Credit cards typically expire two to five years after they are issued. The date on the card reflects the final month and year you can make purchases with your card.
Cards have expiration dates for reasons ranging from security to marketing, but issuers are usually very good about sending a new card before the old one is invalidated.
Here’s a closer look at what credit card expiration dates are, why they exist, and what the expiration date on your card means to you as a credit card user.
What Is a Credit Card Expiration Date?
An important aspect of how credit cards work, a credit card’s expiration date represents the last day you can use it for purchases. Consider these details:
• Credit card expiration dates are typically printed as a two-digit month followed by a two-digit year. The last day of the month printed is the last day that you can use your credit card to make new purchases. If you try to make a purchase on the first day of the following month, the transaction will be declined.
• For example, if your card has an expiration date of 06/25, then you can use that card until June 30, 2025. If you were to try to use that card to make a purchase somewhere that accepts credit card payments on July 1, 2025 — or any time thereafter — you could expect a situation wherein your credit card was declined, per credit card expiration date rules.
Fortunately, credit card issuers will typically mail you a new card with a new expiration date long before your card expires — you won’t have to worry about applying for a credit card.
Most card issuers will mail out a new card 30 to 60 days before your old card is due to expire, so you’ll never be without a valid card.
Why Do Credit Cards Expire?
There are several reasons that credit cards expire.
• For one, the credit card expiration date serves as an additional security feature.
• Credit cards also expire so that card issuers can keep track of their inventory and provide customers with new cards with updated features and technology.
• Also, the magnetic stripes and computer chips in credit cards also wear out, so having an expiration date allows card issuers to ensure that cards don’t fail as often.
• Beyond reasons of functionality, replacing credit cards also gives card issuers an opportunity to market new products (and credit card rewards) and update their brand image.
How to Find Your Credit Card Expiration Date
Your credit card’s expiration date will always appear on the card. In most cases, the expiration date will appear on the front of the card, on the right side, below the account number, which you’ll be familiar with if you know what a credit card is.
However, if the account number is printed on the back of the card, then that’s where you’ll most likely find the card’s expiration date.
Keep in mind that this number is separate from a CVV number on a credit card, which is usually a three- or four-digit number without a forward slash in it.
Recommended: How Many Credit Cards Should I Have?
What Happens After a Credit Card Expires
Once your card expires, it is no longer valid for new purchases. However, you should have already received a new card.
After you’ve activated your new card, there’s no reason to keep your old card, and you should destroy it; more on that in a moment. That’s because your old card still has your account number on it, which could help someone to make a fraudulent transaction with your account (though rest assured in this case there’s always the option to dispute a credit card charge).
What to Do When the New Card Arrives
Once you’ve received your new credit card with the updated expiration date, there’s no reason to continue to use your old card.
• You can simply activate your new credit card, and replace your old one in your wallet or purse.
• Your new credit card should have the same terms, including the credit card APR and credit limit.
• Then, destroy your old card. You can destroy your plastic cards by cutting them up with scissors (it’s wise to cut the magnetic chip in half) or by using a shredding machine that’s designed for destroying plastic cards.
If you have a metal card, the card issuer will typically mail you a return envelope to send the card back for destruction.
However, if you haven’t received your new card and you notice your credit card expiration date is approaching, you should contact your card issuer before your old card expires. For example, if you’ve changed mailing addresses, your new card may have been sent to your previous residence. Or, your old card may have gotten lost in the mail. Either way, you’ll want your old card replaced before it expires so that you can continue making charges to it.
Don’t forget: Once you have your new card, you also may need to update any accounts for which you were using your old card for automatic billing every month or every year. This can include everything from streaming subscriptions to utilities. Doing so will ensure that your services remain uninterrupted when your old card does expire.
With your new card up and running, you’ll continue to make at least the credit card minimum payment as you’d been doing.
Recommended: Revolving Credit vs. Line of Credit: Key Differences
The Takeaway
Your credit card’s expiration date marks the last date it will still be valid for new purchases. You can find the expiration date on your credit card on either the front or the back of the card, and it will usually appear as a two-digit month followed by a two-digit year. You don’t usually have to worry about taking steps to get a new card when your old one is set to expire — the credit card issuer will usually mail you a card with a new expiration date beforehand. Understanding the expiration date can be an important part of using a credit card properly and easily.
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
Can I still use my credit card the month it expires?
Yes, your credit card will remain valid until the last day of the month it expires. It will no longer be valid on the first day of the following month.
Why do credit cards expire?
The credit card expiration date can serve as an additional security feature, as a way to replace worn magnetic stripes and computer chips in cards, and as an opportunity for card issuers to market new products and update their brand image.
Does your credit card automatically renew?
A credit card account isn’t attached to the credit card’s expiration date. The account usually renews every year regardless of whether the card itself expires. Card issuers also will automatically mail customers new cards within two months of their existing card’s expiration date.
Is it safe to give out your credit card number and expiry date?
For a merchant to accept credit card payments with your card not present, such as with a transaction online or over the phone, you’ll need to give your card’s number and expiration date, among other information. Otherwise, you should keep all of your credit card details private to avoid fraud and/or identity theft.
Do I have to pay off my credit card before it expires?
The expiration of your credit card is unrelated to your payments. You need to make at least the credit card minimum payment each month before your account’s due date. This date doesn’t correlate with your credit card’s expiration date.
Photo credit: iStock/mrgao
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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Two years ago fixed rates were reduced to levels not seen in decades, giving borrowers access to rates around 2 per cent and below.
Since then, there has been a considerable shift in the interest rate landscape with the Reserve Bank of Australia lifting the cash rate from a historic low of 0.1 per cent to 4.1 per cent within 13 months.
At its November meeting, the RBA hiked the cash rate for the 13th time within 19 months, taking the benchmark interest rate to 4.35 per cent.
While the strain from interest rate hikes has impacted many, home owners who fixed their loan in 2020-2021 are facing hundreds, and in many cases thousands, of dollars extra a month in repayments once they roll off their fixed-rate.
RBA data shows there were 590,000 mortgages that came off fixed rates in 2022, and there will be 880,000 in 2023 and 450,000 in 2024.
If your fixed-rate home loan is ending, experts say there are practical things you can do now to prepare.
What happens when your fixed-rate home loan expires?
Your home loan will typically revert to your lender’s standard variable rate at the end of your fixed term.
While this may sound like the easiest option to take, Two Red Shoes mortgage broker Brett Sutton said these rates can often be higher than other deals on the market.
“We often find that there aren’t many lenders out there that offer existing customers ‘new to bank’ rates,” Mr Sutton said.
“This type of scenario is also typical with insurance renewals and gym memberships, and is known as a loyalty tax.”
So instead of taking a back seat, it can be wise to review your options and start preparing earlier.
Take action for when your fixed-rate ends
Here are a number of steps you could consider taking if you’re approaching the fixed-rate cliff:
Create a buffer
Instead of sitting back and enjoying a low rate, Mr Sutton suggests working out what your repayments would look like when you roll off the fixed rate and how it fits into your current budget.
“Review what non-essential costs you are carrying that could be culled to assist in covering the increased mortgage repayment,” he said.
Even with a fixed-rate, most lenders let you make extra repayments, but there might be conditions attached such as a cap.
“If there are no penalties in doing so, start making increased repayments before you need to,” Mr Sutton said.
“This helps you trial the new repayment amount and gives you real time feedback if further budget adjustments are required.
“The excess will build in the home loan providing you with an increased buffer for life events and saving you interest.”
Negotiate a better rate with your current lender
Before you agree to automatically roll onto your lender’s standard variable rate, Mr Sutton says you should be ready to renegotiate a cheaper rate.
“Contact your lender and let them know your dissatisfaction with the rate and potentially give them an indication that you are looking to refinance elsewhere by requesting a discharge form,” he said.
“This will inform them that you’re serious about leaving, and is typically when they’ll come to the party with their best rate.”
He said a lender’s strategy is to retain borrowers so they will likely be willing to have that conversation with you.
Refinance with a new lender
If your current lender doesn’t want to come to the party, you could try and refinance your loan elsewhere to potentially score a better deal.
According to Savings.com.au analysis on a $500,000, 30-year principal and interest loan, the monthly repayments with a rate of 5.75 per cent per annum (p.a.) would be around $2,918, compared to monthly repayments of $3,079 at a rate of 6.25 per cent p.a
That’s a $161 saving per month. Over the life of the loan, it would work out to be a total of $57,860.
However, Savings.com.au money analyst Dominic Beattie warns some people may have to pay lenders mortgage insurance (LMI) for a second time in order to refinance if the equity in their property is below 20 per cent.
“The cost of LMI alone — often several thousand dollars — may override any short-term savings you’re hoping to generate by refinancing, so you’ll need to calculate whether it’s worth it,” Mr Beattie said.
“In some very specific circumstances, you may qualify for a partial refund of the first LMI premium you paid, but don’t count on this.”
National Debt Helpline. They offer free and independent financial advice.
Financial disclaimer: This is general advice only. Please see a professional for advice on your individual circumstances.
Buying a new house or building a dream home is a milestone for all – and with affordable home loans, the goal is certainly achievable. However, sometimes, the loan approval process may be time-consuming, potentially delaying your plans, particularly at a time when the demand and cost of real estate are on the rise. This is where a pre-approved home loan comes in. It can reduce the wait time for your loan approval and disbursal and also put you in a better position to negotiate with the lender. Before we get to the various benefits of a pre-approved home loan, let’s find out what it is.
What Is a Pre-Approved Home Loan?
A pre-approved home loan, as the name suggests, is a loan that has already been sanctioned in principal before the deal is finalized. The process is the same as getting a regular loan sanctioned, the only difference being you need not submit any documents or paperwork related to the purchased property.
The lender offers financing depending on your creditworthiness and repayment history and issues a pre-sanction letter after a quick verification. One thing to keep in mind is that the pre-approved home loan offer comes with a 3-to-6-month tenor, within which the property deal must be finalized. However, in case you fail to do so in the given timeframe, you can re-apply.
Top 3 Benefits of Pre-Approved Home Loan
Here, take a look at the top benefits of pre-approved home loans:
1. Faster Loan Disbursal
Since the majority of your loan verification is done at an early stage, the home loan disbursal process becomes prompt and easy once the property is finalized. You will only need to get the property documents verified at a later stage. The lender disburses the loan amount as soon as the document verification is completed. This proves beneficial when you are urgently looking for finances and need to book an apartment or house at the earliest.
2. House Hunting Made Easier
The real estate market hosts a pool of housing options, including independent homes, apartments, villas, and more. With a pre-approved home loan and pre-determined budget, the search for a suitable home becomes easier. For example, if you have a pre-approved sanctioned amount of INR 75 lakhs, you can shortlist houses or flats that cost anywhere between INR 70-80 lakhs. However, make sure you have enough savings for a down payment as it is not included in the Home Loan amount.
3. Better Scope for Financial Planning
A pre-approved home loan makes you aware of your home loan eligibility. That way, you can plan your finances accordingly and apply for a suitable loan amount that can be paid off comfortably without the fear of the loan application being rejected.
Now that you are well-versed with the advantages of a pre-approved home loan, check how to apply for one.
How to Get a Pre-Approved Home Loan Offer?
The process to apply for a pre-approved loan is no different from a regular loan application process. You can simply head to the bank’s or the lender’s website and fill out the online loan application form while providing a handful of documents to get pre-approval on your housing loan.
Documents Required for a Pre-Approved Home Loan
The documents needed to get your home loan pre-approved are listed below:
Identity Proof: Lenders require valid identity proof issued by the government, such as your Aadhaar card, PAN card, Voter’s ID, Driver’s license, and Passport among others.
Address Proof: Apart from the above ID proof, lenders may ask for your ration card and utility bills (gas, water, phone, electricity bills) to be furnished as proof of address.
A copy of Form 16
The last 3 months’ pay slips
The last 6 months’ bank account statements
The last 3 years Income Tax Returns filed
A cheque used for paying the non-refundable loan processing fee
Note: This is an indicative list, you might have to submit additional documents as per your lender’s requirement.
Why Opt for a Pre-Approved Home Loan?
If you are still apprehensive about a pre-approved home loan, here are all the reasons why it may prove to be the best option for you.
With a pre-approved home loan, you will have an idea of the maximum amount you are eligible for. You can shop around and pick a property listed online by the lender.
Lenders offer pre-approved home loans only on properties that have already passed valuation and quality checks. Thus, you need not worry about your loan application being rejected due to poor construction.
There is no requirement for stacks of documents. All you need are documents related to the property, which means less time is needed for verification and approval.
Unlike regular loan applications, where you need to submit documents after finalizing the property, with a pre-approved home loan, you can get on with the document verification (other than property-related documents) beforehand and then search for a house or property best suited for the budget.
5 Things to Consider When Applying for a Pre-Approved Home Loan
If you are planning to get your home loan pre-approved, here are a few things you should keep in mind:
1. Effect on CIBIL Score
Before the pre-approved loan sanction, the lender will look into your CIBIL score closely. If you have a history of multiple credit card or loan applications, your CIBIL score may not be as impressive. Hence, the loan application may get rejected, which will further reduce the credit score.
2. Chances of Rejection
If you do not meet the eligibility criteria laid down by the lender and instead account for poor credit history, low CIBIL score, inadequate income, etc. then your loan application may get rejected.
3. Same Rate of Interest
The rate of interest applicable at the time you receive the pre-approved home loan offer may be the same at the time you apply. Thus, even if the home loan interest rate goes down later, you may not be able to avail of the lower interest rates.
4. Limited Property Selection
Pre-approved home loans are offered on limited properties. This may narrow down the hunt for your dream home as you would only be able to choose from the properties that are listed and have passed the quality check.
5. Limited Period Offer
A pre-approved home loan is a limited period offer with an expiry date ranging up to 6 months. Therefore, once you get a sanction on your pre-approved loan, you will have to buy a property and apply for the home loan within the validity period.
Conclusion
Easy, hassle-free loan application, faster disbursal, and better negotiating power are some of the top benefits of a pre-approved home loan. And while these can be of huge advantage, a pre-approval on your home loan does not necessarily mean that the loan will be finalized. There are a dozen other factors, such as credit score, repayment history, income, property documents and so on that determine one’s home loan eligibility. However, to reap the benefits of a pre-approved home loan, it is important to complete the loan application process within the given period.
SYDNEY, July 13 (Reuters) – The CEOs of Australia’s two biggest banks said on Thursday a tight labour market was keeping late home loan repayments below historic levels even after a year of rising interest rates, but warned that living costs would squeeze the economy through 2023.
The updates from Commonwealth Bank of Australia (CBA.AX) and Westpac (WBC.AX) gave a sense that the A$2 trillion ($1.4 trillion) mortgage market, a bedrock of the world’s thirteenth largest economy, may avoid a downturn that economists feared when the central bank began raising rates in May last year.
In two days of parliamentary hearings that bank CEOs must attend periodically, the lenders and rivals National Australia Bank (NAB.AX) and ANZ Group (ANZ.AX) gave near-identical takes: that 400 basis points of rate increases had barely changed on-time loan repayments but households would face more financial stress.
Economists had warned the expiry of one million fixed-rate mortgages to roll into higher variable rates from 2023 would leave people unable to make payments, a scenario referred to as a “mortgage cliff”. But halfway into that transition, all four banks reported little impact, citing record-low 3.5% unemployment.
“We’re bulking up the teams that take the calls from customers when they need the help (but) we haven’t seen the increase,” said Peter King, CEO of number two bank Westpac.
“The vast majority of people are in good shape but I don’t think it will stay like that for the rest of the year. Employment is probably the critical issue.”
Westpac had switched A$40 billion of mortgages from fixed to variable “and at this point (we’re) not seeing a lot of stress coming out”, King said.
Matt Comyn, CEO of CBA, which has a quarter of Australian home loans, said the bank’s forecast of unemployment above 4% by the end of 2023 “may end up being too pessimistic”.
“The resilience has probably surprised us,” he told the inquiry.
But across-the-board cost price increases – including groceries, power and fuel, as well as mortgages – would put more pressure on household finances, he said. CBA research found that younger borrowers and renters, who have faced hefty rent increases, were cutting back on discretionary spending the most of any demographic.
“You will continue to see more pressure on households over the next six months,” he said.
($1 = 1.4678 Australian dollars)
Reporting by Byron Kaye; Editing by Muralikumar Anantharaman, Robert Birsel
Our Standards: The Thomson Reuters Trust Principles.
In options trading, knowing the difference between being “in the money” (ITM) and “out of the money” (OTM) allows the holder of a contract to know whether they’ll enjoy a profit from their option. The terms refer to the relationship between the options strike price and the market value of the underlying asset.
“In the money” refers to options that have profit potential if exercised today, while “out of the money” refers to those that do not. In the rare case that the market price of an underlying security reaches the strike price of an option exactly at the time of expiry, this would be called an “at the money option.”
What Does “In the Money” Mean?
In the money (ITM) describes a contract that would be profitable if its owner were to choose to exercise the option today. If this is the case, the option is said to have intrinsic value.
A call option would be in the money if the strike price is lower than the current market price of the underlying security. An investor holding such a contract could exercise the option to buy the security at a discount and sell it for a profit right away.
Put options, which are a way to short a stock, would be in the money if the strike price is higher than the current market price of the underlying security. A contract of this nature allows the holder to sell the security at a higher price than it currently trades for and pocket the difference.
In either case, an in the money contract has intrinsic value, so the options trader can exercise the option and make money doing so. 💡 Quick Tip: Look for an online brokerage with low trading commissions as well as no account minimum. Higher fees can cut into investment returns over time.
Example of In the Money
For example, say an investor owns a call option with a strike price of $15 on a stock currently trading at $16 per share. This option would be in the money because its owner could exercise the option to realize a profit. The contract gives the holder the right to buy 100 shares of the stock at $15, even though the market price is currently $16.
The contract holder could take shares acquired through the contract for a total of $1,500 and sell them for $1,600, realizing a profit of $100 minus the premium paid for the contract and any associated trading fees or commissions.
While call options give the holder the right to buy a security, put options give holders the right to sell. For example, say an investor owns a put option with a strike price of $10 on a stock that is trading at $9 per share. This would be an in the money option. The holder could sell 100 shares of stock at a price of $10 for a total of $1,000, even though it only costs $900 to buy those same shares. The contract holder would realize that difference of $100 as profit, minus the premium and any fees.
What Does “Out of the Money” Mean?
Out of the money (OTM) is the opposite of being in the money. OTM contracts do not have intrinsic value. If an option is out of the money at the time of expiration, the contract will expire worthless. Options are out of the money when the relation of their strike prices to the current market price of their securities are opposite that of in the money options.
For calls, an option with a strike price higher than the current price of the underlying security would be out of the money. Exercising such an option would result in an investor buying a security for a price higher than its current market value.
For puts, an option with a strike price lower than the current price of its security would be out of the money. Exercising such an option would cause an investor to sell a security at a price lower than its current market value.
In either case, contracts are out of the money because they don’t have intrinsic value – anyone exercising those contracts would lose money.
Example of Out of the Money
Say an investor buys a call option with a strike price of $15 on a stock currently trading at $13. This option would be out of the money. An investor might buy an option like this in the hopes that the stock will rise above the strike price before expiration, in which case a profit could be realized.
Another example would be an investor buying a put option with a strike price of $7 on a stock currently trading at $10. This would also be an out of the money option. An investor might buy this kind of option with the belief that the stock will fall below the strike price before expiration. 💡 Quick Tip: In order to profit from purchasing a stock, the price has to rise. But an options account offers more flexibility, and an options trader might gain if the price rises or falls. This is a high-risk strategy, and investors can lose money if the trade moves in the wrong direction.
What’s the Difference Between In the Money and Out of the Money?
The premium of an options contract involves two different factors: intrinsic value and extrinsic value. Options that have intrinsic value at the time they are written to have a strike price that is profitable relative to the current market price. In other words, such options are already in the money when written.
But not all options are written ITM. Those without intrinsic value rely instead on their extrinsic value. This value comes from speculative bets that investors make over a period of time. For this reason, assets with higher volatility often have their options contracts written out of the money, as investors expect there to be bigger price swings. Conversely, assets considered to be less volatile often have their options written in the money.
Options written out of the money are ideal for speculators because such contracts come with less expensive premiums and are often created for more volatile assets.
Recommended: Popular Options Trading Terminology to Know
Should I Buy ITM or OTM Options?
The answer to this question depends on an investor’s goals and risk tolerance. Options that are further out of the money can be more rewarding, but come with greater risk, uncertainty, and volatility. Whether an option is in or out of the money (and how far they’re out of the money), and the amount of time before the expiry of the option impacts the premium for that option, with riskier options typically costing more.
Whether to buy ITM or OTM options also depends on how confident an investor feels about the future of the underlying security. If a trader feels fairly certain that a particular stock will trade at a much higher price three months from now, then they might not hesitate to buy a call option with a very high strike price, making it out of the money.
Conversely, if an investor thinks a stock will fall in price, they can buy a put option with a very low strike price, which would also make the option out of the money.
Beginners and those with lower risk tolerance may prefer buying options that are only somewhat out of the money or those that are in the money. These options usually have lower premiums, meaning they cost less to buy. There are also generally greater odds that the contract will wind up in the money before expiration, as it will take a less dramatic move to make that happen.
Investors can also choose to combine multiple options legs into a spread strategy that attempts to take advantage of both possibilities.
Recommended: 10 Important Options Trading Strategies
The Takeaway
In options trading, “in the money” refers to options that have profit potential if exercised immediately, while “out of the money” refers to those that don’t. Options contracts don’t have to be exercised to realize a profit. Sometimes investors buy contracts with the intent of selling them on the open market soon after they become in the money for quick gains.
In either case, it’s important to consider if an option is in the money or out of the money when buying or writing options contracts, as well as when deciding when to execute them. Options trading is an advanced investing strategy, and investors should know what they’re doing before engaging with it – or should speak with a financial professional for guidance.
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For a limited time, opening and funding an Active Invest account gives you the opportunity to get up to $1,000 in the stock of your choice.
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Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes. Claw Promotion: Customer must fund their Active Invest account with at least $10 within 30 days of opening the account. Probability of customer receiving $1,000 is 0.028%. See full terms and conditions.
Inside: Looking to put money on your Cash App card? This guide will show you how to do everything from adding funds to verifying your identity. Whether you’re using a debit card, bank account, or mobile payment service, this guide has you covered.
The Cash App Card, often called the Cash Card, is a top-rated, mobile electronic money transfer service.
This reloadable tool functions like a Visa debit card, allowing it to easily serve as a primary banking solution for users. Not limited to traditional banking hours and locations, the Cash App Card provides high flexibility for financial management.
The good news is this free and customizable debit card is linked to your Cash App balance, providing you the convenience and flexibility to handle your finances effectively and efficiently.
So, the question remains… how do you put money on the Cash App Card?
In this guide, we will teach you where can I load my Cash App Card.
This post may contain affiliate links, which helps us to continue providing relevant content and we receive a small commission at no cost to you. As an Amazon Associate, I earn from qualifying purchases. Please read the full disclosure here.
What is a Cash App Card?
A Cash App Card, often mentioned as the Cash Card, is a free, reloadable debit card designed to let you tap into your Cash App balance.
Picture it as your ticket to your digital wallet, allowing you to:
Shop anywhere Visa is accepted, both online and in physical stores.
Make use of the Cash Boost feature for instant discounts at participating retailers and eateries.
Personalize it with your unique design from the app.
Reload it at places like 7-Eleven, CVS, Walmart, and more.
Send or receive funds among friends and family.
Manage your spending and stay on budget.
The catch? Your spending power ties strictly to your Cash App balance, so be sure to top it up!
How to Get a Cash App Card
Cash App is one of the hottest new payment apps on the market.
And, like most things these days, there’s a Cash App card you can use to make purchases or withdraw money from your account.
This is great to use for the cashless envelope system.
So, how do you get started with a Cash App Card?
Step #1: Download the Cash App
To get started with Cash App, you first need to download the app.
The easiest way is to scan this QR code to get started.
After locating it, simply tap “Install” or “Get.” Once the app has finished downloading, hit “Open” to launch it.
Pro tip: Be sure you’re downloading the genuine Cash App, look for the icon that’s green with a white dollar sign (pictured above). That’s it, you’re one step closer to your Cash App Card! Now, let’s get you set up.
Step #2: Create an Account
It is ideal for digital banking, allowing you to make cash deposits, and pay in-store or online with the convenience of a Cash App Cash Card, simulating many of the features of a typical checking account.
To create a Cash App account, follow these steps:
Once installed, open the application and follow the on-screen instructions to set up your account.
You will have to enter your phone number or email address.
For security certification, the Cash App will send you a secret code to verify you. Enter it.
Select a $cashtag, which is a unique username to send and receive money (similar to Venmo)
Step #3: Link a bank account or card
Remember, in “My Cash” you’ll spot the “Add Money” option for funding.
This is the easiest way to load your Cash App Card, so you should set it up properly.
Open Cash App; it’s the icon with a white dollar sign on a green background.
Tap the top-right profile icon.
Navigate to “My Cash” – it’s a tab on the home screen.
Click “Link a Bank,” nestled within the options.
Follow the prompts to add your bank account or debit card info.
Once your card is linked, you’re all set.
Insider’s guide: Double-check your digits to prevent delays!
Step #4: Order a Cash App Card
To order a Cash App card after successfully establishing your account, follow these steps:
First, open the Cash App on your mobile device.
On the bottom of the screen, locate the card icon that is second from the left and tap on it.
Click on the green ‘Get a Free Cash Card‘ button.
You may choose your desired card style (color). Please keep in mind that certain color options may entail a small fee.
If you’d like, click on ‘Personalize Card’ to add a unique touch such as a drawing or stamp.
When you’re ready, simply click ‘Order Card.’
Through this process, Cash App provides a credit card number straight away for immediate online use. Meanwhile, your physical card should arrive in your mail within 5 to 10 business days.
How to Put Money on Cash App Card
Adding money to your Cash App card is an easy and straightforward process that can be done within a few minutes directly from the Cash App.
This process essentially involves transferring funds from your linked bank account or card to your Cash App card balance.
Below, you will learn other ways you can also deposit money, easing the process of managing your digital finances.
Step 1: Open the Cash App on your phone
To add money to your Cash App card, begin by launching the Cash App on your phone.
This app flaunts a simple green icon that should be pretty easy to spot amongst your other apps.
Bonus Tip: remember to link your bank account or debit card for smoother transactions.
Step 2: Tap on the “My Cash” tab
Now that the Cash App is opened on your device.
Tap on the ‘My Cash’ tab at the bottom-left corner of the screen.
Expert Tip: Use biometric features (facial recognition or fingerprint) for faster and more secure access.
Step 3: Select “Add Money”
After you’ve successfully navigated to the “My Cash” tab within the Cash App, the next step is selecting the “Add Money” option.
Type in the exact amount you’d like to transfer to your Cash App Card.
Be sure to double-check this figure – you don’t want to add more or less than you intended.
Learn about how to unlock borrow on Cash App.
A handy tip: If you enter an amount that surpasses your current bank balance, the App will kindly let you know.
Step 4: Confirm with your PIN or Touch ID
After entering the desired amount to load onto your Cash App card, you’re going to see a little “Add” button – go ahead and tap that.
The app now needs to confirm it’s really you, so you’ll be asked to put in your PIN or use Touch ID.
Remember, this is just to make sure your money stays secure, so it’s an important step.
Pro-tip: Make sure your PIN is both easy for you to remember and tough for others to guess.
Step 5: Wait for the money to be added
Alright, you’re almost done!
After you’ve confirmed your transaction, just sit tight while the money gets added to your Cash App Card. This usually occurs within a few moments—it’s pretty speedy. But just in case, give it a good few seconds before you check your balance.
Remember, patience is a virtue, even in the digital world! You’ve now successfully added funds to your cash card. Easy, right?
The simplicity and speed of the process is genuinely impressive, isn’t it?
Step 6: Tap “Sign Out” button at the bottom of the screen
You are going to want to do is tap that “Sign Out” button you’ll find chilling at the bottom of the screen.
Go ahead and tap it.
Do you know why this step is crucial? Because it’s like leaving your house and locking the front door. It keeps your account secure from any sneaky hands looking to fiddle with your money.
So always, always remember to sign out, alright? It’s a small step but it does a big job in keeping your account safe.
Where Can I Load My Cash App Card?
If you’re wondering how to put money on a Cash App card, you’ve come to the right place.
In this section, we’ll show you where and how to load your Cash App card so you can start using it right away.
1. Bank Account
The easiest place to load money is your bank account. Plus you can keep yourself within a spending limit for your budget.
Let’s get that Cash App Card loaded up with money from your bank.
First, make sure your bank account is linked with your Cash App. If not, just click on the ‘Banking’ tab and follow the prompts. Easy peasy!
Now, tap the ‘Money’ tab on your Cash App.
Hit ‘Add Cash’.
Choose the amount you want to transfer.
Tap ‘Add’ again, then confirm using your PIN or fingerprint.
Don’t go overboard, friend; remember, there’s a limit of $1000 per week!
2. Debit Card
Now, let’s load it up using your debit card.
Head to your profile on the Cash App.
Found the “Linked Banks” button? Great! Click it to add your debit card.
You’ll need the card number, expiry date, and security code.
Cash App might run a quick test to confirm the connection.
Now you’ve got to spend money on your Cash App Card.
3. Retail Stores
Did you know you can load your Cash App Card at various retail locations?
Forget running to a bank, just pop into one of these convenient spots. Here’s a quick list to guide you:
Walmart
Rite Aid
Family Dollar
Duane Reade
Walgreens
GoMart
Sheetz
Kum & Go
GoMart
KwikTrip
Speedway
H-E-B
Thorntons
TravelCenters of America
Dollar General
Pilot Travel Center
7-Eleven
Remember, availability may vary by location. So, ensure to check your nearest store whether they support Cash App deposits.
4. Visa Gift Cards
Similar to how to use a Visa Gift Card on Amazon, you can conveniently load your Cash App Card.
As such Visa Gift Cards are popular gifts with their widespread acceptance makes them a favorite choice.
To load your Cash App Card using a Visa card, follow these simple steps:
Open your Cash App: Tap on the “Banking” tab visible on the screen’s bottom left.
Choose “Add Cash”: Input the amount you want to load onto your Cash App Card.
Tap “Add”: Make sure you select the Visa gift card you want to transfer money from.
Authenticate your Identity: Depending on your setting, you may have to use Touch ID, Face ID, or a PIN.
Voila! That’s it, remember to keep an eye on your card balance to ensure the correct amount was loaded.
5. PayPal
While PayPal is a popular option to transfer money, you cannot transfer money directly to your Cash App Card.
You will need to transfer the money from PayPal to a linked bank account first and then move the money to Cash App.
Learn which payment type is best if you are trying to stick to a budget.
What are Paper Money Deposits?
Just like the slang for how much is a rack, paper money deposits are what Cash App calls the transfer of your money.
Remember, you can deposit up to $1,000 every 7 days and $4,000 every 30 days. Deposits must be a minimum of $5 per transaction and not exceeding $500.
There is no fee to use the card. As Cash App makes their money by the transaction may be subject to a small fee charged by certain retailers.
What are Boosts?
Heard of ‘Boosts’ in the Cash App world? Let’s break it down.
Boosts can help you get more bang for your buck, offering discounts on eateries or stores you frequent. It’s like enjoying 15% off your latte at your go-to coffee shop, neat, right?
Here’s how to utilize ‘Boosts’:
Open your Cash App and find the Boosts.
Scrutinize your options and activate one Boost.
Swiftly switch on and off your Boosts to fit your needs.
So, add a little boost to your Cash App Card and enjoy some savings!
Tips for Using Cash App Card Safely
To make the most of your Cash App card, it’s crucial to have a grasp on the safety and security measures.
The Cash App card offers users the flexibility of managing money without the restrictions of traditional banking. Plus it serves as a tool for receiving and sending money, and also helps in money management and budgeting.
1. Check Your Card Balance and Transactions
Knowing your balance and checking transactions is crucial when using your Cash App Card.
Being aware of your balance ensures you can make transactions without exceeding your available funds, helping avoid any embarrassing situations or penalties.
Monitoring transactions regularly allows you to spot any fraudulent activities promptly and acts as a deterrent for any additional, unwarranted fees that could be associated with specific transactions.
Additionally, when you add funds to your card at a physical store, you should always confirm that the funds have been accurately transferred to your Cash App account before leaving, to sidestep any discrepancies or issues.
To check your balance, log into your Cash App account and click on the dollar symbol on the home screen. This will promptly display your current balance.
Now, for transactions, tap the “Cash” tab to view your recent transactions.
2. Avoid Scams
Navigating Cash App Card could be a breeze, but it’s crucial to be aware of potential scams that might catch you off guard.
**Be Aware of Who You’re Trading With** Transactions on Cash App are instant and can’t usually be reversed. Be cautious in your dealings.
**Secure Your Account:** Maintain strict privacy over your Cash App PIN and use your phone’s security lock feature to avoid unauthorized access.
Remember, your alertness is your best bet to keep scams at bay! Keep yourself informed and stay safe.
3. Use the Security Features
The Cash App strives to prioritize security and protect its users’ money, making it a pocket-friendly financial tool.
The Card is issued by Sutton Bank and has FDIC insurance, ensuring your hard-earned money is safeguarded.
But, besides this innate security feature, there are multiple ways to assure maximum security while using your Cash App Card:
Securing Your Cash App Account: Before using the Cash App Card, it is pivotal to add strong security measures to your Cash App account. This can include setting up a unique and complex password, enabling two-factor authentication, or using touch ID/facial recognition if your device supports it.
Transaction and Deposit Limits: Cash App sets transaction and deposit limits to protect your account. Familiarize yourself with these limits and stick to them. Going beyond these restrictions might expose your account to risks.
Linking your Cash App Card with Trusted Accounts: While you can link your Cash App Card to multiple banks or external bank accounts, it’s crucial to ensure these accounts are trustworthy and secure. Avoid linking to accounts on public computers or networks to prevent unauthorized access or data theft.
Watching out for phishing scams and suspicious activities: Always be vigilant when receiving unsolicited communications asking for your Cash App Card Information. Remember, Cash App will never ask for your PIN or sign-in code outside of the app.
Real-time Alerts: You can also activate instant transaction alerts. This way, if your card is utilized, you will get immediate notification on your mobile device, helping you stay on top of your spending and identify any potential fraudulent activity.
Safe deposit and withdrawal: Making sure to use secure networks when depositing to or withdrawing from your Cash App Card can offer an additional layer of protection.
Navigating through these security features is not overly complex, but it reinforces your financial safety.
4. Know Your Limits
Knowing your Cash App Card limits plays a vital part in managing your finances effectively.
You want to be wary of overspending and blowing your budget.
So, if you transferred $500 for the week, stick to the $499 spending limit.
5. Use the App’s Help Function
Knowing how to use the Cash App’s help function is crucial, as it assists you in troubleshooting any issues quickly. It also shows you how to maximize the platform’s robust offerings.
To access the help function, simply tap on the “Profile” icon in the bottom-right corner of the Cash App screen, then scroll down and select the “Support” option.
If you need to get in touch with customer service, tap “Contact Support” and explain your situation in the message field.
6. Use Cash App Card for the Things It’s Meant For
The Cash App Card puts a world of financial opportunity in your hands. Convenient as a debit card, you can use it for online shopping, paying bills, or sending cash to mates. It’s your money manager without the hassles of bank operating hours.
Primarily, here’s what you should do:
Add funds to the card: You can reload your card at numerous locations, with options such as CVS, Walmart, or Dollar Tree.
Manage wisely: Budget and spend your earnings across your essentials and save some for a rainy day! This will help you to spend money wisely.
Use cash boosts: Add thrills to your regular shopping by using the exclusive ‘Cash Boosts’ for instant discounts.
The goal of the Cash App Card is to not go into debt but to live within your means.
Now, Add Cash to Cash App
In conclusion, obtaining and using a Cash App Card can greatly enhance your financial savviness by providing a convenient way to use your Cash App balance both in-store and online.
The process for getting this card is straightforward and cost-free, and gives you instant access to your card number for immediate online purchases, while the physical card arrives within 5-10 business days.
Whether it’s sharing money with friends and family, managing your personal budget, or teaching young adults about financial responsibility, this card offers a sophisticated and straightforward approach. Although it doesn’t replace traditional checking accounts, it’s an excellent alternative for unbanked consumers, those looking to rebuild credit, or teenagers with money to spend.
Just remember to keep track of the transaction and deposit limits set by Cash App to avoid any surprises.
Take hold of your finances today with your Cash App Card and experience the convenience it offers.
Start leveraging the benefits of your Cash App Card now!
Know someone else that needs this, too? Then, please share!!
A diagonal spread is an options trading strategy that involves taking a long and short position on the same stock with different strike prices and different expiration dates. It’s a combination of a vertical spread and calendar spread.
Using this strategy can allow the trader to get an early payday if the stock moves in a direction that’s in their favor. The way it works is the trader makes two options trades — either call options or put options simultaneously, with different strike prices and expiration takes.
Diagonal Spreads Defined
Diagonal spreads combine a two-step options trading strategy and are considered an advanced trading tactic. It’s a combination of a calendar spread and a short call or put spread. These positions have different expirations and different strikes which spread off diagonally, hence the name of the strategy.
A calendar spread is when a trader buys a contract with a longer expiration date while going short on an option with a near-term expiration date with the same strike price. But if two different strike prices are used, this is a diagonal spread.
A diagonal spread includes a calendar spread, also referred to as a horizontal spread or a time spread, combined with a vertical spread, because different strike prices are involved.
How Diagonal Spreads Work
A long put diagonal spread involves purchasing a put for some time in the future while selling a put in the short-term. Purchasing an option in the later term tends to be more expensive due to the embedded value of time. On the other hand, the trader sells the nearer term option to lower the cost of the other option. Traders usually use diagonal spreads when they have conviction on a stock’s movement while minimizing the effects of time.
A diagonal bull spread becomes a valuable trade when the price of the stock increases, while a diagonal bear spread increases in value when the stock price decreases.
Diagonal spreads require experience because traders have to account for volatility and have a good sense of timing.
Setting Up a Diagonal Spread
When traders are bullish on a stock, they generally use call options vs. using put options when they’re bearish on a stock.
The most common way to set up a diagonal spread is to buy a back month option that is in the money, which is a futures contract whose delivery dates are further into the future. Then, you sell a front month option with a strike price that is out of the money, which is a contract that has a near-term expiration date.
Setting up a diagonal spread in this manner would constitute a debit spread, though credit spread structures can also be used.
Maximum Loss
When a stock’s price rises, the maximum loss is equal to the premium paid when buying a call. If the stock falls, the maximum loss is the difference between the strike prices plus or minus the option premium paid or received.
Maximum Profit
It can be difficult to anticipate what the maximum gain may be since traders can’t know what the back-month option will be trading at when the front-month option expires as a result of shifting volatility expectations. In a long diagonal spread, the stock price must be near the short strike for a trade to go in the market participant’s favor.
The max profit potential for a short diagonal call spread is the net credit received minus commissions. If the strike price plummets below the short call, the value of the spread will be close to zero and the credit received is profit.
On the other hand, the max profit scenario of a short diagonal put spread is when the stock price soars above the strike price of the sold higher strike put option, as the value of the spread nears zero and the credit received is profit.
Breakeven Point
The breakeven point cannot be calculated, rather it can be estimated. The breakeven price at expiration for a long call is below the strike price of the short call. During expiration of a long call, the breakeven point is the stock price at which the price of the short call is the net credit received for the spread.
Traders are not able to predict what the breakeven stock price will be because it depends on market volatility, which can impact the price of the short call.
Diagonal Spread Examples
In one example, a trader is bullish on ABC stock, currently priced at $300. If the front month is January and the back month is February, the trader may want to purchase a $298 strike call with February expiry, which is in the money. Then the trader sells a $302 strike call with January expiry, which would be out of the money. This would give the trader a four-dollar wide diagonal spread.
In another scenario, a trader is bearish on XYZ stock at a current market price of $129. To set up a diagonal spread, the trader could buy a $132 February put, which would be several dollars in the money. Next, the trader could sell a $126 January put, which would be a few dollars out of the money. This trade would be a six-dollar wide diagonal spread.
Types of Diagonal Spreads
There are different types of diagonal spread strategies traders can use to get their desired outcome. Here are several diagonal spreads traders can try:
1. Long Call Diagonal Spreads
To execute on a long call diagonal spread, traders must buy an in the money call option with a longer term expiration date and then sell an out of the money call option with a nearer term expiration date. Traders can use this advanced options strategy if they are mildly bullish on a stock in the near term and very bullish in the longer term. An ideal set up for a long call diagonal spread is during times of low volatility as you do not want your trade to be disrupted by sharp price swings.
2. Long Put Diagonal Spreads
To execute on a long put diagonal spread, traders must buy an in the money put option with a longer term expiration date and then sell an out of the money put option with a nearer term expiration date that has an out the money strike. Traders typically use long put diagonal spreads to mimic a covered put position.
3. Short Call Diagonal Spreads
A short call diagonal spread is when traders sell a long-term call with a lower strike price and buy a shorter-term call with a higher strike price. A trader benefits from a short call option when the price of the underlying asset falls, thus making this a bearish strategy.
4. Short Put Diagonal Spreads
A short put diagonal spread involves selling a longer-term put with a higher strike price and buying a shorter-term put with a lower strike price. This is a bullish strategy, as the trader benefits if the underlying asset goes up in price, making both options expire worthless and netting the investor the net credit earned at the beginning of the trade.
5. Double Diagonal Spread
A double diagonal spread is when a trader buys a longer-term straddle and sells a shorter-term strangle, a trade that benefits from time decay and an increase in volatility. Traders setting up a double diagonal are long the middle strike calls and puts, which expire further in the future, and short out of the money call and put options with sooner expiries. The ideal outcome for double diagonals is to stay between the two OTM strike prices as they approach expiration.
Risks of Diagonal Spreads
The biggest risk traders have in diagonal spreads is overpaying for the diagonal spread. That said, the maximum risk is the debt a trader incurred to enter the position. If traders pay too much for their diagonal spreads they can remain unprofitable.
Market volatility can be used to the trader’s advantage when using diagonal spreads, although it can also pose a risk to such trades. Depending on the level of volatility, it can substantially change the price of the option and impact the trader’s profit potential. Diagonal spreads are an advanced trading strategy so traders who are experienced in dealing with volatility are best suited to incorporating diagonal spreads in their investment strategy.
The Takeaway
Setting up a diagonal spread correctly is an important part of the profit potential of the strategy, otherwise traders are at risk of losing money. This advanced options trading strategy requires traders to make both long and short trades, either with calls or puts, that have different expiration dates and strike prices. Traders should know these option trades are lined up diagonally from one another.
Qualified investors who are ready to try their hand at options trading, despite the risks involved, might consider checking out SoFi’s options trading platform. The platform’s user-friendly design allows investors to trade through the mobile app or web platform, and get important metrics like breakeven percentage, maximum profit/loss, and more with the click of a button.
Plus, SoFi offers educational resources — including a step-by-step in-app guide — to help you learn more about options trading. Trading options involves high-risk strategies, and should be undertaken by experienced investors.
With SoFi, user-friendly options trading is finally here.
Photo credit: iStock/percds
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Options involve risks, including substantial risk of loss and the possibility an investor may lose the entire amount invested in a short period of time. Before an investor begins trading options they should familiarize themselves with the Characteristics and Risks of Standardized Options . Tax considerations with options transactions are unique, investors should consult with their tax advisor to understand the impact to their taxes. SOIN1121485
The average mortgage rate for a five-year fixed deal has risen to 6.01%, up from 5.97% on Monday, as the cost of living squeeze continues, according to financial data provider Moneyfacts.
It is the highest since 21 November, when mortgage rates had been driven up by the mini-budget chaos.
The average two-year fixed residential mortgage rate jumped to 6.47%, up from 6.42% on Monday.
Read more: How to sell a property in a tricky market
Mortgage brokers have admitted that although rising rates for a five-year fixed mortgage are worrying, there are still some good deals available.
Justin Moy, managing director at EHF Mortgages, said: “With more lenders offering an option up to six months before the expiry of their current deal, it is so important to engage with a mortgage broker to see what is available, and be ready to make a quick decision.
“We are seeing a number of loyalty deals for product transfers much cheaper than average rates.
“Use the experience of a mortgage broker to get the right product for you, and to keep watching for any improvements — they will look to switch you to a cheaper deal if one comes along.”
The majority of mortgage holders are on fixed rate deals, 2.4 million of which will expire from now to the end of 2024, according to UK Finance.
Read more: Interest rates: Eight ways you can defuse the mortgage timebomb
The recent rises in mortgage costs could also have a knock-on effect on renters who could face higher payments as landlords seek to recoup rising costs.
Rates have been on the rise again amid expectations that interest rates will need to stay higher for longer as the Bank of England tries to subdue sticky inflation.
The Bank of England base interest rate was hiked to a shock 5% last month. Another hike, bringing the rate to 5.5%, is forecast to come on 3 August, when the Bank of England’s Monetary Policy Committee meets.
Elliott Culley, director at mortgage broker Switch Mortgage Finance, warned more mortgage misery is on its way.
He said: “Unfortunately, under current forecasts, rates still haven’t reached their peak. 5-year fixed rates have and continue to be cheaper than 2 year fixes and some clients have decided to fix for longer due to the uncertain outlook.There are still 5-year fixed rates under 6% and customers should remember this is an average rate.
“The current predictions still show rates should reduce by the end of 2024, albeit not to the low levels seen in the past.”
Watch: How does inflation affect interest rates?
Download the Yahoo Finance app, available for Apple and Android.
In a week where the entire nation has been gripped by interest rate panic, the loudest voices in the room are those of the mortgage bores.
Every workplace, family and social circle has one. Been prattling on about how you signed up for a 10-year fix at a smidgen over 1 per cent long before the chaos of Kwasi Kwarteng’s “mini” Budget”? I’m afraid that person is you.
Those less likely to speak up are those whose fixed-rate deal is nearing expiry as interest rates — and anxiety levels — climb higher.
Mortgage bores might claim that they saw it coming, but the reality is more arbitrary. Unless you paid to end your fix early, the precise timing of when deals start and end is mostly down to luck. Nevertheless, mortgage rates beginning with a 6 or 7 are going to be a painful adjustment for hundreds of thousands of households coming to the end of their deals, potentially adding hundreds of pounds to monthly outgoings.
If your agreement has a few years left to run, don’t feel too smug. You might not be making lifestyle economies to deal with payment shock now, but your friends and colleagues certainly are (even if they don’t want to talk about it). And the pain of higher repayments will hit all borrowers in time — it could well cost the Conservatives the next election.
Amid the drama of this week’s great repricing — with HSBC raising rates twice in one week and other lenders looking to follow suit — the polls tell us that twice as many people blame the government for rising mortgage costs as those who blame global crises such as the war in Ukraine or the effects of the pandemic.
There have been calls for Downing Street summits with mortgage lenders and even Covid furlough-style payouts to help struggling borrowers. But taming inflation by squeezing people’s finances is exactly what rate rises are designed to do.
“If the policy isn’t hurting, it isn’t working,” was how then-chancellor John Major put it in 1989 as rates headed towards 15 per cent. But such rises are a blunt tool. The mortgage bores (and the mortgage free) can still consume with wild abandon; the pain is concentrated on those whose fixes have expired. The lottery of it all can be both personally and politically unpleasant.
By and large, mortgage lenders acted admirably during the pandemic, offering forbearance to distressed borrowers. Regulators have been clear this support must continue. Yet even if rates drop back in coming years, we will not see the return of mortgage rates starting with a 1 or a 2. Those refinancing home loans face a further dilemma. Should they risk a tracker rate or short-term fix in the hope of locking into a lower rate in future?
People feel painfully ill-equipped to deal with a decision that could make or break the family finances for years to come — it’s a particular problem for millennial couples saddled with bigger mortgages and childcare costs. Advice only goes so far. Brokers can find you the best deals on the market but they can’t tell you which option to pick. A five-year fix at current levels means borrowers could be stuck making higher repayments for longer than they need to, but many crave certainty — and protection from further increases.
In the UK, the value of our homes is firmly shackled to our sense of self-worth. The current situation is politically toxic for the Tories, long regarded as the party of home ownership. From Right to Buy in the Thatcher era to Help to Buy in recent years, owning your own home has symbolised success; a one-way ticket to financial prosperity — even if you borrowed heavily to get on the ladder.
Since the financial crisis, average pay growth has been puny in real terms but average house prices have soared, making property owners feel considerably richer. Seeing a neighbouring property advertised for a handsome sum on Rightmove is the equivalent of financial Viagra, helping alleviate the pain of expensive mortgages. But as more fixes expire over the next 18 months, the impact of higher rates will inevitably cause house prices to fall.
This is terrible timing for a government heading into a general election. But however worried borrowers might be feeling, anxiety among those renting privately is even higher. In April, letting agent Foxtons said it had 97,000 tenants chasing after just 2,000 available rental properties.
Annual rent increases have hit record highs, making it even harder for the 5.5mn UK households renting to ever achieve the dream of property ownership. So while higher mortgage payments will smart as the era of cheap money comes to a close, homeowners still have reasons to count their blessings.
Claer Barrett, the FT’s consumer editor, is the author of ‘What They Don’t Teach You About Money’. [email protected]
A covered call ETF is an exchange-traded fund that provides investors with additional income by writing options on the securities the ETF holds. These actively-managed ETFs offer investors the benefits of writing call options on stocks, without them having to participate in the options market directly.
The upside is that investors take on less risk and potentially earn income in the form of options contract premiums on top of dividends. The downside is that potential upside profits will be capped because the call options will have to be exercised once the underlying security reaches a certain strike price (one of many options trading terms to know), at which point the shares will be called away from the shareholder.
Basics of the Covered Call Strategy
Covered calls involve buying shares of a stock and then writing call options contracts on some of those shares. A covered call could also be referred to as “call writing” or “writing a call option” on a security.
Other investors can then purchase the call option contract. They pay a small fee to the call writer, known as a premium, for doing so. The contract gives a buyer of the option the right, but not the obligation, to buy shares at a specific price on or before a specified date.
In the case of call options, when the share price of the underlying security rises above the strike price, an option holder can choose to exercise the option, at which point the stock will be called away from the person who wrote the call option.
The option holder then receives shares at a cost lower than current market value. Their profits will equal the difference between the option strike price and where the stock is currently trading minus the premium paid. The higher the stock price rises before the expiry date, the greater the profit for the person holding the call option.
Because the call option writer receives income on the deal in the form of a premium, they want the stock price to either stay flat, fall, or rise only slightly. If the stock rises beyond the strike price of the option, then they’ll receive the premium, but their shares will be called away. The option writer will have a gain or loss depending on the difference of the exercise price and the purchase price of the stock and the premium received.
On the other hand, if the stock doesn’t reach the strike price of the option, then the writer keeps both the premium and the shares. They’re then free to repeat the process as many times as they wish.
What Is a Covered Call ETF?
A covered call ETF is an actively-managed exchange-traded fund (ETF) that buys a set of stocks and writes call options on them — engaging in the call-writing process as much as possible in order to maximize returns for investors.
By investing in a covered call ETF, investors have the opportunity to benefit from covered calls without directly participating in the options market on their own. The fund takes care of the covered calls for them.
The ETF covered call strategy usually involves writing short-term (under two-month expiry) calls that are out-of-the-money (OTM), meaning the security’s price is below a call option’s strike price. Using shorter-term options allows investors to take advantage of rapid time decay.
Options like these also serve to create a balance between earning high amounts of premium payments while increasing the odds that the contracts will expire OTM (which, for covered call writers, is a positive outcome).
Writing options OTM serves to make sure that investors can benefit from some amount of the upward price potential of the underlying securities.
When to Buy a Covered Call ETF
It may be a good time to buy a covered call ETF when most of the securities held by the ETF are expected to trade sideways or go down slightly for some time. Beyond that, any time is a good time for investors who find the strategy appealing, want to take the chance of gaining extra income for their portfolios, and don’t mind missing out on outsized gains if the market rips higher.
Covered call ETFs might also be attractive to people nearing retirement, people who are generally more risk-averse, or anyone looking to add some additional income to their portfolio without having to learn how to write and trade options.
If an investor were considering ETFs vs. index funds, they might choose an ETF for the reason that the fund might employ creative strategies like covered calls, whereas index funds merely try to track an index.
When Not to Buy a Covered Call ETF
The one time when it may be advisable not to buy a covered call ETF might be when stocks are generally rising and making new record highs on a regular basis. This is a scenario where covered call ETFs would underperform the rest of the market.
If the underlying securities rise only slightly, and do not exceed the strike prices set for the covered calls, then these ETFs should also perform well. It’s only when stocks rise to the point that the shares get called away from the fund that the fund will almost certainly underperform compared to holding shares directly.
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Pros and Cons of a Covered Call ETF
The main benefits that come from taking advantage of an ETF covered call strategy are reduced risk and increased income.
Pros of a Covered Call ETF
Overall, a covered call ETF has largely the same risk profile as holding the underlying securities would. But some investors see these ETFs as less risky than holding individual stocks because the ETF should, in theory, do as well or slightly better than the market in most situations. (The one exception would be during extended, strong bull markets.)
But while covered call ETFs reduce the risk associated with owning a lot of shares while also providing additional income, hedging against downside risk would best be accomplished by using put options.
Cons of a Covered Call ETF
Covered call ETFs are actively managed, which means they tend to have higher expense ratios than passively managed ETFs that track an index. But the extra income may potentially offset that cost.
The Takeaway
A covered call ETF is an actively managed exchange-traded fund that offers investors the benefits of writing call options on stocks, without them having to participate directly in the options market. For investors looking for a simpler approach, this may be beneficial. Covered call ETFs also have two primary benefits in reduced risk and increased income.
That’s not to say that they don’t have downsides, too. Notably, they tend to be actively-managed, which generally means they have higher associated fees. Again, all of this should be taken into consideration before folding any type of security into an investment strategy.
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