating stock requires looking at a company’s balance sheet and taking the total number of shares of a company and subtracting any restricted and closely held shares.

Stock indexes, such as the S&P 500, often use floating stock as the basis for figuring out the market cap (the total value of outstanding shares in dollars) of a company.

Recommended: Investing 101 Guide

What Are Low-Float Stocks?

A company’s float is the total number of shares outstanding, minus closely held and restricted shares.

Some larger corporations have very high floats in the billions, and investors typically consider a float of 10 to 20 million shares as a low-float. But there are companies with floats of less than one million, and you can find even lower-float stock trading on over-the-counter exchanges (OTC).

Companies with a low-float frequently have a large portion of their equity held by controlling investors such as directors and employees, which leaves only a small percentage of the stock available for public trading. That limited supply can cause dramatic price swings if demand changes quickly.

Because low-float stocks have fewer shares available, investors may have difficulty finding a buyer or seller for them. This may make the stocks more volatile, which appeals to day traders. The bid/ask spread of low-float stocks tends to be high as well.

💡 Quick Tip: When you’re actively investing in stocks, it’s important to ask what types of fees you might have to pay. For example, brokers may charge a flat fee for trading stocks, or require some commission for every trade. Taking the time to manage investment costs can be beneficial over the long term.

Floating Stock Example Calculation

If a trader looks at a company’s balance sheet, they can see how many outstanding shares the company has under the heading “Capital Stock.”

Looking at fictional Company A, the company’s balance sheet shows outstanding shares and floating stock shares:

•   50 million shares outstanding

•   45 million float shares

This is a high-float stock, with 90% of the stock available for trade. By contrast, Company B has:

•   2 million shares outstanding

•   475,000 float shares

This is a 23.75% float, and could serve as a signal for day traders to look at other factors to determine whether they want to invest in the stock.

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Understanding Shares Outstanding

Another stock market term that helps explain low-float stocks is shares outstanding. Shares outstanding refers to the total number of shares issued by a company, including those that can’t be traded.

The float is the number of shares that’s the percentage of the shares outstanding available for public trade. This is known as the float percentage. Companies might have numerous shares outstanding, but only a small percentage of floating stock.

The amount of floating stock a company has typically changes over time, as companies might sell more stock to raise money, or company stakeholders might sell their holdings. If a stock goes through a stock split or reverse split, this will also increase or decrease floating shares.

Benefits of Trading Low-Float Stocks

Essentially, low-float stocks primarily benefit day traders who are interested in earning large profits in a short time.

By their nature, low-float stocks are volatile. There are relatively few low-float stocks in the marketplace, and their prices tend to go up and down easily and quickly. Moreover, every trade of a low-float stock issue can have a larger impact on the value of the stock than it would on a security with a higher float.

For example, when good news hits a security with a limited supply, it doesn’t take much for it to have a huge impact on the share price. A low-float stock can see big gains when demand skyrockets. Conversely, if bad news comes to the same security, its price can nosedive rapidly.

The dramatic volatility in investing in low-float companies, can lead to a greater level of risk. But an experienced and highly skilled day trader might be delighted to take on this volatility challenge in exchange for potential continuous gains in a short trading session.

Importance of Low-Float Stocks

If you’re interested in investing in a particular company, it’s important to understand its stock float. You don’t want to overlook this detail while performing your due diligence on an issuing company.

The size of a stock float can change over time, which would affect the stock’s liquidity and volatility. Stock buybacks, secondary share offerings, insider buying or selling shares, and stock splits (or reverse splits) can cause the number of shares outstanding to change, and thus the float.

6 Reasons for Low-Floating Shares

Low-float stocks tend to have higher spreads and higher volatility than a comparable higher-float stock. You may find it hard to enter or exit positions in stocks that have a low float. What are some specific instances that could account for low-floating shares?

1. Special Purpose Acquisition Companies (SPACs)

Certain shares may be trading at a low float because the company that’s issuing the stock is part of a special purpose acquisition company (SPAC). A SPAC is a corporation formed for the sole purpose of raising investment capital through an initial public offering (IPO).

Typically, experienced business executives in the same industry as the SPAC’s target acquisition become the founders of a SPAC. A SPAC could take as long as a number of years to complete. And, even when the new company does go public, there may be fewer shares available for public purchase because they’re held by founders of the SPAC or other officers and insiders close to the deal.

2. The Company Is Family Operated

Another reason for low-float shares could be that the company is family owned. In these cases, a family likely would own a significant share of the company’s shares and would influence important decisions, like electing a chairman and CEO. In particular, if a family-operated company is small to midsize, there may be few shares left for the public to buy.

In fact, family-owned or operated businesses are all around us — including well-known names like BMW, Samsung, and Wal-Mart Stores. About 35% of all companies in the S&P 500 index are family controlled, and 118 of the top family-owned companies in the world are based in the U.S., according to the 2023 Global Family Business Index.

3. Stock Buybacks

If a company buys back some of its shares, that may affect its float by reducing the number of shares available for trading; there’s even a name for it: float shrink.

Regular share buybacks, along with dividend payments, are two ways that a company may reward shareholders. Another reason for a share buyback could be for a company to gain better control of its strategic initiatives without needing to consult its shareholders.

4. Company Has Donated Shares to Its Charitable Foundation

If a company founder has donated a large percentage of its shares to an associated charitable foundation, this could result in a lower float, if the foundation has held onto the shares which are then excluded from the overall float count.

5. Initial Public Offerings (IPOs)

In another scenario, a company might be involved in an initial public offering (IPO), in which its shares are considered privately held until the IPO is complete. Once the new shares are made publicly available for trade, a stock could be considered low float because a high percentage of shares are still restricted for a period of time.

6. Stock-Based Compensation

Some companies have initiatives that reward their employees with company stock; either as part of an incentive program or combined with their regular pay. A company also could have an equity compensation program in place as a way of rewarding employees, executives, and directors of a company with equity in the business.

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Evaluating Low-Float Stocks

Not every low-float stock represents a good buy, but it is a popular strategy for day traders. To evaluate a low-float stock, day traders often look at several other factors.

High Relative Volume

The relative volume shows a stock’s current volume in comparison to earlier periods in a company’s history. This is important to investors because it can affect a stock’s liquidity. If a stock has low liquidity, traders can potentially get stuck with shares they can’t sell.

They may also find themselves unable to take advantage of news catalysts with a significant buy or sell the move. If a stock’s price changes, but there isn’t a lot of trading volume, it may not be a good pick.

News Catalysts

Positive or negative news about a company frequently makes a low-float stock increase or decrease in a short amount of time.

Day traders keep a close eye on the stock market and corporate news to see which stocks likely would make moves. A news event can cause a low-float stock to move anywhere from 50% to 200% in a single day, as they are in low supply.

Float Percentage

This is the percentage of the total shares of stock available for trading. Each trader has their preferences, but most look for a percentage between 10% and 25%.

How to Trade Low-Float Stocks

When trading a low-float stock, a trader might buy and sell the same stock multiple times in a single day. Then, move on to a different low-float stock the next day in an extreme form of market timing.

Many traders will plan out their profit targets and support and resistance ahead of time and stop losses to reduce risk. As with any trade, traders can look at technical indicators like candlestick charts and moving averages to see whether a stock looks bullish or bearish.

A good strategy pays attention to technical analysis and rather than simply buying or selling based on rumors or news.

Finding low-float Stocks

Finding and evaluating stocks to trade requires some knowledge and experience. Several platforms offer the ability to trade low-float stocks. Some of these platforms allow traders to filter by criteria such as volume and float to find the best opportunities. Traders can look for stocks with a float of less than 50 million and a relatively high volume.

Penny stocks less than $5 are very popular with day traders. Traders can also look to watchlists for ideas about which low-float stocks to trade.

•   Reuters’ Free Scanner: Free to register. Users can find low-float stocks by scanning with the filter “float.”

•   Trade Ideas: This site has multiple low-float stocks lists for the U.S. market. It highlights stocks that are moving so that traders can capitalize on opportunities.

•   Stock Screeners: There are many other stock-screening tools you can use to find low-float stocks — such as Benzinga Pro, which lets you “search and filter stocks by any attribute.”

Some Risks to Know

Every investment comes with risks, but low-float stocks present some particular challenges. Day trading is inherently very risky and can result in significant losses (as well as gains). So, other types of investments are often a better fit for those with a low appetite for risk.

Low-float stocks can have high volatility; their price can change within seconds or minutes. If an investor isn’t careful, knowledgeable, or always on top of it, this volatility could wipe out a large portion of their portfolio. Low-float stocks could also present substantial profit opportunities; traders might see gains of 50% to 200% in a single day.

Looking at both the news and technical indicators is crucial for trading success. Trading low-float stocks requires a daily look at market news, as the stocks that look like a promising trade one day may not be ideal the next.

The Takeaway

The term “low-float,” as it pertains to stocks, refers to the amount of shares available to trade in the public market after the appropriate number of shares are allocated to founders, officers of the company, and other inside investors.

It’s important for investors to be aware of the amount of a company’s low-floating stock, as it can reflect the stock’s liquidity. If a stock has relatively few available issues, it might be harder for traders to sell it.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).


Invest with as little as $5 with a SoFi Active Investing account.

FAQ

Is a low-float stock good?

When a company’s stock is considered low float, there are fewer shares available for public trading. That can increase volatility for some investors, while others (like day traders) may be able to leverage changes in the share price.

How important is a stock’s float?

Understanding why a company may have a higher or lower float is an important factor for investors to take into consideration, because it can reveal (or be tied to) other aspects of the company’s management or status.

Are low-float stocks good for day trading?

Low-float stocks can garner huge profits for day traders when a particular industry, sector, or company is in high demand. But when demand shifts, low-float stocks can be risky.

What’s the difference between high- and low-float stocks?

You can find a company’s float by taking the total number of shares outstanding and subtracting the number of shares that are closely held or restricted. If the remainder is a high percentage of the outstanding shares, that’s considered a high-float stock — which can indicate the stock has a certain amount of liquidity.

If the remainder is a small percentage of the outstanding shares, that indicates a low-float stock, which generally has a higher spread, lower liquidity, and may be more volatile.

Photo credit: iStock/damircudic

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.

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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Aug
08
2024
What You Need to Know About Margin Balance

What You Need to Know About Margin Balance

By | Growing Wealth, invest, Investing | Comments Off on What You Need to Know About Margin Balance

Margin trading simply means borrowing money from a brokerage to purchase securities, and margin balance is the amount of money an investor owes to the brokerage. Trading stocks and other securities on margin allows investors to expand their purchasing power, though the availability of margin is predicated on the holdings an investor has in the first place.

Accordingly, when an investor uses the brokerage’s funds to buy securities, this results in a margin debit balance. Similar to a credit card or traditional loan, a margin balance is a line of credit that the borrower must repay with interest. Having a margin balance outstanding is common in margin trading, but investors should understand the implications of owing money to a brokerage — and what can happen if you’re subject to a margin call.

Key Points

•   Margin balance refers to the amount an investor owes to a brokerage after borrowing funds to purchase securities, enabling increased purchasing power in trading.

•   Investors must meet minimum margin requirements, including an initial deposit and ongoing maintenance margin guidelines, to avoid margin calls from the brokerage.

•   A negative margin balance indicates the amount owed to the brokerage, while a positive balance signifies excess funds available in the margin account.

•   Interest on margin balances varies by brokerage and account size, impacting the net return on investments and necessitating careful management of margin accounts.

•   To mitigate risks, investors should maintain adequate funds in their margin accounts and consider setting limits on borrowing to avoid overextending themselves financially.

What Is Margin Balance?

Again, margin balance is the amount of money an investor owes to its brokerage at any given time in a margin trading account. When an investor opens a margin account, they must make an initial deposit, called the “minimum margin.” The Financial Industry Regulatory Authority (FINRA) requires a minimum margin of at least $2,000, though some brokerages may require a higher minimum.

After making that deposit to their brokerage account, investors can then trade using an initial margin. Federal Reserve Board Regulation T allows investors to borrow up to 50% of the purchase price of securities when trading on margin. So, for example, a margin trader could purchase $10,000 worth of stocks using their own funds and another $10,000 using the brokerage’s funds. The $10,000 borrowed from the brokerage represents the investor’s margin balance.

You can trade a variety of securities in a margin account, including stocks, and derivatives such as options or futures.

The rules for margin balance forex are slightly different. In forex trading, margin represents collateral or security that an investor must deposit with the brokerage to start trading. The brokerage typically sets this as a percentage of the trading order.


💡 Quick Tip: How to manage potential risk factors in a self-directed investment account? Doing your research and employing strategies like dollar-cost averaging and diversification may help mitigate financial risk when trading stocks.

How Margin Balance Works

Margin balance allows investors to borrow money, then repay it to the brokerage with interest. A negative margin balance or margin debit balance represents the amount subject to interest charges. This amount is always either a negative number or $0, depending on how much an investor has outstanding.

Unlike other types of loans, margin balance loans do not have a set repayment schedule. Investors can make payments toward the principal and interest through their brokerage account at a pace convenient for them. They can also deposit cash into their margin accounts or sell off margin securities to reduce their margin balance.

Margin Calls

While there is some flexibility associated with paying off a negative margin balance, investors should understand their interest charges as well as the possibility of being subject to a margin call. Margin calls essentially act as a stopgap risk management tool for the brokerage.

In addition to the minimum margin and the initial margin requirements, investors must observe maintenance margin guidelines. This represents a minimum amount of equity the investor must keep in their account. Under FINRA rules, the maintenance requirement is at least 25% equity, based on the value of the margin account. Some brokerages may raise this to 30%, 40% or more.

Using the previous example, assume that an investor deposits $10,000 of their own money and borrowers $10,000 from their brokerage to invest in marginable securities. Now, say that the investment doesn’t go as planned and the stock’s value drops. That initial $20,000 investment is now worth $10,000. When the margin debit balance of $10,000 is subtracted, that results in a net balance of $0, meaning the trader has zero equity and does not meet the maintenance margin requirements.

At this point, the brokerage may initiate a margin call which would require the investor to deposit more cash into their account in order to continue trading. If an investor can not add more cash to cover the maintenance margin requirement, the brokerage may sell off securities from the account to recoup the negative margin balance.

Increase your buying power with a margin loan from SoFi.

Borrow against your current investments at just 12%* and start margin trading.

*For full margin details, see terms.

Negative Margin Balance

A negative margin balance in a margin account represents what’s owed to the brokerage. Depending on the brokerage, the margin debit balance may be listed inside parentheses or have a negative symbol in front of it.

Margin Balance Example

For example, an investor who has a negative margin balance of $12,225 may see one of the following when logging into their account:

•   Margin balance: -$12,225

•   Margin balance: ($12,225)

They both mean the same thing: that investor owes the brokerage $12,225 for trading on margin.

If a trader’s margin balance shows as a positive amount, that means they have a margin credit balance rather than a margin debit balance. A credit balance can occur if an investor sells off shares to clear their negative margin balance but the settlement amount is more than what they owe to the brokerage.

How Margin Balance Is Calculated

Brokerages can lend investors money on margin but in exchange for this convenience, they can charge those investors interest, or margin rates. The level of those rates depends on the brokerage and the type of securities that you’re trading. Many brokerages use a benchmark rate, known as a broker call rate or call money rate, then tier that rate across different margin account balances.

Brokerages can use this as a baseline rate, then add or deduct percentage points. Generally, the larger the margin account balance, the deeper the margin rate discount. Meanwhile, traders who maintain lower margin balances tend to pay higher interest rates. So, an investor with less than $25,000 in their account might pay 7%-8% for margin rates while an investor with over $1 million in their account might pay 4%-5% instead.

Brokerages typically calculate margin interest on a daily basis and charge it to an investor’s account monthly. The interest charges on a margin account can directly affect the net return realized from an investment. Higher margin rates can increase the rate of return needed to break-even on an investment or realize a profit on a stock.

Managing Your Margin Balance

Managing a margin account and margin balances begins with understanding the risks involved, including the possibility of a margin call. The value of your securities can impact your margin balance, and increased volatility could cause the value of margin securities to drop, which could put you below the maintenance margin requirements. You’d then need to deposit more money to your account to continue trading.

Maintaining a cushion of funds inside your margin account could help avoid margin calls. Alternatively, you may keep a reserve of funds elsewhere that you could transfer to your margin account if increased volatility threatens to diminish the value of margin securities in your portfolio.

It’s also important to consider how much money you’re comfortable owing to your brokerage at any given time. Setting a cap on the maximum margin can help you avoid overextending yourself. You can also keep margin balances under control by scheduling regular cash deposits or routinely selling securities to reduce what’s owed. One strategy is to pay enough to cover the interest each month to keep your balance from ballooning.

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

The Takeaway

A margin balance refers to the balance in an investor’s margin account, which involves borrowing money from a brokerage with which to make trades. That can help investors or traders increase their potential returns, if used wisely.

When you open a brokerage account, you can choose either a cash account or a margin account that allows you to engage in margin trading. Margin trading is a more advanced investment strategy that requires some know-how of the markets and a willingness to accept higher levels of risk.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

Photo credit: iStock/AndreyPopov

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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08
2024
3D Rendering White Percentage Signs Background

Average Stockbroker Commission Percentage

By | Growing Wealth, invest, Investing | Comments Off on Average Stockbroker Commission Percentage

Moving money around and buying securities isn’t free, and on average, a stockbroker or brokerage will charge a commission between 1% and 2%. Investing in the stock market is usually alluring for those trying to grow their money. Stockbrokers often charge commissions and other fees for the use of their services, but note that these brokerage fees can vary widely.

Investors must pay attention to average brokerage fees when making investment decisions; finding the right broker can play a significant role in long-term financial outcomes. Before delving into how much stockbrokers typically charge for their services, it’s worth understanding their role in an individual’s investment strategy.

Key Points

•   Stockbrokers typically charge commissions ranging from 1% to 2% of the total transaction value, influencing long-term investment outcomes significantly.

•   There are two main types of stockbrokers: full-service, which offers comprehensive services and higher fees, and discount brokers, which charge lower, per-transaction fees.

•   Common brokerage fees include management fees, trading commissions, and retirement account fees, all of which can impact overall investment returns.

•   High brokerage fees can discourage investment and reduce long-term gains, making it essential for investors to understand and compare costs associated with different brokers.

•   Despite the costs, using a stockbroker can provide valuable resources and guidance for novice investors navigating complex financial markets.

What Does a Stockbroker Do?

A stockbroker, or investment broker, is an individual or firm that charges a fee or commission to buy or sell stocks and other securities on behalf of their clients. Using a stockbroker is relatively common for people looking to invest in the market.

Buying stocks isn’t like making other purchases because the channels through which stocks are bought and sold are fairly controlled. While an individual buying a computer could choose to purchase directly from a manufacturer, a store, or a friend, the channels for buying stocks are much more limited. Generally, purchases of stock are required to flow through a stockbroker.

However, there are some instances when someone may buy stocks without a broker, including buying and selling through direct stock and dividend reinvestment plans.

In addition to selling shares of companies, a stockbroker may also sell other traded securities such as mutual funds and exchange-traded funds (ETFs).

What Is the Average Stock Broker Commission Fee?

The amount charged by a brokerage firm for its services can vary greatly. Some firms may charge a flat fee for their services, while others may charge a percentage of the overall value of the transaction. The average fee charged by brokerage firms is typically between 1% and 2% of the total transaction value.

Full-Service vs Discount Stockbrokers

The main two categories of stockbrokers are full-service brokers and discount brokers. You want to understand the differences before opening a brokerage account.

A full-service brokerage firm offers a more hands-on service, helping clients balance their portfolios and providing other investment advice. Discount brokers allow an investor to buy and sell stock and other assets, but provide few add-ons but still. Commission rates and additional fees vary accordingly.

Because full-service stockbrokers provide an array of services, they typically base their commissions on a more all-inclusive model determined by the value of the investments they manage. While there may also be additional fees, the typical commission structure for a full-service broker is known as the percentage of assets under management. The cost is charged annually and is listed within fee schedules as “x%/AUM” (assets under management).

Discount brokers, on the other hand, typically charge a per-transaction flat stock trade fee, regardless of the type of stock or number of shares being bought or sold.

For example, if the stock trade fee is $5 per trade, that’s what an individual would pay whether they were buying five shares of a stock valued at $50 a share ($250) or 500 shares ($25,000).

However, many discount brokers do not charge commissions for trading stocks.

Get up to $1,000 in stock when you fund a new Active Invest account.*

Access stock trading, options, alternative investments, IRAs, and more. Get started in just a few minutes.

*Probability of Member receiving $1,000 is a probability of 0.028%.

Common Brokerage Fees

Various investment fees and costs are associated with the buying and selling of investments. Investors should consider these brokerage fees when choosing a broker and deciding what investments to make.

Management Fees

An investment’s management fee is the fee the investment manager charges for its services. This fee is typically a percentage of the investment’s assets under management and is deducted from the investment’s returns.

If you use a full-service brokerage that offers money management services, they will often charge a management fee. Some charge as much as 2%, and others may charge less. Generally speaking, the more money you have invested with a broker or money manager, the lower your management fee will be.

Commission For Trading

Many brokerage firms charge a commission for making trades on behalf of clients. Fees and commissions vary widely depending on the type of transaction and broker. Again, those fees can be based on a percentage of the transaction’s value — usually between 1% to 2% — or they can be a flat fee.

The commissions for trading depend on whether an investor uses a full-service or discount broker. Because full-service brokers offer a wide range of advice and services, their commissions per trade may be higher than a discount or online brokerage might charge.

Discount brokers offer fewer advice and services, so they can charge a lower flat fee per trade, from less than $5 to more than $30. In recent years, the biggest online brokerage firms have offered no commission trading, partly due to competition and because they instead get paid through a practice known as payment for order flow.

Retirement Account Fees: 401(k)

If you have a 401(k) account through your employer, there are several fees to keep in mind when making your investments.

First, you’ll likely be charged an administration fee to maintain the plan. These fees may range from 0.5% to more than 2% of your 401(k) balance. The 401(k) provider charges this fee to your employer, and the cost is usually passed down to the employees.

Additionally, the actual investments in your 401(k), like mutual funds and ETFs, charge management fees that you’ll have to pay.

Mutual Fund Fees

Investors interested in buying and selling mutual funds must consider the fees associated with these investment vehicles.

Expense Ratio

The expense ratio is the yearly cost that mutual funds and ETFs charge investors to cover operating costs. The expense ratio measures the total costs as a percentage of the fund’s total assets. The fund’s costs may include management, custodial, marketing, and other expenses.

The average expense ratio for an actively managed mutual fund ranges from 0.5% to 1.0%, while passive funds have an average expense ratio of 0.2%.

The costs of operating the mutual fund are deducted from your investment, reducing your returns each year.

Sales Load

Mutual fund investors may pay sales loads — also known as sales charges — when they buy or sell shares of the fund. The sales load is how the broker or advisor gets paid for their service.

A sales load isn’t a flat transaction fee, however. Instead, it’s a percentage of the assets invested. FINRA caps mutual fund sales loads at 8.5%, though the common range is between 3% and 6%.

Brokerage Fee Impact on Investments Long-Term

Brokerage and investment fees and commissions can eat away at long-term gains. Thus, working with a brokerage that charges lower fees may help you achieve your long-term financial goals sooner, as you’ll be paying fewer fees.

To illustrate, if full-service brokerage charges a 1.5% annual management fee on a $50,000 portfolio, that costs $750 for the investor during a single year. While that charge doesn’t seem significant for one year, those fees will add up and eat into overall returns over time.

Brokerage Fee Pros

One of the benefits of using a brokerage is that you have access to valuable resources, research, and advice. These services may help you make better investment decisions, leading to better financial outcomes. So, you may get what you pay for, even if you think the fees may be steep.

Brokerage Fee Cons

As noted above, brokerage fees can be expensive and eat into investment returns. This is especially a problem if you don’t do your homework and pay attention to all the fees charged by brokers and the kind of investments you make.

Additionally, high brokerage fees may discourage some people from investing, leading to poor long-term financial outcomes.

Is It Worth Using a Stockbroker?

Using a stockbroker, especially a full-service brokerage, can be ideal for investors intimidated by complicated financial markets. The idea of having a licensed professional guide novice investors through every investment decision and trade might seem like a good way to get more comfortable with the principles of investing. But as the above examples illustrate, the average full-service stockbroker commission can make the full-service approach expensive.

The Takeaway

A stockbroker or brokerage will charge a commission between 1% and 2%, but there are options on the market that charge no commissions at all, and other investment vehicles with similar fees or commission charges.

With long-term returns that have historically outpaced interest rates on savings, investing in the stock market can be a powerful strategy for financial growth. Even beginners may find investing less intimidating than they thought — and possibly steer clear of high stockbroker fees.

Ready to invest in your goals? It’s easy to get started when you open an investment account with SoFi Invest. You can invest in stocks, exchange-traded funds (ETFs), mutual funds, alternative funds, and more. SoFi doesn’t charge commissions, but other fees apply (full fee disclosure here).

For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

FAQ

How do stock brokerage fees work?

Stock brokerage fees are typically a commission that a broker charges for executing trades on behalf of their clients. These fees can vary depending on the type of trade being executed, as well as the broker’s commission structure.

Are there any alternatives to a brokerage fee?

A brokerage fee is a charge assessed by a broker for their services, which typically include advice, transaction execution, and asset management. There are a variety of alternatives to brokerage fees, including flat fees, subscription fees, and performance-based fees.

SoFi Invest®

INVESTMENTS ARE NOT FDIC INSURED • ARE NOT BANK GUARANTEED • MAY LOSE VALUE

SoFi Invest encompasses two distinct companies, with various products and services offered to investors as described below: Individual customer accounts may be subject to the terms applicable to one or more of these platforms.
1) Automated Investing and advisory services are provided by SoFi Wealth LLC, an SEC-registered investment adviser (“SoFi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC.
2) Active Investing and brokerage services are provided by SoFi Securities LLC, Member FINRA (www.finra.org)/SIPC(www.sipc.org). Clearing and custody of all securities are provided by APEX Clearing Corporation.
For additional disclosures related to the SoFi Invest platforms described above please visit SoFi.com/legal.
Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

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

Claw Promotion: Customer must fund their Active Invest account with at least $25 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.

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Jul
30
2024
Can You Change the Due to Date of Your Bills?

Changing the Due Dates of Your Bills: Is It Possible?

By | Budgeting & Goals, Family Finances, money | Comments Off on Changing the Due Dates of Your Bills: Is It Possible?

Here’s some nice news: It may be possible to change the due dates of some of your monthly bills.

This might come as a relief if you find that the bulk of your bills are due around the same time, such as early or late in the month, making cash flow a challenge. Or, perhaps you have some bills that are maddeningly due a couple of days before you get paid, which can also cause money management issues. Being able to spread out your bills, or push one or two due dates a few days further out, could give you some helpful breathing room.

These adjustments may be possible. Though not every company will allow you to change your billing due date, it doesn’t hurt to ask. Here’s a closer look at why you might want to change some of your bill due dates and how to do it.

Can You Change the Due Dates on Your Bills?

You may be able to change the due dates on some — or, if you’re lucky, all — of your bills. Each company will have its own policy. To find out what’s possible, simply reach to customer service via phone, email, online chat, or even old-fashioned letter. If the service provider is local, you may also be able to make the request in person. Your request may well be honored, down to exactly which day of the month your bill is due.

However, setting your own bill due dates is never guaranteed. Many companies offer this service as a courtesy to loyal customers, but they have the right to reject your request.

Recommended: When Are Credit Card Payments Due?

Why Might Someone Change the Due Dates of Their Bills?

Here are some reasons why you might benefit from changing the due dates of some or your bills.

Aligning Better with Paydays

If your bill dates are not aligned well with your paydays, you may find that you don’t always have enough money in your checking account to cover your bills when they are due. If you struggle with spending and budgeting, it could be helpful to schedule bills shortly after a payday. That way you won’t accidentally spend money that was earmarked for bills later that month. Scheduling your bill paying like this might help you better manage your money and make your bill payment on time.

Recommended: How Much of Your Paycheck Should You Save?

Convenience

While some people like to stagger their bill-paying throughout the month, others find it more convenient to pay all of their bills at the same time each month. A single due date each month for all of life’s bills could certainly make them easier to track and remember.

Ability to Spread Out Payments

While paying bills all at once — like right after payday — might make it easier for some people to stay on top of bill payments, others may prefer not to have their bank account significantly drained on a single day.

If you’d prefer to have your due dates spread out throughout the month, it may be worth trying to change some of your due dates. This could be especially helpful if your paychecks are irregular — say, if you are a freelancer who depends on clients paying their invoices before you have cash in the bank.

Remembering Pay Dates May Be Easier

Regardless of when you arrange your bill due dates to be, it will likely be easier for you to remember them if you get to pick the dates. By picking an important date, like the first or last day of each month or the day after payday, it may be easier for you to stay on top of your bills, even without reminders in your phone or on your calendar. And if you sign up for automatic bill payment, it might be a totally seamless process.

Benefits of a Bill Date Change

So what are the pros of changing a bill due date?

•   It puts you in control of your budget.

•   It can make remembering due dates easier.

•   It might help you avoid missed payments and late fees.

Drawbacks of a Bill Date Change

So are there cons to changing a payment date? If you are making the conscious decision to change your billing schedule, you likely have a good reason for it — meaning you probably won’t encounter any drawbacks with the bill date change itself.

However, you might find that you spend a lot of time trying to get a company to change a bill due date, only for them to say no. This could lead to wasted time and effort.

Recommended: How Long Does a Direct Deposit Take?

When to Schedule New Pay Dates

When you should schedule new bill pay dates will depend on your own paycheck schedule and personal preferences. The Consumer Finance Protection Bureau (CFPB) offers a helpful worksheet for organizing all your current bills and due dates. Seeing them on paper may help you determine the best date(s) in your calendar month for bills to process.

Tips for Changing Pay Dates

Changing payment dates require a little bit of effort but can pay off by helping you gain better control of monthly bills like rent, utilities, subscription services, and even credit card payments. Here are a few tips for changing your bill due dates:

1.    Get organized. A good first step is to make a list of all your recurring payments. When organizing your bills, you might want to create a master calendar that includes when each bill is due every month, as well as when your paycheck(s) are deposited. This can help you determine the ideal dates for bills to process.

2.    Decide which bill dates should change. Once you have a list of all your recurring bills and paydays, you can more easily identify which bills need to change. From there, you’ll want to investigate whether the company will even allow you to change due dates. You may be able to find this information on their websites.

3.    Make the necessary requests. To get your due dates changed, you’ll need to contact the company by phone, email, online chat, or letter. If you aren’t sure what to say, the CFPB offers a useful script: “I am requesting a change in my bill payment due date for my [company] bill. I would prefer to have my bill payment due date be on the __th of each month. Thank you for your assistance.”

4.    Set up autopay. If a service provider has an automatic bill pay option, it might be a good idea to schedule this. How bill pay works is that you schedule electronic payments in advance so you don’t have to manually transfer funds or write a check as your due date approaches. It can be an especially good option if you have a bank account with no-fee overdraft coverage. Because of the risk of overdrafting when you set up autopay, however, it might only make sense if you regularly keep more than enough funds in your checking account to cover monthly bills.

5.    Schedule reminders. Once you’ve changed your due dates, it’s a good idea to schedule reminders in your phone or on your calendar ahead of the payment date. This allows you to make sure you have the funds in your account ahead of an automatic payment or reminds you to manually complete the payment (online, by mail, or in person) if you don’t have autopay set up.

Can You Always Change Bill Dates?

Many companies will allow you to change bill dates to a schedule that makes sense for your finances. However, no company is required to do this. You may encounter some service providers that do not allow you to change bill dates.

What if You Can’t Change Your Due Date?

If you cannot change your due dates, you can still take some actions to ensure you pay all your bills on time, such as:

•   Setting reminders: If you often forget to pay your bills on time but have the funds available, you may just need to schedule reminders for yourself ahead of the due date. Putting a recurring reminder in your calendar (perhaps the one on your phone) can be a wise move.

•   Setting money aside until you need it: If you can’t resist the temptation to spend the money available in your checking account and often struggle with a low current or available account balance on the day that bills are due, it might be wise to move money to a separate account for paying bills. And of course, don’t touch those funds for any other sort of spending.

Banking With SoFi

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


Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall.* Enjoy up to 4.00% APY on SoFi Checking and Savings.

FAQ

How easy is it to change the due date for your bills?

Changing the due dates for your bills can be as easy as making a phone call or sending an email to the service provider. However, not every company allows you to change your bill due dates. It is solely done at the company’s discretion.

Can I pay my bill before the due date?

Yes, if you are worried about missing a payment or spending too much money before a bill is due, you can make an early bill payment. This can help you avoid late fees and develop good financial habits.

Is it better to have your bill dates close together or spread out?

It depends on your financial situation, including your pay schedule and spending habits. Some people may prefer their bill dates to be close together (even on a single day per month) while others might benefit from having them spread out throughout the month.

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SoFi members with direct deposit activity can earn 4.00% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate. SoFi members with direct deposit are eligible for other SoFi Plus benefits.

As an alternative to direct deposit, SoFi members with Qualifying Deposits can earn 4.00% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant. SoFi members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.00% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

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

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

Interest rates are variable and subject to change at any time. These rates are current as of 12/3/24. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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.

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

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

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