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It’s natural to be curious about what credit score you start with at 18. You might assume you start with the lowest possible score of 300, but that’s not how it works. Instead, your credit score doesn’t exist until you begin generating financial data.

Good credit is vital to financial independence. Establishing credit early on can help you qualify for favorable rates and terms when you need to borrow money for a car or home. Here’s what you need to know about beginning credit scores and how you can build yours.

What Is Your Starting Credit Score?

Essentially, your credit score doesn’t exist until you begin building credit. Before that, if a financial institution requests your credit history, they will find nothing. Only when you use a credit card or pay utility bills will there be something to put on your credit report.

This doesn’t mean you will start with the lowest score possible, though. Neither will you start with a high credit score, since that requires a strong credit history and proof of solid financial habits. But if you get off on the wrong foot by not paying your credit card bill on time, you may start with a lower credit score.

Usually, you need at least one or two revolving accounts that have been active for at least three to six months to begin building credit. Creditors and lenders use various credit scoring models to determine your creditworthiness. Therefore, your number may differ across different platforms. For example, your FICO® Score and VantageScore range between 300 and 850, while other models, such as your auto loan score, may go up to 900 or higher.

Recommended: What Is the Difference Between Transunion and Equifax

Breakdown of Credit Score Factors

A number of factors affect your credit score. Here are the ones you should know about.

Payment History

A key factor in determining your credit score is whether you pay your bills on time. In fact, when calculating your FICO score, 35% comes from your payment history. Because it plays a significant role in your overall score, paying your bills on time is crucial.

Credit Utilization

Your credit limit is the maximum dollar amount you can charge on a credit card. Credit bureaus determine your credit utilization by dividing your outstanding balance by your total revolving credit limits. This shows credit bureaus how much credit you are using against the total credit you have.

A good rule of thumb is to keep your credit utilization ratio under 30%, both for each credit card and overall. Maintaining a low credit card balance or paying it off monthly will help you maintain a lower credit utilization ratio. This factor accounts for 30% of your overall FICO score.

Length of Credit History

The longevity of your credit history also plays a part in calculating your credit score. Credit bureaus will look at the number of years your accounts have been open. The length of your credit history accounts for 15% of your FICO score.

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Credit Mix

Credit is usually broken down into three categories: revolving credit, installment credit, and service credit. With revolving credit, creditors give you a specific credit limit to spend as you wish. You can make the minimum monthly payments or choose to pay off your credit card balance every month. If you make the minimum payment, the remaining balance will carry over to the next month until you pay off the entire balance.

Installment credit is used for auto, mortgage, and other loans. With this type of credit, the creditor establishes a fixed monthly payment you agree to pay back over a set amount of time. Demonstrating that you can handle multiple types of credit can increase your credit score.

Last, service credit is when companies like home utilities or a cell phone provider report your payment history to a credit bureau. On-time payments to these businesses can help build your credit. This accounts for 10% of your FICO score.

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New Credit Inquiries

When you apply for new credit, creditors conduct a hard inquiry. This means they assess your creditworthiness by looking at your overall credit history. New credit inquiries and new accounts account for 10% of your score. Triggering a large number of credit inquiries in a short amount of time is considered risky and will negatively impact your credit score.

What Is Insufficient Credit History?

If you don’t have any credit accounts or your credit accounts are not reported to the three major credit bureaus (Experian, TransUnion, and Equifax), you may have an insufficient credit history.

Even if you establish credit but go a long time without using it or cancel your credit cards, your credit information might be removed from your credit file. In this case, you may also have an insufficient credit history.

How to Establish Credit History

Building credit might seem daunting. However, there are a few strategies to begin establishing a credit history from scratch. Here’s how.

Apply for a Secured Credit Card

Secured credit cards require applicants to put down a deposit. This deposit will usually act as your credit limit. You will still have to make monthly payments since the deposit is used as protection or collateral if you default.

A secured card will help you establish credit as long as the creditor reports to one of the three major credit bureaus. A secured credit card can act as a stepping stone to unsecured credit cards and other forms of financing in the future.

Become an Authorized User

To become an authorized user, someone needs to add you to an existing account held in their name. You will receive your own credit card, and the account history will go on your credit report.

Keep in mind, however, that since you’re not solely responsible for payments and the management of the account, this account may have less of an impact on your credit score than if you were the sole owner of the account.

Make On-time Payments

As noted above, your payment history counts as 35% of your score. Missing a payment can hurt your credit score and stay on your credit report for up to seven years. You can establish autopay to ensure you never miss a payment. However, you’ll still want to check your account monthly to ensure you weren’t overcharged.

Keep Your Credit Balances Low

Once you get a credit card, resist the temptation to run up the balance. The amount of credit you’re using plays a role in your score. It’s best to keep your balances low and use under 30% of your total credit card limit.

How to Monitor Your Credit Score

An important component of building credit is monitoring your progress. Monitoring your credit can motivate you to keep building your score. It can also help you spot problems quickly, such as missed payments. Finally, keeping tabs on your credit will let you see how specific actions impact your score so you can better understand how credit scoring works.

The Takeaway

The credit history you start with at 18 is a blank slate. Your credit score doesn’t exist until you start building credit. To begin your credit-building journey, consider opening a secured credit card or ask a family member to add you as an authorized user on their account.

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.

FAQ

Is a credit score of 720 good?

Yes, a 720 credit score is considered good. However, increasing your score by 20 points will make it a very good score and help you receive more favorable interest rates and terms.

Does credit build before 18?

It’s possible to build credit before age 18 if you’re an authorized user on an adult’s account or you have a secured credit card. Many financial products, such as loans and credit cards, require you to be 18 or older to apply. Being an authorized user can be your first opportunity to establish credit history.

How can I quickly build my credit score?

Since your credit utilization ratio significantly impacts your credit score, paying off your credit card balances and increasing your limits can help you build your credit score promptly.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

SoFi Relay offers users the ability to connect both SoFi accounts and external accounts using Plaid, Inc.’s service. When you use the service to connect an account, you authorize SoFi to obtain account information from any external accounts as set forth in SoFi’s Terms of Use. Based on your consent SoFi will also automatically provide some financial data received from the credit bureau for your visibility, without the need of you connecting additional accounts. SoFi assumes no responsibility for the timeliness, accuracy, deletion, non-delivery or failure to store any user data, loss of user data, communications, or personalization settings. You shall confirm the accuracy of Plaid data through sources independent of SoFi. The credit score is a VantageScore® based on TransUnion® (the “Processing Agent”) data.

*Terms and conditions apply. This offer is only available to new SoFi users without existing SoFi accounts. It is non-transferable. One offer per person. To receive the rewards points offer, you must successfully complete setting up Credit Score Monitoring. Rewards points may only be redeemed towards active SoFi accounts, such as your SoFi Checking or Savings account, subject to program terms that may be found here: SoFi Member Rewards Terms and Conditions. SoFi reserves the right to modify or discontinue this offer at any time without notice.

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


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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

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Credit cards are one of the most accessible credit-building tools in your arsenal, but rewards are also part of the appeal. A statement credit is one way to redeem rewards you’ve earned.

If you look through your statement balance and find that money was put back into your account, that’s a statement credit.

Knowing how you earned that money can help you take advantage of your credit card’s rewards system in the future.

What Is a Statement Credit?

Credit card companies use a statement credit to issue a credit to your accounts, such as cash back or other rewards you have earned. Essentially, you receive money from your card issuer for a specific reason.

Finding documentation of your statement credit varies among credit card companies. Generally, though, you will see it on your monthly statement under transactions or account activity.

If you check your statements online, you’ll probably see the credit appear in green text.

Regardless of the format, a statement credit has a minus sign in front of the cash amount, thus decreasing your revolving balance.

How to Receive Statement Credits

There are a few ways a statement credit might apply to your account. A common reason is through a return.

If you have ever returned an item you bought using your credit card, the retailer will probably refund the money borrowed from your card issuer. You’ll receive a statement credit that matches the price of the returned item.

Other than returns, ways you may receive a statement credit include:

•   Shopping benefits. Some card providers offer discounts or statement credits for shopping with specific merchants.

•   Travel credits. Card providers may offer annual statement credits to pay for eligible travel expenses like a luggage fee or plane tickets.

•   Rewards. Card providers that offer cash back, points, or miles may let you redeem them in the form of a statement credit.

Statement Credits vs. Cash Back

Your credit card company gives you options when you sign up for a rewards credit card. One choice may be cash back or statement credits.

Cash back sounds simple enough, but it doesn’t always mean you’ll get direct money. Instead, your issuer may offer a cash reward in the form of a credit put on your account. Occasionally, they may send you a physical check or deposit the money in your checking account.

You earn cash back as a reward for using the credit card. It is a percentage of the money spent on purchases using the card.

In comparison, a statement credit reduces your credit card balance. Carrying a high balance between periods could lead to a high credit utilization ratio, which shows the amount of available credit a person has. That can result in a lower credit score over time.

Are Statement Credits Taxable?

The type of credit or reward you receive determines whether it’s taxable. If the credit card holder spent money to earn the reward, they usually don’t have to pay taxes on it. If they receive the credit without any spending, the reward may be taxable.

For example, an individual receives money back on her account after returning a chair she purchased online. That credited amount would not be taxable.

Cashback earners who engage in programs for points, like travel rewards, also generally avoid taxation.

The primary instance where cardholders face a taxable reward is with sign-up bonuses.

If they did not have to purchase anything to earn the bonus, it’s probably taxable. The taxation may apply regardless of how the credit card company issues the bonus, whether it’s in cash or airline miles.

Using Your Rewards Wisely

Credit cards come with responsibilities, but they have their perks.

Consider using statement credits put on your account to lessen your balance. Or look into the various rewards your card issuer offers.

You may even be among the 23% of Americans who didn’t redeem any of your stockpiled rewards in 2022. So you might be missing out on rewards that you could use for some of your favorite services.

When shopping for a new card, you may want to look closely at the points, cash back, or miles involved. How are the rewards offered, how are they redeemed, is it better for you to get a card with consistent points across all purchases or increased rewards in certain areas?

Think through which rewards best fit your lifestyle and interests. If you want to see the world, you may want to get a card that optimizes travel benefits. If you’re an investor or someone interested in student loan refinancing, at least one card is geared toward those preferences.

The Takeaway

What is a statement credit? It’s a reduction in a credit card balance. Many credit cards offer statement credits as one way to redeem travel, cashback, or other rewards.

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

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

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Unsecured credit cards, which don’t require a form of collateral to use them, tend to be the most popular kind of credit card. In addition to helping you build credit, these cards often come with perks and benefits, like cash back rewards or free travel insurance.

To decide if an unsecured credit card is right for your financial situation, read on. You’ll learn what an unsecured credit card is, how it works, and the pros and cons of using one.

What Is an Unsecured Credit Card?

When you think of what a credit card is, you’re most likely thinking of an unsecured credit card. An unsecured credit card is a line of credit that gives cardholders the ability to use credit at their whim. In other words, as a cardholder, you can use your credit up to its limit and pay it off continuously, with no end date. Unsecured credit cards get their name since they don’t require a deposit or collateral, unlike secured credit cards.

Depending on the credit card you qualify for, you might be able to receive some additional benefits and perks with an unsecured credit card like cash back rewards.

How Does an Unsecured Credit Card Work?

You’ll receive a credit limit when you open an unsecured credit card. Your credit limit is the maximum credit you can use on this account. You must pay at least the credit card minimum payment each billing cycle if you’ve used the card. Here are some points to know:

•  Your monthly payment will vary depending on how much credit you used during that billing cycle (in fact, some months, you may even have a negative balance on your credit card).

•  If you miss a monthly payment, you’ll likely have to pay a penalty or fee for the infraction.

•  If you make only the minimum monthly payment, your remaining balance (plus accrued interest based on the APR on a credit card) will carry over until the next month.

So, to avoid penalties, fees, and accrued interest, it’s best to pay your balance in full every month.

But, if this isn’t feasible with your budget, aim to pay more than the minimum every month so you can quickly chip away at your total outstanding balance. Just be sure to keep in mind how credit cards work when deciding how much to pay in a given month.

Pros and Cons of Unsecured Credit Cards

Some of the benefits and drawbacks of unsecured credit cards may be obvious. But, to help you determine the risks and rewards of using this type of credit card, here are some pros and cons to get familiar with.

Pros

Upsides of unsecured credit cards include:

•   Higher credit limits: Applicants usually must have a competitive credit score to qualify for an unsecured credit card. For this reason, credit card companies may apply a higher credit card limit since you’ve proved your creditworthiness.

Also, having a higher credit limit can impact your credit utilization ratio, the amount of credit you use compared to the amount of credit you have available. Your credit utilization ratio is used to assess your credit score, and a higher ratio may negatively impact your score. With a higher amount of credit available, it’s easier to maintain a lower ratio.

•   Potential to earn rewards: Many unsecured credit cards offer incentives like cash back or airline miles to encourage cardholders to use their credit. They may also offer additional benefits, such as complimentary airport lounge access or hotel credits. So, when comparing your unsecured credit card options, be sure to look at all perks and rewards that may be offered.

•   Frequently reports credit history to credit bureaus. Since card issuers take on more risk by lending credit to cardholders, they usually report your credit activity to the credit bureaus on a monthly basis.

Your credit usage is another factor used to determine your credit score, so these regular reports can help you assess how well you’re managing your credit. If you’re managing it well, these frequent reports can help your score.

•   An abundance of options: Unsecured credit cards are the most popular type of credit card. Therefore, there’s a vast array of credit card options at your disposal. Because there are so many options, you’ll likely be able to find one suitable to fit your needs.

Cons

While there are many advantages of using an unsecured card, some may come with some downsides, including:

•   Varying approval requirements: Every credit card company usually has different credit card approval requirements, and you’ll generally need a higher score to qualify for an unsecured versus a secured credit card.

For example, some secured credit card requirements are a credit score of at least 580; others may require a score of at least 680. Researching requirements beforehand can help you identify the best cards available that you can qualify for with your credit score.

•   Extra fees: Some unsecured cards may come with extra fees, such as convenience fees, cash advance fees, or foreign transaction fees. Keep in mind that not all cards charge these fees, though, so it’s worth it to compare your options based on your needs. For example, if you travel abroad often, you may want to choose a card that doesn’t have foreign transaction fees.

Unsecured vs Secured Credit Cards: What Are the Differences?

The most significant difference between unsecured versus secured credit cards is that secured cards require a deposit while unsecured cards don’t. Your deposit on a secured credit card usually dictates your credit limit. Depending on the credit card company and your credit score, your deposit may vary between $200 and $3,000, which is far lower than the average credit card limit.

Requiring a security deposit eliminates some of the creditors’ risks; thus, it can be easier to qualify for a secured credit card than an unsecured credit card. Keep in mind, no matter what type of card you have, you’ll find the most favorable terms if you have good credit, such as a good APR for a credit card. Also, you may have to forgo any rewards while you build your credit with a secured card, as they don’t often offer them.

If you fall behind on your payments, your creditor could cancel your card and send your remaining outstanding balance to a third-party collector with either an unsecured or a secured credit card. However, if you have a secured credit card and your payment is past due, your creditor may keep your security deposit to pay off some of the remaining balance.

Beyond these few items, there is no other real difference between the inner workings of a secured credit card and an unsecured credit card.

•  Each card allows you to make purchases at locations that accept credit card payments.

•  During the billing cycle, you must make at least a credit card minimum payment.

•  Otherwise, you may have to pay fees or penalties with your secured or unsecured credit card.

Who Should Consider an Unsecured Credit Card?

Since there are plenty of unsecured credit card options available, they can suit the needs of many different types of consumers. If you’re in the market for a new credit card, here’s how to decide if an unsecured card is right for you.

The Budgeter

If you’re big on budgeting, you can use an unsecured credit card as a tool to help you as you make a budget and stick to it. Many credit issuers offer online statements or apps that can make it easy to track all of your spending right on your phone.

But, if you’re going to use your credit card for all of your spending, make sure to keep the interest in mind. While unsecured credit cards can help you budget, they can also hinder you if you get into the habit of overspending.

The Frequent Flyer

Do you love spending your time on the move? Many unsecured credit cards provide travel rewards that help you earn free travel experiences. For example, some cards can come with reward points or miles that you can use toward booking airfare or accommodations.

You may also receive additional perks like annual hotel credits, access to airport lounges, or discounts on flights when using miles.

The Business Owner

Unsecured credit cards are also useful for business owners. Business owners can capitalize on the perks of unsecured credit cards like rewards, sign-up bonuses, and other benefits. Also, an unsecured card can provide short-term funding for business growth. Plus, it can help businesses build credit for future financing endeavors.

Of course, benefits and terms will vary depending on the type of card you choose.

Typical Requirements to Apply for an Unsecured Credit Card

When you apply for an unsecured credit card, you must meet certain criteria to qualify. Some common requirements when applying for a credit card include:

•   Be at least 21 years of age. While this is generally the age required to get a credit card, if you’re over 18 and can prove you have an income, you may qualify.

•   Provide proof of income to demonstrate you can make the minimum payments.

•   Be a U.S. citizen or have the authority to work in the U.S.

•   Have an acceptable credit score range per the lender’s requirements.

•   Provide personal information such as your name, age, address, Social Security number, and more.

Keep in mind that all credit issuers have different criteria for approval. Some credit issuers may give you the option to pre-qualify. This way, you can see if you may qualify without submitting a hard inquiry on your credit, which can impact your credit score.

The Takeaway

Unsecured credit cards can come with many perks, such as earning cash back rewards and helping you build credit. But, before you apply for just any old card, make sure to compare your options, keeping the average credit card interest rate in mind, and understand the criteria for approval. Identifying an unsecured credit card that’s suitable for your needs might take a little time, but it’s worth it.

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

FAQ

Is it good to have an unsecured credit card?

If you can handle an unsecured credit card responsibly, it can help you build credit. Also, it can be a good way to receive additional benefits, such as cash back or other rewards, for completing your daily transactions.

What credit score do I need for an unsecured credit card?

Typically, if you have a credit score of 579 or less, credit issuers may be reluctant to approve your application. To qualify for the most competitive rates and offers, you typically want to have a credit score of 670 or higher.

How long before I can get an unsecured credit card?

If you’re working on building credit and don’t qualify for an unsecured credit card, you may have to start with a secured card. But, the amount of time you must use your secured credit card before you graduate to an unsecured time can vary from a few months to several years. Ultimately, it will depend on factors like your current credit score and the criteria of the unsecured credit card you’re applying for.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.

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


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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

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If you’ve racked up a nice sum of cash or recently came into a windfall (such as a work bonus or tax refund), you may wonder where to put that money. Should you just keep it in checking? Open a high-yield savings account? Invest it all in the stock market?

The answer will depend on how soon you think you’ll need the money and how much risk you’re willing to take. Here’s a look at seven places you might consider storing your extra cash.

Low-Risk Places to Put Cash

What follows are four types of bank accounts that provide safety, convenience, and (in some cases) a competitive interest rate.

Checking Account

If you want easy and regular access to your cash, you might consider keeping it in a checking account at a bank or credit union. These accounts keep your money safe, since they are typically federally insured up to $250,000 per depositor, per institution. They’re also highly liquid — they provide check-writing privileges, ATM access, and debit cards, and there’s no limit on how many withdrawals you can make per month. These accounts are popular: According to SoFi’s April 2024 Banking Survey of 500 U.S. adults, 88% of people with a bank account have a checking account.

Since checking accounts are designed for spending (not saving), however, they generally pay little to no interest. As a result, these accounts aren’t ideal for storing extra money you plan to use later — say a few months or years from now. Some checking accounts also charge monthly fees.

Savings Account

A savings account is an interest-bearing bank account that is designed for saving (and growing) your money rather than spending it. You can open a savings account at the same bank or credit union as your checking account, or explore many of the online-only banks now available. Seventy-one percent of the people with a bank account in SoFi’s survey have a savings account.

Interest on a savings account is expressed as an annual percentage yield (APY). This is the rate you can earn on an account over a year and it includes compound interest (which is the interest you earn on interest added to your account throughout the year).

Like a checking account, the funds in a savings account are liquid. However, they are generally less accessible than the money in a checking account. You can’t write checks or use a debit card to draw money from your savings account. And, often, you are limited to six withdrawals per month. While the federal rule that limited savings account withdrawals to six per month was lifted in April 2020, many institutions still enforce this limit for electronic and online transactions and will charge you a fee if you exceed the cap.

A traditional savings account may provide a little more interest than a checking account. However, rates are generally low.

Money Market Account

A money market account is a type of savings account that comes with some of the features of a checking account, such as check-writing privileges and debit cards. You can find money market accounts at credit unions and traditional and online banks.

These hybrid accounts typically pay a higher APY than you can get with a checking account or traditional savings account. However, they often come with higher initial deposit requirements, along with higher ongoing balance requirements to avoid fees. Like other savings accounts, your money is typically insured and you may be limited to six withdrawals per month.

High-Yield Savings Account

High-yield savings accounts, typically offered by credit unions and online banks, are accounts that typically pay a substantially higher APY than the national average of traditional savings accounts. They generally also have low or no fees.

Other than that, these accounts function like regular savings accounts. They are typically federally insured up to $250,000 per depositor, per institution, should the bank or credit union fail. They also allow you to make withdrawals and transfers as needed, though your bank may limit you to six withdrawals per month.

While 59% of people in SoFi’s survey know about high-yield savings accounts, only 23% have one.

Higher-Risk Places to Put Cash

First, make sure you have a solid emergency fund — 45% of the SoFi survey respondents said they have less than $500 in emergency savings, which is far below the recommended three to six months worth of savings. Once you have enough emergency savings and you’ve paid down any high-interest debt and are contributing to your 401(k) at work (at least up to any employer match), you may want to consider longer-term, higher-risk investment options with your extra cash.

Stocks

Stocks are a type of security that gives you a share of ownership in a specific company. When you buy stock, you have the potential to grow your money in two different ways. One is through appreciation of the stock’s price (or value). In addition, you may be able to earn dividends if the company distributes a portion of its earnings to stockholders.

While stocks offer a great potential for growth, they also come with significant risk. Stock prices can drop significantly in a short time, so it’s possible to lose money by investing in stocks.

Bonds

Bonds are generally considered a lower-risk investment than stocks. With bonds, the company (or government agency or organization) issuing the bond acts as a borrower and you act as a lender, providing the issuer with money to fund projects or expansion efforts. In exchange, the issuer promises to pay you a rate of interest on top of the bond’s principal (your initial investment).

There are several kinds of bonds:

•   Corporate. These are issued by private and public companies.

•   Municipal. These are issued by states, cities, and counties.

•   Treasury. These are issued by the U.S. Department of the Treasury on behalf of the federal government.

When you invest in bonds, you generally get a predictable stream of income through interest payments. If you hold onto the bond until it matures, you also get back the entire principal, so there’s minimal risk involved. However, typical returns for bonds tend to be much lower than typical returns for stocks. Many investors will use bonds to balance out higher-risk investment options, such as individual stocks.

Exchange-Traded Funds and Mutual Funds

Exchange-traded funds (ETFs) and mutual funds offer a pool of securities, such as stocks and bonds, in one investment. You can pick and choose a few mutual funds and/or EFTs to create your own portfolio, or you can choose to go with a target date fund.

Target date funds offer an all-in-one solution by investing in a mix of stocks, bonds, and other investments that suit your goals and risk tolerance. Typically, these funds automatically become more conservative as the fund approaches its target date (such as your retirement age) and beyond. Keep in mind, however, that the principal you invest in an EFT or mutual fund is not guaranteed.

The Takeaway

Where to put a stash of cash? A lot depends on how soon you’ll need the money and your tolerance for risk.

If you plan to use the money right away, you may want to go with a checking account. If you’re saving for a goal that is a few months or years away, you might consider putting the money in a high-yield savings account or a money market account. For longer-term savings goals (at least five years off), investing in the market could make sense.

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.

About the author

Ashley Kilroy

Ashley Kilroy is a seasoned personal finance writer with 15 years of experience simplifying complex concepts for individuals seeking financial security. Her expertise has shined through in well-known publications like Rolling Stone, Forbes, SmartAsset, and Money Talks News. Read full bio.