Jan
31
2023
Promotional Certificate of Deposit (CD): How It Works

Understanding Promotional Certificate of Deposit (CD) Rates

By | Growing Wealth, Investing, money | Comments Off on Understanding Promotional Certificate of Deposit (CD) Rates

There’s a good chance that you’re familiar with certificates of deposit, or CDs, a financial product that typically pays a fixed interest rate if you keep your funds on deposit for a specific period of time. Sometimes, though, you may encounter an offer for a promotional CD, or bonus CD. This is a type of savings account offered by a bank or credit union for a short time, usually with a higher interest rate, to entice new deposits.

As with standard certificates of deposit, interest is earned on the funds that the account holder agrees to invest. This interest accrues until the CD matures, or reaches its maturity date, which is usually in several months or a few years. Because CDs are insured up to $250,000, they can offer a secure way to grow one’s money.

Promotional CDs can sweeten the deal by offering a higher-than-normal interest rate. That said, they may also require a higher initial deposit or a longer term in order to snag that loftier return.

Is a promotional or bonus CD right for you? Read on to learn:

•   What is a promotional certificate of deposit?

•   What are the pros and cons of a promotional CD?

•   When do promotional CDs make sense?

•   Are bonus CDs worth it?

What Is a Promotional CD?

A promotional CD is a timed deposit account, similar to a regular CD, but offered with more advantageous terms, such a higher rate. However, there’s usually a requirement or condition to nab that rate, such as making a larger deposit, keeping the funds on deposit longer, or already being a client of the bank.

Banks and credit unions offer these accounts to attract new investors and build capital, which they can then invest at a higher rate elsewhere. Just like regular CDs, promotional CDs usually earn interest on the deposited amount at a set rate until maturity. Most CD accounts are insured by the FDIC or NCUA (Federal Deposit Insurance Corporation or the National Credit Union Administration), depending on whether the money is on deposit at a bank or credit union.

Because there are a wide variety of CDs — including jumbo CDs and brokered CDs, and more — it’s wise to explore the exact terms of the CD you’re interested in, including interest rates, fees, and other stipulations.

How Does a Promotional CD Rate Work?

As noted above, CD promotional rates can be used to attract new investors and to build capital that they can then invest elsewhere at a higher interest rate. Promotional CDs will probably have better rates than a regular savings or CD account, but they may also require a higher initial deposit (perhaps closer to that of a jumbo CD) or longer term.

Like any CD these are low-risk investments, so generally the returns will be lower than other investments, like stocks. While bonds are also generally lower-risk vehicles, and bonds can seem similar to CDs in that they pay a fixed rate, the typical rate on a CD is often lower than a bond.

At maturity, promotional CDs are often rolled over into another CD that pays a lower interest rate, or they can be cashed out. Some banks might offer a higher rollover rate to retain the investment. The financial institution will generally charge a fee if an account holder withdraws the funds before the maturity date (there are no-penalty CDs, but they tend to pay a lower interest rate).

Recommended: What Is a Variable Rate CD?

Example of a Promotional CD Rate

Let’s say an investor wants to set up a certificate of deposit investment plan. They invest $5,000 in a CD for five years. A bank that offers a five-year promotional CD with a competitive 4% annual percentage yield (APY) would provide earnings of around $1,083. A regular savings account with a lower rate of 3.5% would earn about $938 with the same $5,000 deposit, or almost $150 less.

When to Consider Opening a Promotional CD?

A promotional CD makes sense when a bank or credit union is offering a better interest rate than a regular CD or savings account, you have the required amount to invest, and you don’t need the funds for the length of the CD term. While it’s impossible to say for sure which investments are the safest, if you’re worried about the higher risk associated with investing in assets like stocks or bonds, a promotional CD is a reasonably safe investment.

For example, CDs are sometimes used as college savings accounts or when parents are thinking about how to create an investment plan for a child.

How to Get a Promotional (Bonus) Rate CD

If you’re in the market for a promotional or bonus rate CD, follow these steps:

•   Do a bit of research to see what may be offered. Often, the best or only deal is what your bank may offer you.

•   Read the fine print. Make sure you qualify for the account and fully understand the term, the rate, and penalties for early withdrawal, among other features.

•   Apply for the CD when you are ready to invest, and set up funding to transfer money into your new CD account.

When a Promotional CD Does Not Make Sense

Now that you know how certificate of deposit promotions work, consider whether it’s really the right move for you. A promotional CD does not make sense if you may need the funds before the maturity date of the CD. The bank or credit union will likely charge a fee if you withdraw your funds early. In some cases, you might want to consider a no-penalty certificate of deposit.

Also, CDs do not keep up with inflation, so once taxes are paid on the interest earned, there may not be much of a return on the investment. If you want to explore other ways to earn interest, you might consider high-yield savings or fixed-income investment.

The Pros of Promotional CD Rates

The main advantages of promotional CDs are that they are safe and predictable.

•   Promotional CDs, like regular CDs, are likely a safe investment with a guaranteed rate of return.

•   Funds are typically insured by the FDIC up to $250,000.

•   The interest rate is usually fixed for the life of the CD, which helps to predict income.

The Cons of Promotional CD Rates

The main disadvantages of promotional CDs are that they do not offer high returns because they are low-risk.

•   The promotional rate is generally only offered for shorter maturity terms, and the rollover option is often to a standard CD at a lower rate (not the promotional rate).

•   Promotional CDs often require a larger initial deposit.

•   Promotional CDs may demand a longer term.

•   These financial products may only be available to current clients of a specific financial institution.

Promotional CD Rates vs Regular CD Rates

Promotional CD rates pay depositors a premium for parking their funds into a particular financial institution. The exact APY offered will depend on the bank, the length of the term, and the amount deposited. Most promotional CDs are shorter-term: e.g. about a year or less. Rates as of January 27, 2023 might be as high as 5.5% (the higher rates are likely to be offered by an online bank vs. a traditional bank or at a credit union).

Rates ranged from about 4.25% at CapitalOne, 0.02% at Chase, and 0.03% at Bank of America for CDs of a year or two in length with a deposit of less than $10,000.

Are Promotional CD Rates Worth It?

Do your research and think seriously about financial security as you consider a certificate of deposit promotion. A couple of points to recognize:

•   When interest rates are down, investing in the stock market using an IRA or 401(k) may make more sense than a CD in terms of helping your money grow, though investing carries risk.

•   Promotional CDs are often offered by banks with low interest rates overall, and what one bank considers a competitive rate might be much lower than other banks’ standard rates. In other words, if a financial institution is offering an additional 0.05% for opening a new CD, but their base APY is very low, it’s likely not the best deal for you.

The Takeaway

For risk-averse investors who want to invest a sum of money safely and know exactly what return they can expect, a promotional CD can be a good option. It’s a way to take advantage of temporary favorable interest rates offered by a bank or credit union that can yield a higher return than a simple savings account.

That said, there are also some savings accounts that offer higher rates and could be the right place to stash your cash. When you open an online bank account with SoFi, you can qualify for a competitive APY when you set up direct deposit. In addition, these innovative, all-in-one accounts offer all the convenience of spending and saving in one place with no minimum balance requirement or account fees.

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.

🛈 While SoFi does not offer Certificates of Deposit (CDs), we do offer alternative savings vehicles such as high-yield savings accounts.

FAQ

Can a certificate of deposit be discounted?

CDs are not sold at a discount, unlike other short-term money market instruments. CDs pay interest on the money deposited usually on an annual basis. For CDs with a maturity of less than one year, interest is paid at maturity, and taxes are due on the earnings each year. However, for investors who don’t need to receive interest payments each year, a zero-coupon CD provides a return by being sold for their face value at maturity, which is higher than the initial investment.

What is the typical interest rate for a certificate of deposit?

A typical interest rate for a CD could range from 0.03% to 5+% for CDs with a one-to-five-year term and deposit of less than $10,000. It depends on the bank and the terms. CD rate promotions typically add to these rates.

What is the typical minimum balance for a certificate of deposit?

A typical minimum balance for a CD ranges from $500 to $5,000 or more, depending on the CD and the bank. Jumbo CDs typically require a $50,000 or higher deposit. Some banks offer CDs with no minimum balance requirement.

Photo credit: iStock/Ridofranz

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.

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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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Jan
30
2023
Is Mining Cryptocurrency Worth It in 2021?

Is Crypto Mining Still Profitable in 2023?

By | Growing Wealth, Investing | Comments Off on Is Crypto Mining Still Profitable in 2023?

Crypto mining is still profitable, but it’s potentially not as profitable as it was in years past. That’s true for a number of reasons, including the fact that for most of 2022 and into early 2023, crypto values were down way off their peaks.

Cryptocurrencies generally still have value, but calculating miner profitability can be a bit trickier than before, given the expense of computer hardware and software, as well as the energy it takes to keep that mining equipment running.

As the oldest and largest crypto, Bitcoin uses a proof-of-work consensus mechanism, and as such it is one of the main sources of crypto mining. Before deciding whether Bitcoin mining is worth it, and crypto mining in general, it’s important to know how it works and what the pros and cons are.

Why Bitcoin Mining Exists

Mining Bitcoin isn’t just the creation of Bitcoin (BTC). It’s also the decentralized global system by which miners validate and secure all Bitcoin transactions — and earn Bitcoin themselves.

It goes back to the blockchain technology that Bitcoin and other cryptocurrencies are built on. To run these networks, miners rely on powerful computer systems — or in some cases cloud-based technology — to solve complex mathematical puzzles and validate blocks of digital transactions.

This system is known as proof-of-work (PoW). With Bitcoin and other PoW systems, every transaction gets recorded in a transparent, immutable, public ledger known as the blockchain. The miner/s who solved it get rewarded with new Bitcoin.

What Is Bitcoin Halving?

It takes about 10 minutes for miners to confirm a 1MB block of transactions and earn new Bitcoin. But remember mining is intensely competitive, especially because the reward is halved every 210,000 blocks and now stands at 6.25 BTC.

As more Bitcoins are mined and the supply of new Bitcoins drops, the amount of Bitcoins released with every new block diminishes over time. This is known as Bitcoin halving, and generally, the value of Bitcoin increases after periodic Bitcoin halving.

So, to sum it all up, mining serves the purpose of validating a crypto network, and generating rewards for network participants, sometimes called validators or miners.

How Much Does a Miner Earn?

As of January 2023, a Bitcoin miner that successfully validates a new block on Bitcoin’s blockchain will earn 6.25 BTC. That reward will be reduced, however, during the next halvening.

And remember, Bitcoin is a deflationary cryptocurrency — so fewer BTC are produced every year, until the total amount of 21 million BTC is mined. If miners are working in teams or in pools, however, that reward is split up between them, too.

Hurdles to Mining BTC

While Bitcoin mining may seem lucrative, there are some caveats. For instance, to mine crypto effectively and efficiently, specialized machines built and tuned specifically to mine cryptocurrencies are often required. It also requires space — and a great deal of energy — to house and cool these powerful machines that operate around the clock.

There’s also competition to consider: The mining market is dominated by large companies who secure large warehouse facilities to house their army of ASIC mining rigs. Some of these companies might run mining pools that smaller miners can contribute to in order to get a piece of some block rewards in exchange for a small fee.

This is all to say that today, mining Bitcoin as an individual is rarely profitable unless someone has access to extra low-cost electricity and affordable equipment.

Bitcoin Mining Advantages and Disadvantages

Here are some positive and negative aspects of mining crypto.

Advantages

•   Proven track-record. Proof-of-work (PoW) consensus algorithms, which are the basis for crypto mining, have been around for many years. During that time, the Bitcoin network hasn’t seen a significant security problem.

   Many in the industry believe this is a result of Bitcoin’s significant hash rate, which refers to the amount of computing and process power being contributed to the network through mining.

   In the past, hackers have been able to destabilize smaller PoW networks, although the same can be said for smaller proof-of-stake (PoS) networks.

•   Cryptographic security. When trusting a network with large sums of money, PoW might be the best bet. It’s difficult to attack a PoW blockchain, so much so that would-be hackers are often content to become honest miners instead.

Disadvantages

•   Energy usage. Bitcoin mining uses a lot of electricity. Critics point to this as the main flaw of PoW. It’s possible that the Bitcoin network uses as much energy as an entire small country. Although Bitcoin’s overall energy usage is decreasing and much of it now comes from sustainable sources, this is still a primary concern.

•   Barriers to entry. PoW mining becomes more difficult with time, making it harder for the average person to get involved. A major principle of a decentralized PoW network is to distribute tasks as well as profits among many users. But as mining becomes more complex and difficult, a handful of large companies — which can afford to build warehouses full of mining machines — dominate the mining sphere.

Crypto Mining Advantages

 Crypto Mining Disadvantages
Proven track record High energy usage
Cryptographic security Greater barrier to entry
Difficult to attack Gets more difficult over time

The Risks of Crypto Mining

While crypto mining can be profitable in some instances, it does have its risks and downsides. Here’s a brief rundown.

Environmental Risks:

As mentioned, crypto mining is resource-intensive. Running mining rigs eats up a lot of electricity, which, in turn, generates environmental pollution.

Security Risks:

Malware and other security risks exist in the mining sphere, too. For instance, it’s possible that bad actors could use techniques (like phishing) to access someone’s computer, and then load mining codes and programs onto it without them knowing. As such, the victim could be sharing their computing resources and electricity mining with a hacker without even realizing it.

Regulatory Risks:

Regulation has yet to make it to the crypto space, but the federal government is working on it, and anyone involved in crypto can probably expect new rules and regulations to be announced within a few years. Those new rules and regulations will likely affect miners, too, so that’s another thing to keep in mind.

Investment Risk:

Crypto mining requires some upfront investment. You’ll need to buy a “rig,” first and foremost, and stocking up on computer power isn’t always cheap. But, as with any investment, there are risks in doing so. Mining may not be as profitable in the future, meaning your investment may not earn you the types of returns you were hoping for.

Or, if new regulations make mining illegal (though there’s no indication that will happen), investing in mining equipment may have all been a sunk cost.

Bitcoin Mining Pools

Due to the high cost and rising difficulty of mining Bitcoin, most miners today use something called a mining pool, as mentioned previously. Participating in mining pools is considered by many to be the only way for smaller miners to make any profit today, and even then it can be difficult to recoup the costs of equipment and electricity.

Within a mining pool, individual miners pool their resources together with other miners, improving their chances of mining a block and earning the Bitcoin rewards. When a block gets mined, the rewards are then split up among the different miners in proportion to the amount of computing power (known as hashing power) they contributed.

Mining pool owners typically charge mining fees for maintaining and participating in the pool. There are several different pools to choose from, each with their own structure.

Further, there are also Bitcoin cloud mining opportunities out there, which effectively allow miners to use computing resources over the internet. Miners using this strategy are renting others’ equipment, which incurs more costs.

Factors to Consider When Choosing a Mining Pool

After securing the Bitcoin mining equipment and electricity required for mining, a small miner will need to find a suitable mining pool. There are a few important factors to consider:

•   Fees: Most, but not all, Bitcoin mining pools charge fees. The fees are taken from the reward payout and can be as high as 4%.

•   Pool size: The larger the pool, the more frequent the potential payout, as more hashing power equals more blocks being found. However, this also means that the payouts are smaller, since rewards are shared between more people. On the flip side, smaller pools pay out less frequently, but in larger amounts.

•   Security and reliability: Miners might want to find a mining pool that they can trust won’t steal users’ funds or get hacked. Joining established pools with long histories may help to reduce these risks.

•   Required equipment investment: You’ll need to bring some power to the pool, too. And it’s becoming increasingly expensive to mine. When Bitcoin was first created, the computer power required for Bitcoin mining was enough for the computer-processing unit (CPU) of an average laptop computer to handle. But over time, the calculations have become more complex. Today, mining can mostly only be accomplished with advanced Application Specific Integrated Circuit (ASIC) machines, created specifically for mining Bitcoin.

And yet the hardware needs of Bitcoin mining is constantly evolving, as older machines become obsolete. An ASIC that was powerful enough to be profitable six months ago might not be able to produce enough coins to match the cost of electricity needed to run that same ASIC today. When this happens, miners must acquire new, more advanced hardware.

If you plan to try Bitcoin mining on your own, here are some things to consider when purchasing equipment:

•   Equipment cost

•   Electricity cost

•   The time it will take to recoup equipment costs

•   How BTC price fluctuations might impact profitability

•   The frequency with which you will need to buy newer, more powerful machines and sell old ones

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How Long Does it Take to Mine 1 Bitcoin in 2023?

There’s no correct answer here: The amount of time it takes to mine one whole bitcoin varies, and depends largely on the amount of hashing power a miner contributes.

In general, the more hashing power, the faster a block will be solved, resulting in the miner reaping the block reward in the form of newly minted bitcoins. Mining difficulty is another important variable. The lower the difficulty, the greater the odds of finding a new block.

When prices rise, more people are generally motivated to mine crypto. Then, as the Bitcoin hash rate increases due to more miners coming online, the difficulty adjustment (which happens every two weeks) tends to increase.

When prices fall, the opposite tends to happen, as the costs of Bitcoin mining equipment and electricity rise in relation to the value of the coins being mined. As hashing power comes offline, the difficulty tends to adjust downward.

How Many Bitcoins Will Be Mined in 2023?

There are about 900 new Bitcoins being mined every day. Assuming that rate held up during the entirety of 2022, then about 328,500 Bitcoin would’ve been mined in total. That should hold true during 2023, too. Roughly speaking, the amount of Bitcoin remaining to be mined totals around 2 million.

The interesting thing to note is that more people mining Bitcoin does not lead to an increase in the number of coins being mined. The block reward is currently set at 6.25 (this will remain true until the next Bitcoin halving), and one block gets mined roughly every 10 minutes. Increased competition for blocks leads to a higher hash rate, but the number of new coins being minted remains the same.

Alternatives to Mining Bitcoin

For those who choose to undertake the cumbersome task of mining crypto, the best cryptocurrency to mine might be the one with the lowest difficulty and highest price. But it’s critical to remember that these dynamics are in a constant state of flux, so the best cryptocurrency to mine today might not be the best one to mine tomorrow.

Historically, the only time altcoin miners have made significant profits has been when they were mining lesser-known, cheaper coins in the weeks and months before a large increase in prices, or an “alt season.” This has happened twice so far — once in 2017 and again in late 2020/early 2021.

Is It Worth Mining Ethereum In 2023?

Ethereum is the crypto market’s second-largest player. But unfortunately for miners, mining is no longer possible on the Ethereum network.

That’s because the “Ethereum 2.0” upgrade has gone into effect, which changed the consensus mechanism for Ethereum from proof-of-work to proof-of-stake. As such, the network no longer utilizes mining.

Only those who hold large quantities of ETH will be able to stake their tokens and become “validators.” Validators will have a chance at winning the next block rewards, with the highest odds going to those with the greatest amount of ETH staked. You can do more research about crypto mining vs. staking to learn more.

The Takeaway

Crypto mining is still profitable in 2023, however, it’s not as profitable as it once was, given that crypto prices have fallen from their peaks, and that mining operations have become more expensive to run and maintain. That’s not to say that prospective miners won’t make a profit, but there are more things to consider than in years past.

With that in mind, mining is a complex operation that carries considerable costs and risks. Most people interested in crypto mining may find it more worthwhile to join a mining pool than to try and go it alone.

FAQ

Is Bitcon mining profitable?

Bitcoin mining can be profitable, but there are many things prospective miners need to take into consideration. Given lower crypto prices and increased costs for equipment and resources, it may not be profitable for everyone.

What is the average profit margin for mining crypto?

It’s difficult, if not impossible to say what the average profit margin for mining crypto is without knowing a miner’s costs for electricity, mining equipment, and more. Those taking part in a mining pool, too, would have different costs to consider as well.

What risks are associated with mining crypto?

Some of the main risks associated with crypto mining include environmental concerns, security risks, investment risks, and regulatory risks. These are all things that any and all miners should take into consideration.

Photo credit: iStock/Chris Tamas

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.
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Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform.

Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.

2Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on December 31, 2023. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.
First Trade Amount Bonus Payout
Low High
$50 $99.99 $10
$100 $499.99 $15
$500 $4,999.99 $50
$5,000+ $100

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Jan
26
2023
What Is Greenwashing?

What Is Greenwashing?

By | Growing Wealth, invest, Investing | Comments Off on What Is Greenwashing?

Greenwashing is when a company markets itself as more environmentally friendly than it actually is. Also known as “green sheen,” this tactic is used to attract consumers who prefer products with high environmental standards.

The term greenwashing is taken from whitewashing, which is when a company or individual conceals its wrongdoings by presenting a cleaned-up version of their actions that isn’t actually true.

A typical reason companies engage in greenwashing these days is that consumers want to purchase the most sustainable products they can. According to GreenPrint’s 2021 Business of Sustainability Index, 75% of millennials and 64% of Gen X consumers claimed they would spend more money on a more environmentally friendly product.

Before you buy products marketed as sustainable or eco-friendly, or invest in a green company that makes similar claims, it may help to know some of the red flags of greenwashing.

Identifying the Different Types of Greenwashing

There are a few common marketing tactics that constitute greenwashing. Many of these can be convincing, so in order to decide whether a company is engaging in actual greenwashing or not, you may have to do your own research.

Here are some red flags to look out for when purchasing a product, or investing in a company that claims to embrace sustainability or ESG investing (i.e. good environmental, social, and governance practices):

•   Vague terminology: Labels such as “eco-conscious,” “clean,” or “100% sustainable” don’t actually mean anything in terms of a company’s manufacturing processes or adherence to environmental policies. Be sure to research terms and standards that reflect actual environmental practices.

•   Imagery: If a polluting company uses marketing images of flowers, trees, beaches and so forth, they may be trying to appear more environmentally friendly than they really are. Be sure to check whether the product lives up to the advertising.

•   Greenwashing a traditionally polluting product: Companies may attempt to improve the branding of a product by making it seem more environmentally friendly without actually changing much or anything about it.

•   False associations: Brands can make it seem like they are endorsed by a third party when they really aren’t, or the third party is simply their own subsidiary.

•   Green products from a polluting company: A company might make a product that has a lower environmental impact, such as an electric vehicle, but manufacture it in a way that creates significant waste and greenhouse gas emissions.

•   Fabricated data: Companies might fund research that will have results that make them look better, or make data up completely.

Again, because socially responsible investing has grown so rapidly, and many companies want to attract the attention of investors and consumers, there is a commensurate growth on the greenwashing side, so it does pay to be cautious when making choices.

Example of Greenwashing

A few examples of what would be considered greenwashing are described on the U.S. Federal Trade Commission (FTC) website:

•   A company labels a trash bag they are selling as “recyclable.” Although this may be true, it’s unlikely that a trash bag full of trash will be emptied and then recycled on its own. This label makes the product appear to have an environmental benefit, but in reality it doesn’t.

•   In another example, a company labels a product as having 50% more recycled content than a previous product did. This makes it sound like a significant amount, but in fact the company may have increased the recycled content from 2% to only 3%, so there has been hardly any change in reality.

•   A company labels a product as “recyclable” but they don’t say specifically whether all parts of it are recyclable, just some parts, or just the packaging.

Other real-world examples include: an oil company that’s known for environmental negligence releasing advertisements that state their dedication to the environment — or companies promising to do environmental cleanups, but failing to actually follow through on those promises. You can compare these to alternative or solar energy companies that are making a difference.

💡 Recommended: A Beginner’s Guide to Invest in Solar Energy

The Negative Effect of Greenwashing on a Company

Although in the short term greenwashing can benefit a company if it leads to more people buying their products, there can be negative consequences. If consumers realize the company is engaging in greenwashing there can be a big PR backlash. Companies can also face legal ramifications for their misleading claims. And investors interested in true impact investing may take their business elsewhere.

In the long term, the biggest negative consequence is the actual environmental impact of manufacturing practices that are not, in fact, green or sustainable. Companies rely on clean water and air, quality soil, and a stable climate to operate. A thriving economy requires a healthy planet, and greenwashing ultimately doesn’t support either.

How to Avoid Greenwashing

Whether purchasing products or investing in companies, if you are looking for the most sustainable options, there are a few ways to avoid greenwashing.

1. Clear and Transparent Language

Watch out for vague terms and language. If a brand makes sustainability claims, look for specifics such as certifications, verifiable third-party endorsements, industry credentials, and details about exactly what the brand is doing.

2. Evaluate the Data

If a brand uses statistics and numbers to back up its sustainability claims, make sure they are backed up with credible data.

3. Compare Similar Products

A company may make sustainability claims when in fact their product has basically the same environmental impact as their competitor’s. Compare ingredients, packaging, and manufacturing information to see whether one product is really better than another.

4. Look Beyond the Final Product

Even if a company is improving the impact of its products, it may not be addressing the waste and emissions associated with its operations. If this is the case, they may be just making changes for marketing purposes. Check out their website and other materials to see how much effort is going into sustainability at the corporate level.

5. Look for Goals and Timelines

If a company is truly implementing a comprehensive sustainability plan, it would include measurable goals and timelines. Ideally those are shared with consumers at least to some extent.

6. Check Ingredients and Materials

Some terminology and product labels can be misleading. For instance, a company might say that their product is made from organic cotton or recycled plastic, when in fact only a small percentage of the cotton or plastic is organic or recycled and the rest is not. The FDA has no guidelines for what the term “natural” means, and according to the USDA the term simply means that a product is “minimally processed” with “no artificial ingredients.”

Greenwashing vs Green Marketing

There is nothing wrong with a company telling the story of its environmental initiatives and the steps it is taking to produce products more sustainably. That’s green marketing at its best and most transparent. By contrast, greenwashing is when a company attempts to cover up their bad practices using fake versions of legitimate claims.

Actual green marketing may include:

•   Certifications and endorsements from established regulatory organizations

•   Clearly labeled manufacturing processes

•   Recyclable, compostable, or biodegradable materials (but watch out for these labels, sometimes a product can actually only be composted or biodegrade in very specific conditions that aren’t realistic).

•   Products free from toxic chemicals

•   Use of renewable energy

•   Transportation measures such as EVs

•   Purchase of carbon offsets for any unavoidable emissions

•   In-office programs and measures such as renewable energy, LEED certified buildings, on-site composting, or elimination of single use plastic

•   Doesn’t use too much packaging, and ideally avoids plastic packaging

•   Circularity programs that allow consumers to send back the product for repair or reuse

•   High-quality manufacturing made to last rather than one-time or short-term use

•   Fair trade and ethical labor practices

•   Environmental programs outside the company, such as donations or volunteer efforts

The Takeaway

Greenwashing is a marketing tactic some companies use to align themselves with the growing consumer and investor desire for sustainable products and investments. It’s related to the concept of “whitewashing,” which means covering up the truth with a positive-sounding story.

Greenwashing can take a number of different forms, including imagery that appears eco-friendly (but doesn’t reflect anything about the actual product), advertising and marketing language that is misleading, or the greenwashing of traditional pollutants (e.g. fossil fuels and the like).

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).

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FAQ

What is ESG greenwashing?

ESG greenwashing is the practice of using marketing tactics to exaggerate sustainability efforts in order to attract customers, employees, investors, or positive media attention.

What are the three most common kinds of greenwashing?

Three common types of greenwashing are the use of environmental imagery, misleading labels and language, and hidden tradeoffs where the company emphasizes one sustainable aspect of a product but they also engage in environmentally damaging practices.

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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.
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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.


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How to Reduce Taxable Income for High Earners

How to Reduce Taxable Income for High Earners

By | Budgeting & Goals, relay | Comments Off on How to Reduce Taxable Income for High Earners

If you’re looking to reduce the amount of income tax you’ll need to pay, there are numerous strategies to consider. Familiar moves include contributing to tax-deferred retirement and health-spending accounts, deducting certain taxes and interest, and making charitable donations. More complex maneuvers include timing investments to offset gains with losses.

Because each person’s situation is unique, be sure to check with your tax accountant to find out how a potential strategy might work for you. Note that some of the strategies included in this guide have income limits.

Keep reading to see how many of these 25 tactics you can implement.

25 Ways to Lower Your Taxable Income

As you look through this list of 25 ideas on how to pay less in taxes, you’ll note that some are broad, advising how to reduce either W-2 taxable income or self-employment income. Meanwhile, others are more targeted — for instance, applying only to the self-employed. Keep track of ideas that pertain to your situation, so you can explore them further.

1. Contribute to a Retirement Account

Many IRA contributions are tax deductible. If you’re covered by a plan at work, you can contribute up to $23,000 to a 401(k) plan in 2024, and an additional $7,500 if you’re over 50. You can also contribute $7,000 to an IRA ($8,000 if you’re over 50), though your deduction may be limited depending on income and other factors.

Self-employed individuals can contribute between 25% and 100% of net earnings from self-employment, up to $69,000 for 2024. Plans available to the self-employed include the Simplified Employee Pension (SEP) plan, solo-401(k), and Savings Incentive Match Plan for Employees (SIMPLE IRA).

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2. Open a Health Savings Account

A health savings account (HSA) allows you to deposit money on a pre-tax basis. Contribution limits depend on your health plan, age, and other factors, but most individuals can contribute $4,150 for 2024.

Funds can be used to pay for qualified medical expenses or rolled over year to year. You must have a high deductible health plan (HDHP) to contribute to an HSA.

3. Check for Flexible Spending Accounts at Work

In lieu of an HSA, you can contribute up to $3,200 in pre-tax dollars to a flexible spending account (FSA). FSAs allow people with a health plan at work to deposit money and then use it to pay for qualifying health care costs. Unlike HSAs, FSAs don’t require an HDHP to qualify. The downside: Only a small portion of funds may be rolled over to the following year.

4. Business Tax Deductions

The IRS guidelines around business deductions change frequently, so it’s wise to watch out for their announcements throughout the year. Some business expenses apply only to self-employed people.

5. Home Office Deduction

When a self-employed person regularly uses a specific area of their home for business purposes, they may qualify to deduct costs associated with that part of the house. The home office deduction can be calculated in two ways (regular or simplified) up to the current gross income limitation. For more information, search for “IRS publication 587.”


💡 Quick Tip: Online tools make tracking your spending a breeze: You can easily set up budgets, then get instant updates on your progress, spot upcoming bills, analyze your spending habits, and more.

6. Rent Out Your Home for Business Meetings

If you’re self-employed, you can also rent out your home for business events and meetings, collect the income — and not have to pay income taxes on that rental income. To learn specifics, visit https://www.irs.gov/pub/irs-drop/rp-13-13.pdf.

7. Write Off Business Travel Expenses

Travel expenses, as defined by the IRS, are the “ordinary and necessary expenses of traveling away from home for your business, profession, or job. You can’t deduct expenses that are lavish or extravagant, or that are for personal purposes.” For IRS guidance for both W-2 employees and the self-employed, go to https://www.irs.gov/taxtopics/tc511.

8. Deduct Half of Your Self-Employment Taxes

When calculating your adjusted gross income (AGI) as a self-employed person, using Form 1040 or Form 1040-SR, you can deduct half the amount of your self-employment tax. The 2024 self-employment tax rate is 12.4% for Social Security and 2.9% for Medicare, based on your net earnings.

9. Get a Credit for Higher Education

This tax credit can go up to $2,500 based on tuition costs along with what you paid in certain fees and for course materials. As a first step, income tax owed is reduced dollar for dollar up to your limit. Then, if your tax credit is more than what you owe, you may be able to get up to $1,000 in a refund.

10. Itemize State Sales Tax

Currently, you can deduct a total of $10,000 for itemized state and local income taxes, sales taxes, and property taxes when you use Form 1040 or 1040-SR. If married but filing separately, the total is $5,000 per person. The IRS provides a calculator that you can use to figure out your deduction at https://apps.irs.gov/app/stdc/.

11. Make Charitable Donations

A taxpayer can typically deduct up to 60% of their AGI to qualified charities. But starting with contributions made in 2020, the IRS implemented a temporary suspension on limits. This means that a person can make qualified charitable contributions up to 100% of their AGI.

12. Adjust Your Basis for Capital Gains Tax

If you sell an asset, including but not limited to investments, a capital gains tax is levied on the difference between the purchase price and what it sells for. The adjusted basis also takes into account the costs of capital improvements made, minus decreases such as casualty losses. For more on the topic when selling a home, search for “IRS publication 523.”

Recommended: Should I Sell My House Now or Wait?

13. Avoid Capital Gains Tax by Donating Stock

You may be able to avoid paying capital gains tax if you transfer the ownership of your appreciated stock (held for more than one year). This is something that needs to be handled in exactly the right way; your tax accountant can help.

14. Invest in Qualified Opportunity Funds

If you invest in property through a Qualified Opportunity Fund, the IRS states that you can temporarily defer paying taxes on the gains. Taxes can be deferred (not reduced or canceled) up until December 31, 2026, or until an inclusion event occurs earlier than that date. This is a complex strategy and, again, you may want to get professional advice.

15. Claim Deductions for Military Members

You may be able to deduct moving expenses if you’re a member of the military on active duty who relocated because of a military order and permanent change of location. In this case, you can potentially deduct your unreimbursed moving expenses as well as those for your spouse and dependents. You can calculate relevant expenses on “IRS form 3903, Moving Expenses.”

16. Enroll in an Employee Stock Purchasing Program

In an employee stock purchase plan (ESPP), an employee who works at a company that offers this program can buy company stock at a discount. The company takes out money through payroll deductions and, on the designated purchase date, buys stock for participating employees. Note that only qualified plans have potential tax benefits.

17. Deduct the Student Loan Interest You’ve Paid

You may qualify to deduct student loan interest. Annual deduction amounts are the lesser between the amount of interest paid and $2,500. This deduction is lowered and eliminated when your modified adjusted gross income (MAGI) reaches a certain limit based on your filing status.

18. Sell Your Losing Stocks to Claim Capital Loss Carryover

If you sell stock at less than the purchase price, you’ve experienced a capital loss. You can use that loss to offset any capital gains that year. If you’ve lost more than you’ve gained, this can reduce your taxable income, which could reduce what you owe up to $3,000 for individuals and married couples, and $1,500 for someone married who filed separately.

Recommended: Tax Loss Carryforward

19. Deduct Mortgage Interest

You can deduct the money you paid on mortgage interest on the first $750,000 (or $375,000 if married, filing separately) of mortgage debt you owe. Higher limits exist ($1,000,000/$500,000) if the debt was taken on before December 16, 2017.

20. Deduct Medical Expenses

Under certain circumstances, you can deduct medical and dental expenses for yourself, your spouse, and dependents. You’ll need to itemize on your tax return and can only deduct qualifying expenses that exceed 7.5% of your AGI.

21. Delay IRA Withdrawal Upon Retirement

You can delay IRA withdrawals so that you don’t have more taxable income when you’re a high earner. For example, if you reach the age of 70 ½ in 2022 or later, you can wait until April 1 after you reach the age of 72.

22. Ask Your Employer to Defer Income

You pay income tax in the year the income is received. Although there are reasons why employers typically can’t postpone providing paychecks, they may be able to delay a bonus to the following year as long as this is standard practice for them. If self-employed, you can delay sending your end-of-year invoices to bump December payments to the following calendar year.

23. Open a 529 Plan for Education

A 529 plan allows you to save for future educational expenses. Although the contributions themselves aren’t deductible, interest that accrues in the account is tax-free, federally, as well as being tax-free in many states. In other words, when the money is withdrawn to pay college expenses, it is not taxed.

24. Buy Tax-Exempt Bonds

Interest you receive on muni bonds, for example, is not federally taxed (although there may be state and/or local taxes). These are typically very safe investments, although the interest rates may not be what you want.

25. Time Your Investment Gains or Losses

Known as tax loss harvesting, this strategy takes planning because you’ll want to ensure that any investment gains can be offset, as much as possible, by tax losses. So you may decide, as just one example, to hold on to a stock that’s lost significant value — selling it at a time when it can offset a stock sale with a sizable gain.


💡 Quick Tip: Income, expenses, and life circumstances can change. Consider reviewing your budget a few times a year and making any adjustments if needed.

The Takeaway

High earners looking to reduce taxable income have many avenues to explore — some you’ve likely heard of, with others perhaps new to you. For instance, investors may be able to take advantage of tax loss harvesting, tax loss carryover, or tax efficient investing. Consult your tax accountant about your specific situation. And to take advantage of tax reduction opportunities, it’s important to keep careful track of your financial transactions.

Take control of your finances with SoFi. With our financial insights and credit score monitoring tools, you can view all of your accounts in one convenient dashboard. From there, you can see your various balances, spending breakdowns, and credit score. Plus you can easily set up budgets and discover valuable financial insights — all at no cost.

See exactly how your money comes and goes at a glance.

FAQ

How can I lower my taxable income?

If you’re wondering how to reduce your taxable income, there are numerous strategies that might work for your situation. A good place to start: Contribute to a retirement account, open a health savings account, and learn which taxes and interest you can deduct. Talk to your tax accountant about specific questions you may have.

What are the tax loopholes for the rich?

If you’re looking to reduce your taxable income, consider making charitable donations and investigating investment strategies that offset gains with losses.

Do 401(k) contributions reduce taxable income?

Said another way, are IRA contributions tax deductible? Retirements typically offer some tax benefits with specifics varying based on the type of retirement account. Traditional IRAs have different rules, for example, than Roth IRAs.

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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.

Disclaimer: The projections or other information regarding the likelihood of various investment outcomes are hypothetical in nature, do not reflect actual investment results, and are not guarantees of future results.
Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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

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

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

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How to Win a Bidding War

By | Growing Wealth, Home Ownership, mortgage | Comments Off on How to Win a Bidding War

In housing markets teeming with buyer demand, it’s not uncommon to put an offer on a home only to be outdone by a competing offer. If two or more potential buyers want a property badly enough, they may find themselves locked in a bidding war.

The tea leaves indicate that 2023 will throw cold water on many bidding wars, but certain markets in the country could remain competitive.

Here’s how to increase your chances of winning a bidding war so you don’t have to bid adieu to a home you really want.

First-time homebuyers can
prequalify for a SoFi mortgage loan,
with as little as 3% down.

1. Know How a Bidding War Works

Bidding wars usually take place in a seller’s market, when demand outpaces housing inventory. They also typically occur when there are multiple interested parties and when there is some sort of constraint, like timing.

When a seller’s agent receives offers for a property that has attracted a lot of buzz, the agent may set a date by which would-be buyers should make their “highest and best” offer. Sellers can accept the best offer, counter one offer while putting the others to the side while awaiting a decision, or counter one offer and reject the others.

This brings up a salient point: It’s true that you can buy a house without a Realtor® or real estate agent, but an experienced agent can guide you through offers and counteroffers, contingency snags, and more.

2. Line Up Your Financing

One of the best things you can do to be prepared for a potential bidding war — or really any time — is to get your finances, and financing, in order.

Be sure to know how much house you can afford, including a down payment and monthly payments.

Determine if you qualify for a mortgage and familiarize yourself with the types of home loans that are available: government-backed loan or conventional loan, fixed rate or adjustable rate.

Getting preapproved for a mortgage will give you a specific amount that a lender is tentatively willing to let you borrow.

And a preapproval letter shows sellers that you are a serious candidate to buy a home. Many experts recommend getting at least three preapproval letters from three lenders.

3. Lessen or Drop Contingencies

Contingencies are certain conditions that must be met before a real estate deal becomes binding. Potential buyers can back out of a deal without penalty if the contingencies aren’t met.

A clean offer, one with as few contingencies as possible, is attractive to sellers in a competitive market.

In a typical real estate market, a common contingency is the mortgage contingency, or financing contingency, which allows homebuyers to exit the deal and have their earnest money returned if they cannot secure financing by the agreed-upon deadline.

Another is the inspection contingency. Based on the findings of a professional inspection, the buyer may be able to negotiate repairs or the price, which are known as seller concessions if the sellers are agreeable, or cancel the contract.

Waiving contingencies shows your eagerness to triumph, but it comes with risk. The biggest is losing your earnest money deposit if you hit a snag.

4. Be Quick About These Contingencies

Sellers want to avoid spending a lot of time with a potential buyer only to have the deal fall through. If you’re including appraisal and inspection contingencies, do what you can to expedite them.

The real estate purchase contract includes any contingencies, the sales price, the closing date, and the date of the title transfer and possession. The contract is considered a working document until both parties agree on the terms.

5. Use an Escalation Clause

Unsurprisingly, one of the best ways to win a bidding war is by offering more money.

You may want to include an escalation clause in the contract if you assume there will be multiple offers.

The clause asserts that if another buyer makes a competing offer, your bid will automatically increase by a certain amount, up to a limit, to exceed the offer.

Say you put a $400,000 offer on a home, with an escalation amount of $10,000 and a ceiling of $430,000. If someone else bids $410,000, you will automatically bid $420,000, up to your ceiling.

6. Stay Flexible

A willingness to be flexible can give you a leg up in the eyes of a seller.

For example, a seller might be moving across the country for work and need to close by a specific date. So if you can get the appraisal and inspection done swiftly, that could be a huge plus.

Alternatively, sellers may need to stay in the house for a while. Working with them on their specific needs could give you an edge.

7. Pay With Cash

If you are able to do it, buying a house with cash can be very attractive to sellers. The process is typically much faster than going through a lender, and sellers don’t want to worry about financing issues that might hold up the deal or cause it to fall through.

It’s even possible that a seller would choose a cash offer over a slightly higher offer backed by a mortgage.

8. Increase Your Deposit

There are timeless standards for how to make an offer on a house. One is determining the size of your earnest money deposit.

The deposit, held in escrow by the title company, secures the real estate contract. It tells the seller that you are serious about buying the house.

Earnest money is typically 1% to 3% of the purchase price but can be more in a competitive market. If you close on the home, the deposit will be applied to your closing costs.

9. Write a Personal Letter

When sellers are choosing a buyer during a bidding war, they’re often just looking at numbers on a page. Consider writing a real estate offer letter, aka love letter, to humanize the transaction.

You might want to make a case for why you’re the ideal candidate to buy the home, and note commonalities: You’re a ceramicist and noticed an artist’s studio in the backyard. You have dogs; they have a dog. That big elm reminds you of the one at your childhood home.

Be complimentary about the things you like about the house and how it has been maintained. And be concise.

The Takeaway

Whether you’re buying in a time of burgeoning bidding wars or not, it’s good to know how they work. The tactics help homebuyers understand the lay of the real estate land: contingencies, earnest money, escalation clauses, love letters.

If you’re gearing up for a bidding war or a peaceful purchase, see what SoFi Mortgages are all about. The rates are competitive. A number of repayment terms are offered. And qualifying first-time homebuyers can put as little as 3% down.

Getting prequalified is the first step.

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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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