Oct
02
2024
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How to Roll Over Your 401(k): Knowing Your Options

By | Budgeting & Goals, Building Your Career, Growing Wealth, invest, Investing, Life & Career | No Comments

It’s pretty easy to rollover your old 401(k) retirement savings to an individual retirement account (IRA), a new 401(k), or another option — yet millions of workers either forget to rollover their hard-won retirement savings, or they lose track of the accounts. Given that a 401(k) rollover typically takes minimal time and, these days, minimal paperwork, it makes sense to know the basics so you can rescue your 401(k), roll it over to a new account, and add to your future financial security.

Whether you’re starting a new job and need to roll over your 401(k), or are looking at what other options are available to you, here’s a rundown of what you need to know.

Key Points

•   Rolling over a 401(k) to an IRA or new 401(k) is typically straightforward and your retirement funds will continue to have the opportunity to grow.

•   Moving 401(k) funds to another 401(k) is often the simplest option and allows you to continue to have a higher contribution limit.

•   Moving 401(k) funds to an IRA may provide more investment choices and control over those investments.

•   Leaving a 401(k) with a former employer is an option but may involve additional fees and complications.

•   Direct transfers are simpler and generally preferred over indirect transfers, which run the risk of incurring tax liabilities and penalties.

401(k) Rollover Options

For workers who have a 401(k) and are considering next steps for those retirement funds — such as rolling them to an IRA or another 401(k), here are some potential avenues.

1. Roll Over Money to a New 401(k) Plan

If your new job offers a 401(k) or similar plan, rolling your old 401(k) funds into your new 401(k) account may be both the simplest and best option — and the one least likely to lead to a tax headache.

That said, how you go about the rollover has a pretty major impact on how much effort and paperwork is involved, which is why it’s important to understand the difference between direct and indirect transfers.

Here are the two main options you’ll have if you’re moving your 401(k) funds from one company-sponsored retirement account to another.

Direct Rollover

A direct transfer, or direct rollover, is exactly what it sounds like: The money moves directly from your old account to the new one. In other words, you never have access to the money, which means you don’t have to worry about any tax withholdings or other liabilities.

Depending on your account custodian(s), this transfer may all be done digitally via ACH transfer, or you may receive a paper check made payable to the new account. Either way, this is considered the simplest option, and one that keeps your retirement fund intact and growing with the least possible interruption.

Indirect Rollover

Another viable, but more complex, option, is to do an indirect transfer or rollover, in which you cash out the account with the expressed intent of immediately reinvesting it into another retirement fund, whether that’s your new company’s 401(k) or an IRA (see above).

But here’s the tricky part: Since you’ll actually have the cash in hand, the government requires your account custodian to withhold a mandatory 20% tax. And although you’ll get that 20% back in the form of a tax exemption later, you do have to make up the 20% out of pocket and deposit the full amount into your new retirement account within 60 days.

For example, say you have $50,000 in your old 401(k). If you elected to do an indirect transfer, your custodian would cut you a check for only $40,000, thanks to the mandatory 20% tax withholding.

But in order to avoid fees and penalties, you’d still need to deposit the full $50,000 into your new retirement account, including $10,000 out of your own pocket. In addition, if you retain any funds from the rollover, they may be subject to an additional 10% penalty for early withdrawal.

Pros and Cons of Rolling Over to a New 401(k)

With all of that in mind, rolling over your money into a new 401(k) has some pros and cons:

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Pros:

•   Often the simplest, easiest rollover option when available.

•   Should not typically result in any tax liabilities or withholdings.

•   Allows your investments to continue to grow (hopefully!), uninterrupted.

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Cons:

•   New employer may change certain aspects of your 401(k) plan.

•   There may be higher associated fees or costs with your new plan.

•   Indirect transfers may tie up some of your funds for tax purposes.

2. Roll Over Your 401(k) to an IRA

If your new job doesn’t offer a 401(k) or other company-sponsored account like a 403(b), you still have options that’ll keep you from bearing a heavy tax burden. Namely, you can roll your 401(k) into an IRA.

The entire procedure essentially boils down to three steps:

1. Open a new IRA that will accept rollover funds.

2. Contact the company that currently holds your 401(k) funds and fill out their transfer forms using the account information of your newly opened IRA. You should receive essential information about your benefits when you leave your current position. If you’ve lost track of that information, you can contact the plan sponsor or the company HR department.

3. Once your money is transferred, you can reinvest the money as you see fit. Or you can hire an advisor to help you set up your new portfolio. It also may be possible to resume making deposits/contributions to your rollover IRA.

Pros and Cons of Rolling Over to an IRA

This option also has its pros and cons, however.

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Pros:

•   IRAs may have more investment options available.

•   You’ll have more control over how you allocate your investments.

•   You could potentially reduce related expenses, depending on your specifications.

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Cons:

•   May require you to liquidate your holdings and reinvest them.

•   Lower contribution limit compared to 401(k).

•   May involve different or higher fees and additional costs.

•   IRAs may provide less protection from creditor judgments.

•   You’ll be subject to new distribution rules – namely, you’ll need to be 59 1/2 before withdrawing funds to avoid incurring penalties.

3. Leave Your 401(k) With Your Former Employer

Leaving your 401(k) be – or, with your former employer – is also an option.

If you’re happy with your portfolio mix and you have a substantial amount of cash stashed in there already, it might behoove you to leave your 401(k) where it is.

You’ll also want to dig into the details and determine how much control you’ll have over the account, and how much your former employer might.

You might also consider any additional fees you might end up paying if you leave your 401(k) where it is. Plus, racking up multiple 401(k)s as you change jobs could lead to a more complicated withdrawal schedule at retirement.

Pros and Cons of Leaving Your 401(k) Alone

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Pros:

•   It’s convenient – you don’t do anything at all, and your investments will remain where they are.

•   You’ll have the same protections and fees that you previously had, and won’t need to get up to speed on the ins and outs of a new 401(k) plan.

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Cons:

•   If you have a new 401(k) at a new employer, you could end up with multiple accounts to juggle.

•   You’ll no longer be able to contribute to the 401(k), and may not get regular updates about it.

4. Cash Out Your Old 401(k)

Cashing out, or liquidating your old 401(k) is another option. But there are some stipulations investors should be aware of.

Because a 401(k) is an investment account designed specifically for retirement, and comes with certain tax benefits — e.g. you don’t pay any tax on the money you contribute to your 401(k), depending on the specific type — the account is also subject to strict rules regarding when you can actually access the money, and the tax you’d owe when you did.

Specifically, if you take out or borrow money from your 401(k) before age 59 ½, you’ll likely be subject to an additional 10% tax penalty on the full amount of your withdrawal — and that’s on top of the regular income taxes you’ll also be obligated to pay on the money.

Depending on your income tax bracket, that means an early withdrawal from your 401(k) could really cost you, not to mention possibly leaving you without a nest egg to help secure your future.

This is why most financial professionals generally recommend one of the next two options: rolling your account over into a new 401(k), or an IRA if your new job doesn’t offer a 401(k) plan.

Pros and Cons of Cashing Out Your 401(k)

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Pros:

•   You’ll have immediate access to your funds to use as you like.

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Cons:

•   Early withdrawal penalties may apply, and there will likely be income tax liabilities.

•   Liquidating your retirement account may hurt your chances of reaching your financial goals.

When Is a Good Time to Roll Over a 401(k)?

If there’s a good time to roll over your 401(k), it’s when you change jobs and have the chance to enroll in your new employer’s plan. But you can generally do a rollover any time.

That said, if you have a low balance in your 401(k) account — for example, less than $5,000 — your employer might require you to do a rollover. And if you have a balance lower than $1,000, your employer may have the right to cash it out without your approval. Be sure to check the exact terms with your employer.

When you receive funds from a 401(k) or IRA account, such as with an indirect transfer, you’ll only have 60 days from the date you receive them to then roll them over into a new qualified plan. If you wait longer than 60 days to deposit the money, it will trigger tax consequences, and possibly a penalty. In addition, only one rollover to or from the same IRA plan is allowed per year.

The Takeaway

Rolling over your 401(k) — to a new employer’s plan, or to an IRA — gives you more control over your retirement funds, and could also give you more investment choices. It’s not difficult to rollover your 401(k), and doing so can offer you a number of advantages. First of all, when you leave a job you may lose certain benefits and terms that applied to your 401(k) while you were an employee. Once you move on, you may pay more in account fees for that account, and you will likely lose the ability to keep contributing to your account.

There are some instances where you may not want to do a rollover, for instance when you own a lot of your old company’s stock, so be sure to think through your options.

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FAQ

How can you roll over a 401(k)?

It’s fairly easy to roll over a 401(k). First decide where you want to open your rollover account, then contact your old plan’s administrator, or your former HR department. They typically send funds to the new institution directly via an ACH transfer or a check.

What options are available for rolling over a 401(k)?

There are several options for rolling over a 401(k), including transferring your savings to a traditional IRA, or to the 401(k) at your new job. You can also leave the account where it is, although this may incur additional fees. It’s generally not advisable to cash out a 401(k), as replacing that retirement money could be challenging.

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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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Jul
05
2024

10 Most Common Budgeting Mistakes

By | Budgeting & Goals, Family Finances, money | Comments Off on 10 Most Common Budgeting Mistakes

A budget is an important tool to help you balance your income and your spending, keep your savings on track, and help you avoid debt. But like many good things, it sometimes goes off the rails. A person might start a budget with the best of intentions but then find it hard to stick to it. Or they might encounter an emergency expense and have a hard time getting back in the groove.

Learn what the common pitfalls are and how to avoid common budgeting mistakes to help your financial life thrive.

10 Budgeting Mistakes to Avoid

Here are 10 of the most common budget mistakes people make. Get familiar with them as a way to steer clear of them.

1. Not Having a Budget

Some people make the budget error of…not having a budget at all. Maybe it seems too hard, too time-consuming, or too boring; you’d rather be watching a hot new streaming series or playing with your dog.

Nevertheless, if you don’t create and follow a budget, you’re missing out on major benefits:

•   You may not save enough in your bank account for your future

•   You may feel stressed about reaching your long-term goals

•   You might spend beyond your means, which could land you in debt and strain on your financial resources.

Recommended: Common Financial Mistakes First-Time Parents Make

2. Not Tracking Spending

Tracking your spending can be one of the more tedious tasks required for budgeting, but it’s also an incredible, truth-revealing tool. How else would you know when you are above or below your limits? You risk blowing past your limit by overspending in some categories, meaning you’ll have less (or none) for other categories. For example, overspend on eating out, and you might have less to put toward your retirement savings. Fortunately, there are an array of expense-tracking apps (many are free) that can help simplify this process.

3. Not Having Emergency Savings

The general recommendation is to save three to six months’ worth of expenses in a dedicated emergency fund. This is money you can draw on in case of emergency medical expenses and car repairs, for instance. It also provides a cash cushion should you lose your job, giving you time to get back on your feet without going into debt.

Not having an emergency fund can torpedo your budget, requiring you to draw money from other categories to cover unexpected expenses, or requiring you to take on debt.

If you don’t have a rainy day fund yet, it may be wise to set up automatic deductions monthly. Even as little as $25 can begin building a buffer. Keep your emergency cash in a separate savings account so you aren’t tempted to touch it. And if you need to dip into the account, be sure to budget additional savings until you are able to replenish it.

4. Not Considering Cheaper Alternatives

Budgeting doesn’t necessarily mean giving things up. Sometimes it can mean looking for cheaper alternatives. For example, you could swap out a pricey gym membership for one at a more budget-friendly place instead. Instead of renewing the same car insurance you’ve always had, you could shop around online for a better deal. You might even call your credit card issuer to request a lower interest rate or try to negotiate a medical bill. All of these options can free up cash in your budget that can go toward meeting other goals.

5. Thinking That You Can’t Have Fun While on a Budget

One of the reasons people don’t budget is it can feel like a real slog and a buzzkill. They assume that in order to budget successfully, they have to give up doing things they like. However, that’s not necessarily true. While a budget ensures that your necessary expenses are taken care of first, it can also provide discretionary funds that can be used however you want, from going to see a movie to booking a weekend getaway.

You may also consider making budgeting more fun by rewarding yourself when you meet certain goals. For example, you may want to treat yourself when you pay off a credit card. Just be sure you’ve already earmarked funds to pay for your reward.

6. Saving for Too Many Things Simultaneously

Another budgeting mistake involves trying to save for too many things at once. In this situation, it’s easy to stretch yourself thin. You might start to feel like you’re spinning your wheels and are unable to follow your budget.

A solution can be to narrow your focus. To prioritize your savings, first consider wants versus needs. For example, you may want to drill down on a single need, like building an emergency savings fund, rather than upgrading your mobile phone (which is a want, after all). Once your need is taken care of, then you can consider allocating funds for a want. Delaying gratification a bit can be a valuable tool when successfully managing your money.

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7. Not Adjusting Varying Expenses Every Month

Some expenses, like rent and utility bills, are relatively fixed. Others, like how much you spend on groceries can vary from month to month. If you don’t compensate for that fluctuation, you may be making a budget mistake.

If you notice you are suddenly spending more each month in a certain category, be sure to adjust your budget accordingly, or look for ways to cut back on spending in that category. To protect yourself in times of high inflation, it can be especially important to monitor this. Your food, gas, and heating expenses may well run high for a while.

8. Not Taking Into Account One-Time Expenses

One-time expenses can be real budget busters if you don’t plan for them ahead of time. Estimate the cost of the expense, and spread out your savings over a couple of months.

For example, if you plan to attend a wedding that will cost $800, you could start saving $200 a month four months in advance so you don’t end up footing the bill all at once. Or let’s say you know you’ll be needing a set of new tires soon; start stashing away cash in advance so you don’t get hit with a major bill that sends your budget spiraling. Another category many budgeters overlook is gifts; birthday and holiday presents can add up, so remember to set aside funds to afford them without a hiccup.

9. Having an Unrealistic Budget

It’s easy to be optimistic and have the best intentions when you create your budget, but make sure it’s something you can realistically stick to. Otherwise, you may have a budget mistake on your hands.

You may be overly optimistic, for instance, if you allocate 20% of your take-home pay toward one goal. If you oversave in one area, like for a downpayment on a home, for example, it may mean that you could incur credit card debt in order to buy necessities like groceries. Be honest with yourself about how much you spend and how much you can save.

10. Having the Wrong Budget Method for You

There is no one-size-fits all budgeting strategy. As we mentioned above, there are a number of different budgeting strategies you can use to help you build and stick to your budget. The best one is the one that works for you. Just because a budget strategy sounds good when you first learn about it or your best friend swears by it doesn’t mean it will work for you. It’s a budgeting error to cling to a system that isn’t working. If the technique you are using isn’t right for you, acknowledge that, and try something else.

The Takeaway

Now you know what is a common mistake made in budgeting; 10 of them, in fact. By avoiding these pitfalls, you give yourself a better chance of sticking to your budget, saving money in your bank account, and meeting your financial goals. What’s more, you’re far less likely to be derailed by debt, and interest payments that could eat into your ability to save and manage your money.

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.

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FAQ

What are some pitfalls of budgeting?

Budgeting pitfalls that can derail your financial goals include failing to have a budget, not tracking your expenses, forgetting to account for varying monthly expenses, and not building up an emergency fund.

What is improper budgeting?

Improper budgeting can occur if your budget is incomplete, if it’s overly ambitious (not recognizing how much you actually spend, for instance), or if you don’t update it with new sources of income or expenses, you’re not budgeting correctly.

Why do people fail in budgeting?

A budget may fail for a variety of reasons, such as trying to achieve too ambitious a goal or too many goals at once; not tracking your expenses; and sticking with a budgeting strategy that doesn’t fit your needs. If the latter is the case, try multiple strategies to find the one that suits you best.

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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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Jul
03
2024

Guide to Standby Letters of Credit (SLOC)

By | Growing Wealth, money, Terminology | Comments Off on Guide to Standby Letters of Credit (SLOC)

A standby letter of credit (also known as an SLOC or SBLC) is a legal document, typically used in international trade, that acts as a safety net for a deal. It communicates that a bank will guarantee payment if, for example, their customer fails to send funds to a seller for goods or services provided.

Generally, SOLCs are important when the buyer and seller haven’t been acquainted and haven’t yet established a sense of trust. These documents can help a seller secure a contract with a new client. This is especially helpful when they are competing with larger, more established sellers.

What Is a Standby Letter of Credit?

An SLOC (or SBLC; the terms are used interchangeably) is an irrevocable commitment by an issuing bank that it will make payment to a designated beneficiary if the bank’s client defaults on a deal. To phrase it a bit differently, these commitments ensure the payment of a specific amount if one party does not make good on a business agreement. For example, a seller might ship goods to a buyer, but the buyer fails to pay within a specified number of days. In such cases, the bank will intervene and compensate the seller if certain conditions are met.

However, the conditions can be very specific, and failure to meet them can result in the seller not being compensated. For example, issues with shipping or with the product itself could result in denial of payment.

These letters of credit are common in international trade when buyers and sellers aren’t familiar with one another. When entities from two different countries do a deal, the laws and regulations involved may differ. This can add a layer of uncertainty to whether the deal will go through smoothly. An SLOC can help the seller feel more confident they will be paid.

An SBLC acts as a safety net or insurance policy for the seller. If all goes well with the transaction, they won’t have to make use of it. Only if there are issues with the sale will the SBLC be needed, but that bank guarantee adds a level of confidence.

💡 Quick Tip: Typically, checking accounts don’t earn interest. However, some accounts do, and online banks are more likely than brick-and-mortar banks to offer you the best rates.

How a Standby Letter of Credit Works

Now that you know the meaning of SBLC, here’s how it actually functions.

•   When a buyer and seller are entering into a large contract, an SLOC might be created, especially if the buyer and seller don’t know one another. The buyer might create one to help secure a contract or the seller might ask the buyer to obtain a letter.

•   In either case, the buyer goes to a bank and requests an SLOC.

•   The bank will then perform underwriting to verify the buyer’s creditworthiness.

•   The bank might also ask the buyer for collateral if they have bad credit (this is an example of why bad credit is a big deal). The amount of collateral will depend on a variety of factors, including the level of risk, the size of the deal, and the strength of the business.

•   Once the process is complete, the buyer receives the SLOC.

•   The bank will charge a fee, typically between 1% and 10% of value per year while the contract is in effect.

•   Once the transaction project is complete, the SBLC is no longer valid, and the bank will no longer charge a fee.

However, if the buyer defaults on the agreement for any reason, the seller must provide all documentation listed in the SBLC to the buyer’s bank, informing them that the buyer has not held up their end of the arrangement. The bank will then reimburse the seller and later collect payment from the buyer, plus interest.

A deal can fail to be completed for many reasons, such as bankruptcy, lack of cash flow, or dishonesty on the part of the buyer. If the bank determines the buyer has violated the terms of the SLOC, it will then make payment to the seller.

Recommended: Why Are My Credit Scores Different?

Types of Standby Letters of Credit

There are two types of standby letters of credit: financial SBLCs and performance SBLCs.

Financial SBLC

A financial SBLC guarantees payment for goods or services provided. The SBLC guarantees that the buyer’s bank will pay the seller if the buyer doesn’t pay within the timeframe outlined in the letter. If the bank does need to step in and make payment, it will later collect payment from the buyer, plus interest.

Performance SBLC

A performance SBLC is less common but usually guarantees the completion of a project. In this case, a person or company agrees to complete a project within a specified timeframe. Thus, a performance SBLC would reimburse the party paying for the project if it isn’t completed in time or if the client otherwise feels the project was not completed to satisfaction.

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Standby Letter of Credit Example

The most common use of SBLCs is to guarantee payment when a seller ships goods, typically internationally, to a buyer.

•   For instance, a buyer might secure a contract to purchase a large shipment of corn from overseas. The seller, never having done business with the buyer before, might ask the purchaser to obtain an SBLC to ensure they are paid for the shipment. Even if the purchaser has taken steps to build credit, this is a new relationship between the two businesses, and trust hasn’t yet been established.

•   The SBLC indicates that the buyer will remit payment within 30 days of receiving the shipment. Thanks to shipment tracking, the seller can see that the buyer has received the shipment of corn. However, 30 days have passed, and the buyer hasn’t paid.

•   The seller can then go to the buyer’s bank, which issued to SBLC, and provide the necessary documentation about this deal and lack of payment.

•   If the bank agrees that the buyer hasn’t held up their end of the agreement, the bank will then pay the seller for the corn. The bank would then collect payment and additional charges from the buyer.

Recommended: Do Personal Loans Affect Your Credit Score?

Advantages of a Standby Letter of Credit

SLOCs have a few advantages worth noting:

•   Guarantee of payment The main benefit of SLOCs is they guarantee payment for the seller. Even if the buyer can’t pay, the seller can ask the buyer’s bank to reimburse them.

•   Helps buyers land contracts A seller might hesitate to ship goods to a buyer they don’t know and trust, even if credit monitoring reveals they seem like a good bet. There’s still an element of risk. The SLOC can make a seller more confident about doing a deal since they will be more likely to get paid.

Disadvantages of a Standby Letter of Credit

There are disadvantages to SLOCs, too. These include:

•   Increased costs The bank that guarantees the SLOC will charge the buyer a fee for every year the contract is in effect. And if the bank has to pay the seller, they will charge the buyer principal plus interest.

•   Not always a guarantee Although SLOCs guarantee sellers will be paid, there can be many hurdles involved before payment is issued. For example, shipping delays or problems with the product itself can lead to denial of reimbursement.

How to Obtain a Standby Letter of Credit

Obtaining a standby letter of credit is generally the responsibility of the buyer. Their bank will reimburse the seller in the event they don’t pay promptly. The bank will also have to determine how creditworthy the client is and decide if collateral is required. (One of the benefits of good credit can be not having to put up collateral in situations like this one.)

To issue the letter, the buyer might work with either a domestic or international trade division of a bank, depending on the deal’s particulars. At this point, it’s also wise for the buyer to have an attorney on site to review the terms of the agreement.

A seller can ask that the buyer obtain an SLOC as part of the contract. All parties should have legal experts involved to ensure the accuracy and conditions of the agreement.

Recommended: Do Credit Scores Update Often?

The Takeaway

Standby letters of credit (SLOCs) are useful legal documents for both buyers and sellers doing business, especially if they are working on an international deal. These letters can act as a safety net, saying that if a buyer doesn’t complete a deal, their bank will step in and make payment. For sellers, these letters can help increase confidence that they will be paid for goods or services. For buyers, they can be helpful in securing new contracts.

Not all banking involves international business deals, however. If you are looking for a reliable bank for your daily personal finance needs, see what SoFi offers.

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


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

FAQ

What does standby mean in letter of credit?

A letter of credit is a legal document that provides a safety net for a financial deal. “Standby” in this context refers to the fact that these letters are only implemented (and funds then issued) by the bank if the buyer fails to pay. If the buyer pays within the expected timeframe, no action is taken. The letter of credit has stayed on standby status.

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

The difference between a letter of credit and a standby letter of credit is what each of them promises. A letter of credit is a guarantee from a bank that the buyer will pay. On the other hand, a standby letter of credit is a guarantee from the bank that they will pay if the buyer fails to do so.

Can SBLC be used as collateral?

The SBLC itself is not usually considered collateral. However, a bank may require the buyer to provide collateral before issuing an SBLC if the bank feels the buyer’s creditworthiness is not up to par.

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

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

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

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

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

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

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

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

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2024
How to Invest in Wind Energy

How to Invest in Wind Energy

By | Growing Wealth, invest, Investing | Comments Off on How to Invest in Wind Energy

Investing in wind energy involves putting money into companies or funds focused on some aspect of the wind energy industry. Individuals can invest in the wind energy industry directly by investing in companies that operate wind farms or indirectly by putting money into companies that manufacture wind turbines or components.

Wind energy is one of the cornerstones of the renewable energy industry, providing a cost-effective source of electricity generation. As more attention is paid to the effects of climate change and the need to reduce dependence on fossil fuels, many investors are turning to wind energy investments.

What Are Wind Energy Investments?

Wind energy investments are financial stakes in companies and projects focused on generating electricity through wind power. Wind turbines, sometimes called windmills, harness this power by collecting the energy created by wind and converting it into electricity. Wind energy is often divided into two market segments, distributed wind and utility-scale wind.

💡 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.

Distributed Wind Market Segment

The distributed wind market is usually made up of smaller-scale projects, where wind turbines are used to generate electricity for homes, businesses, and even entire communities.

Utility-scale Market Segment

Utility-scale wind energy, in contrast, consists of turbines that generate more than 100 kilowatts of energy. The power generated by utility-scale wind projects is added to the electrical grid. Companies involved in utility-scale wind energy draw the most interest from individual investors.

Utility-scale wind energy projects can be land-based, where a group of wind turbines is grouped in a wind farm on land. Offshore wind farms built off the coast are another type of utility-scale wind energy, taking advantage of powerful ocean winds to generate large amounts of energy.

Individuals can invest in the wind energy industry by putting money into companies involved in some portion of the wind energy industry or, more rarely, by investing in specific wind energy projects.

Increased Popularity

Wind energy investments, and other socially responsible investments, have grown in popularity in recent years as the focus on the need for sustainable energy grows. Because they rely on wind power rather than fossil fuels, these investments and projects cut down on emissions and pollution.

Further, wind energy is becoming more common because of declining costs, technological improvements, and government tax incentives. In the United States, wind power supplied more than 20% of all electricity to 12 states as of 2022, and in 2023, U.S. wind generation totaled more than 425,000 gigawatt hours of power.

3 Ways to Invest in Wind Energy

Investors can invest in wind energy by putting money into the stocks and bonds of companies in the wind energy industry. Mutual funds and exchange-traded funds (ETFs) with wind energy or renewable energy-focused strategies are also potential investment vehicles for those interested in adding wind energy to their portfolio.

Regardless of the type of investment, investors need to remember that many companies and funds are diversified, meaning that they may be involved in sectors other than wind energy. For investors that want to invest in purely wind energy companies or funds, it’s essential to do research into potential investments.

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

1. Stocks

Investors can put money into various publicly-traded companies involved in some aspect of the wind energy industry. These companies may include wind farm operators, which own and operate wind turbines to produce energy for customers and end-users, and manufacturers of turbines and other components of wind farms. Some utility companies may also be an option for wind energy investors.

Some companies involved in the wind energy industry include:

•   Orsted : The Denmark-based power company is the largest developer of offshore wind power in the world.

•   Vestas Wind Systems : The Denmark-based company is one of the world’s largest manufacturers of wind turbines

•   GE Vernova : The US-based company that was spun-off from GE’s main business in 2024, specializing in energy equipment manufacturing.

•   NextEra Energy : The American energy company has 119 wind farms in operation

•   Alliant Energy : The American energy company owns and operates wind farms across Wisconsin and Iowa

2. Mutual Funds and ETFs

Investors who don’t want to pick individual stocks to invest in can always look to mutual funds and exchange-traded funds (ETFs) that provide exposure to wind energy companies and investments. A growing number of index funds invest in a basket of companies involved in the wind energy industry.

These funds allow investors to diversify their holdings by investing in one security. However, not all wind energy funds follow the same criteria and may focus on different aspects of wind energy. These funds may also have holdings in traditional energy and utility companies that only are partially involved in the wind energy industry.

3. Bonds

The bonds of corporations involved in wind energy business practices can be a good option for investors interested in fixed-income securities. Green and climate bonds are bonds issued by companies to finance various environmentally-friendly projects and business operations.

Additionally, government bonds used to fund wind energy projects can be an option for fixed-income investors. These bonds may come with tax incentives, making them a more attractive investment than traditional bonds.

💡 Recommended: How to Buy Bonds: A Guide for Beginners

Benefits and Risks of Investing in Wind Energy

The trend of investing in renewable energy sources like wind energy is rising as the public becomes more aware of the environmental and economic benefits of doing so. However, before investing in this sector, there are benefits and risks to consider.

Benefits

A benefit of investing in wind energy is that it is a renewable resource, so it will never run out as long as the sun shines and the wind blows. Additionally, wind energy is cost-effective, and tends to be one of the lowest-priced energy sources. And because the power generated from wind farms is sold at a fixed price over a long period of time, it may provide reliable returns for investors — though there are no guarantees.

Wind power is also a clean energy source, meaning it does not produce emissions that can harm the environment like fossil fuels and power plants. This can be attractive for investors focused on building a portfolio of green investments.

Risks

One primary risk of investing in wind energy is that it is a relatively new technology, so there is little data available on its long-term performance. Wind energy and all renewable energy sources must compete with traditional energy sources like oil, coal, and natural gas. Because of this, the long-term outlook for wind energy investments may change. Wind energy investments may be harder to stomach for investors who are not comfortable with the risk of newer technologies.

Additionally, wind energy projects may get pushback from communities where companies want to operate.

How to Build a Wind Energy Portfolio

If you are ready to start investing and want to build a portfolio of wind energy investments, you can follow these steps:

Step 1: Open a brokerage account

You will need to open a brokerage account and deposit money into it. Once your account is funded, you can buy and sell stocks and other securities.

Step 2: Pick your assets

Decide what type of investment you want to make, whether in a company’s stock, a wind energy-focused ETF or mutual fund, or bonds.

Step 3: Do your research

It’s important to research the different companies and funds and find a diversified selection that fits your desires and priorities.

Step 4: Invest

Once you’re ready, make your investment and then monitor your portfolio to ensure that the assets in your portfolio have a positive social and financial impact.

It is important to remember that you should diversify your portfolio by investing in various asset classes. Diversification may help to reduce your risk and maximize your returns.

The Takeaway

Wind energy is a renewable resource that is becoming increasingly popular and is expected to grow significantly in the coming years. This makes it a potential growth investment for those looking to diversify their portfolios and reduce their reliance on traditional energy sources.

While the outlook for wind energy is promising, investments in wind energy may not always produce positive returns. When considering a wind energy investment, it is important to do your research and understand the risks and rewards involved with this nascent industry.

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).

Opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.

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