finance

Find affordable living, natural beauty, and a tight-knit community in Omak, WA

Fact checked by Vikki Velasquez

Located 220 miles east of Seattle, the town of Omak, Washington is a hidden gem nestled in the curve of the Okanogan River and surrounded by national forests. With just over 5,000 residents, it’s the largest city in a small county of about 43,000 people, offering a quiet, close-knit community to match its scenic surroundings.

Named for the Native American word “omache,” meaning “good medicine” or “plenty,” Omak also boasts a below-average cost of living and a surprisingly robust health care system, making it an attractive retirement destination for those looking to balance affordability and quality of life. Let’s explore what it has to offer to help you determine if it’s the right place to spend your golden years.

Key Takeaways

• Omak offers retirees a lower cost of living than the national average in many ways, notably including housing and food costs.
• There are dozens of health care establishments in the county, including multiple hospitals, helping retirees get quality medical care without too much travel.
• Omak’s proximity to the rivers, lakes, and national forests makes it an ideal retirement destination for those who enjoy an outdoor lifestyle.
• Despite its size, Omak offers plenty of entertainment and community events, helping to foster an active and engaged retirement.

Cost of Living in Omak, WA

Because retirees often rely on a fixed income, cost of living is one of the primary considerations when choosing a retirement destination. Omak is an attractive option because it’s relatively inexpensive compared to the rest of the U.S. in many ways, allowing you to maintain an enjoyable quality of life without breaking the bank.

For one, housing in Okanogan County is significantly cheaper than in other parts of the country. If you’re interested in homebuying, the median house costs roughly $284,200 (according to the most recent data), almost a third cheaper than the national median of $419,200. Similarly, the typical local spends just $856 per month on housing, while the median American spends $1,358.

Food also tends to cost less in Omak, with the average two-person household spending $593 per month, $239 less than the national household average of $832. You can expect to enjoy budget-friendly restaurants that offer a mix of cuisines, including American, Mexican, and Chinese.

Note

Housing and food account for about 35% and 13% of the average retiree’s annual spending, making them the two biggest line items. Saving in both categories can make it much easier to afford day-to-day expenses in retirement.

Health Care and Accessibility

Health care is another primary concern for retirees, who may require more frequent medical services than other demographics. Fortunately, Omak and the surrounding area are well-equipped to meet your needs. Okanogan County is home to 64 different health care establishments, including six hospitals, ensuring residents can access care without extensive travel.

However, getting around can be a little more expensive than in other areas of the country. The typical monthly transportation costs in the county average $1,386, higher than the national average of $1,098. In addition, the nearest major airport—Seattle-Tacoma International—is 139 miles away from the county’s center, so long-distance travel isn’t the most accessible. 

Fortunately, there are still convenient and cost-effective local transit options. For example, the Transit for Greater Okanogan (TranGO) offers wheelchair-accessible buses with routes operating from approximately 7 a.m. to 6 p.m., Monday through Friday. With fares of just $1 per boarding, you should be able to navigate the area affordably.

Lifestyle and Recreational Activities

As practical a choice as Omak can be, there’s more to retirement than worrying about concerns like finances and health care. Enjoying your life is just as important, and Omak offers an idyllic small-town setting, especially for those who love nature.

The Okanogan River runs right through the city, and Omak Lake is only a short drive from the heart of town. Together, they provide plenty of opportunities for boating, fishing, or simply relaxing by the water. Omak is also filled with and surrounded by greenery. In particular, the nearby Okanogan-Wenatchee National Forest offers miles of scenic hiking trails to explore.

Despite its small size, Omak also has a vibrant cultural scene. The town is home to 28 different arts establishments, including the Omak Performing Arts Center—which puts on concerts, seminars, and theater productions—and the Omak Stampede Museum, where you can learn about the region’s rich history.

Fast Fact

Omak residents also have plenty of options for day-to-day entertainment, including a local movie theater, wine-tasting room, casino, and bowling alley.

In addition, Omak fosters a strong sense of community with regular social events suitable for retirees. The farmers’ market runs from June through October in Eastside Park, where you can buy fresh produce and handcrafted goods. Meanwhile, occasions like the annual Harvest Festival and Christmas Parade provide plenty of chances to connect with your neighbors.

The Bottom Line

Omak, Washington offers an appealing combination of affordability, natural beauty, and small-town charm, making it an enticing option for retirees. With a lower-than-average cost of living, strong health care options, and abundant ways to stay active and engaged, it’s an excellent place for a peaceful but fulfilling retirement.

Reviewed by Ebony Howard
Fact checked by Ryan Eichler

What does it mean to be financially responsible? It’s a complex question, but at its core is a simple truth: To be financially responsible, you need to live within your means. And to live within your means, you must spend less than you make.

Key Takeaways

• It’s not enough to pay the minimum on your credit cards each month. To be financially responsible, you need to pay them off in full every month.
• It’s crucial to know the difference between what you need and what you want—and then only buy your ‘wants’ if you can afford it.
• If you don’t have an emergency fund of three to six months’ worth of expenses, today is the day to start saving for one.

Credit Cards and Debt

If you’re really looking to be financially responsible, just being able to make your minimum monthly credit card payment doesn’t cut it. In fact, the fact that you aren’t able to pay your balance in full shows that you already spend more than you earn. Responsible use of credit means paying the balance on your account in full each month.

Consider the Interest

The same logic applies to all recurring payments that involve paying interest. Think about it: Paying interest on anything means that you are spending more on that item than the purchase price. Does that sound like the most responsible choice or just the most convenient?

When the interest payments are factored into the purchase price, you are spending more to obtain the item than even the item’s manufacturer thought it was worth.

Of course, certain interest payments are unavoidable, like with mortgages and car payments. In these cases, minimizing the amount you spend in interest each month is the most responsible action.

Necessities vs. Luxuries

For many people, cutting down on interest and borrowing is easier said than done, but in practice, it really comes down to knowing the difference between necessities and luxuries.

For example, buying a home in a financially responsible manner means that you should purchase one that won’t break the bank. In financial terms, this means it shouldn’t cost more than two or 2.5- times your annual income. Another rule of thumb is that your monthly mortgage payment should not cost more than 30% of your monthly take-home pay.

That said, being financially responsible does depend on your income. If you’re an ultra-high-net-worth individual, you may easily be able to afford a jet, a mega-yacht, and a mansion in the South of France. After all, there’s nothing irresponsible about buying things you can afford to pay for.

Paying Yourself First

For most people, saving is an activity that must be taken seriously. A great way to do this is when you get your paycheck—and before you pay your bills—pay yourself first. A good goal to save is 10%.

When it comes to saving, investing in the stock market might be the most profitable choice available. Sure, investing involves risk, but taking calculated risks is sometimes a necessity. The responsible way to go about it is to have a plan.

Start by examining asset allocation strategies to learn how to choose the right mix of securities for your investing strategy. From there, contribute to your employer-sponsored savings plan if such a plan is available.

Important

Most employers offer to match your contributions up to a certain percentage, so by contributing at least enough to get the match, you earn a guaranteed return on your investment.

If your finances permit, maximize your tax-deferred savings opportunities by contributing the full amount that the plan allows. After you’ve started investing, monitor the progress that you are making toward your goals and rebalance your portfolio as necessary to remain on track.

Emergency Fund

Financial responsibility means being prepared for the unexpected. Most experts agree that you need to be able to support yourself financially for at three to six months without an income. If you are married and used to living on dual paychecks, this means being able to pay the necessary bills such as the mortgage, food and utilities on one income, or even neither income. If a missed paycheck would ruin you financially, it’s time to create an emergency fund.

Don’t Keep Up with the Joneses

Financial responsibly means doing what you have to do to take care of your needs and the needs of your family. To make this happen, your focus should be internal. The neighbors aren’t paying your bills, so their spending habits shouldn’t dictate yours or set the bar for your standard of living.

Budgeting

Having a budget is one of the core pillars of financial responsibility. You should know where your money is going. Business owners know the importance of understanding their cash flows and balance sheets. As a result, no successful business exists without a budget. Neither should you.

How Much Money Does the Average Person Have in Credit Card Debt?

In Q3 2024, the national average credit card debt was $7,236.

What Is the 50/30/20 Rule?

50/30/20 is a budgeting system that says you should put 50% of your paycheck towards needs, 30% towards wants, and 20% towards savings or debt.

What Is Pay Yourself First?

Pay yourself first is a way to ensure that you make progress towards your savings goals. You pay yourself—that is, your savings—before you pay other obligations. You could try to do this on a month-to-month basis, or you could automate it, so you don’t have to think about it.

The Bottom Line

Ultimately, financial responsibility means living within your means, regardless of the level of those means. So take a close look at your financial situation, evaluate your earning and spending habits, and make the necessary adjustments to put yourself on responsible financial footing.

Reviewed by Michael J Boyle
Fact checked by Hans Daniel Jasperson

On Aug. 11, 2015, the People’s Bank of China (PBOC) surprised markets with three consecutive devaluations of the Chinese yuan renminbi (CNY), knocking over 3% off its value. Since 2005, China’s currency has appreciated 33% against the U.S. dollar.

The first devaluation marked the most significant single drop in 20 years. The move was unexpected, and many believed it was a desperate attempt by China to boost exports in support of an economy that was growing at its slowest rate in decades. However, the PBOC claimed that the devaluation was part of its reforms to move toward a more market-oriented economy. The move had worldwide repercussions, impacting countries including the United States and India.

Key Takeaways

• After a decade of steady appreciation against the U.S. dollar, investors had become accustomed to the yuan’s stability and growing strength.
• China’s President Xi Jinping had pledged the government’s commitment to reform China’s economy in a more market-oriented direction since he first took office in March 2013.
• Despite the IMF response, many doubted China’s commitment to free-market values, arguing that the new exchange rate policy was still akin to a managed float.
• The negative impact of currency devaluations on relations with the U.S. also contributed to China briefly being labeled as a currency manipulator in 2019 and early 2020.

Surprised Markets

After a decade of steady appreciation against the U.S. dollar, investors had become accustomed to the yuan’s stability and growing strength. The drop, which amounted to 4% over the subsequent two days, was small by stock market standards. However, many speculators in foreign exchange (forex) markets use a high amount of leverage.

Automatic stop-loss orders are one of the best ways for leveraged forex traders to protect themselves from sudden policy changes.

Stock markets in the U.S., Europe, and Latin America fell in response to the yuan devaluation. Most currencies also reeled. Some argued that the move signaled an attempt to make exports look more attractive, even as the Chinese economy’s expansion slowed. However, the PBOC indicated that other factors motivated the devaluation.

Effect on the International Monetary Fund

Chinese President Xi Jinping had pledged the government’s commitment to reform China’s economy in a more market-oriented direction when he first took office in March 2013. That made the POBC’s claim that the devaluation’s purpose was to allow the market to be more instrumental in determining the yuan’s value more believable.

The devaluation announcement came with official statements from the PBOC that as a result of this “one-off depreciation,” the “yuan’s central parity rate will align more closely with the previous day’s closing spot rates.” Furthermore, it was aimed at “giving markets a greater role in determining the renminbi exchange rate with the goal of enabling deeper currency reform.”

At the time, Professor Eswar Prasad of Cornell University indicated that the move was also consistent with China’s “slow but steady” market-oriented reforms. The currency devaluation was one of many monetary policy tools the PBOC employed in 2015, which included interest rate cuts and tighter financial market regulation.

There was also another motive for China’s decision to devalue the yuan: China’s determination to be included in the International Monetary Fund‘s (IMF) special drawing rights (SDR) basket of reserve currencies. The SDR is an international reserve asset that IMF members can use to purchase domestic currency in foreign exchange markets to maintain exchange rates. The IMF reevaluates the currency composition of its SDR basket every five years.

In 2010, the yuan was rejected on the basis that it was not freely usable. The IMF welcomed the devaluation, encouraged by the claim that it was done in the name of market-oriented reforms. Consequently, the yuan became part of the SDR in 2016.

Within the basket, the Chinese renminbi had a weight of 10.92%, which is more than the weights of the Japanese yen (JPY) and U.K. pound sterling (GBP), at 8.33% and 8.09%, respectively. The rate of borrowing funds from the IMF depends on the interest rate of the SDR. As currency rates and interest rates are interlinked, the cost of borrowing from the IMF for its member nations would now hinge in part on China’s interest and currency rates.

Skeptical Views

Despite the IMF’s response, many doubted China’s commitment to free-market values, arguing that the new exchange rate policy was still akin to a managed float. Some charged that the devaluation was just another intervention, and the yuan’s value would continue to be closely monitored and managed by the PBOC.

Also, the devaluation occurred just days after data showed a sharp fall in China’s exports—down 8.3% in July 2015 from the previous year. That provided evidence that the government’s slashing of interest rates and fiscal stimulus had not been as effective as hoped. Thus, skeptics rejected the market-oriented-reform rationale. Instead, they interpreted the devaluation as a desperate attempt to stimulate China’s sluggish economy and keep exports from falling further.

China’s economy depends heavily on its exported goods. By devaluing its currency, the Asian giant lowered the price of its exports and gained a competitive advantage in the international markets. A weaker currency also made China’s imports costlier, thus spurring the production of substitute products at home to aid domestic companies.

The U.S. government was particularly incensed because many U.S. politicians had been claiming for years that China had kept its currency artificially low at the expense of American exporters. Some believed that China’s devaluation of the yuan was just the beginning of a currency war that could increase trade tensions.

Consistent With Market Fundamentals

Although a lower-valued yuan would give China somewhat of a competitive advantage, trade wise, the move was not wholly counter to market fundamentals.

Over the past 20 years, the yuan had been appreciating relative to nearly every other major currency, including the U.S. dollar. Essentially, China’s policy allowed the market to determine the direction of the yuan’s movement while restricting the rate at which it appreciated. However, China’s economy had slowed significantly in the years before the devaluation. On the other hand, the U.S. economy had improved. A continued rise in the yuan’s value no longer aligned with market fundamentals.

Understanding the market fundamentals clarifies that the small devaluation by the PBOC was a necessary adjustment rather than a beggar-thy-neighbor manipulation of the exchange rate. While many American politicians grumbled, China was doing what the U.S. has prodded it to do for years: allow the market to determine the yuan’s value. While the drop in the yuan’s value was the largest in two decades, the currency remained stronger than it had been in the previous year in trade-weighted terms.

Impact on Global Trade Markets

Currency devaluation is nothing new. From the European Union to developing nations, many countries have devalued their currency periodically to help cushion their economies. However, China’s devaluations could be problematic for the global economy. Given that China is the world’s largest exporter and its second-largest economy, any change that such a large entity makes to the macroeconomic landscape has significant repercussions.

With Chinese goods becoming cheaper, many small- to medium-sized export-driven economies could see reduced trade revenues. If these nations are debt-ridden and have a heavy dependence on exports, their economies could suffer. For instance, Vietnam, Bangladesh, and Indonesia greatly rely on their footwear and textile exports. These countries could suffer if China’s devaluations make its goods cheaper in the global marketplace.

Impact on India

For the Indian economy, a weaker Chinese currency had several implications. As a result of China’s decision to let the yuan fall against the dollar, demand for dollars surged worldwide. That included India, where investors bought into the greenback’s safety at the expense of the rupee. The Indian currency immediately plunged to a two-year low against the dollar and remained low throughout the latter half of 2015. The threat of greater emerging market risk due to the yuan devaluation led to increased volatility in Indian bond markets, which triggered further weakness for the rupee.

Important

Usually, a declining rupee would aid domestic Indian manufacturers by making their products more affordable for international buyers. However, in the context of a weaker yuan and slowing demand in China, a more competitive rupee is unlikely to offset weaker demand.

China and India compete in several industries, including textiles, apparel, chemicals, and metals. A weaker yuan meant more competition and lower margins for Indian exporters. It also meant that Chinese producers could dump goods into the Indian market, thereby undercutting domestic manufacturers. India had already seen its trade deficit with China nearly double between 2008 to 2009 and 2014 to 2015.

As the world’s largest energy consumer, China plays a significant role in how crude oil is priced. The PBOC’s decision to devalue the yuan signaled to investors that Chinese demand for the commodity, which had already been slowing, would continue to decline. The global benchmark Brent crude fell more than 20% after China devalued its currency in mid-August.

For India, every $1 drop in oil prices resulted in a $1 billion decline in the country’s oil import bill, which stood at $139 billion in the fiscal year 2015. On the flip side, falling commodity prices made it much more difficult for Indian producers to remain competitive.

Charges of Currency Manipulation

The Chinese yuan generally depreciated against the U.S. dollar between 2015 and 2019, leading to charges of currency manipulation. The U.S. Treasury Department officially named China a currency manipulator on Aug. 5, 2019. It was the first time the U.S. had done so since 1984. However, the U.S. lifted the currency manipulator label in early 2020. According to then-U.S. Treasury Secretary Steven Mnuchin, “China has made enforceable commitments to refrain from competitive devaluation, while promoting transparency and accountability.”

What Are Benefits to Devaluing a Currency?

Devaluing a currency can allow a country to correct a trade imbalance, increasing exports and decreasing imports. When a country devalues its currency, it makes its money cheaper. This boosts exports and can make the country more competitive in global trade. It also means imports become more expensive, so goods made in other countries are less appealing to consumers.

What Are Risks of Devaluing a Currency?

There are risks to devaluing a currency. As imports become more expensive, there is less competition for some domestic industries, which can make those industries less efficient. When exports are higher than imports, it can also lead to inflation, and the cost of goods and services can increase more rapidly over time.

What Is a Currency Manipulator?

Currency manipulator is a label given by the United States government to countries that it believes are intervening in the value of their own currency in a way that unfairly give them a global trade advantage. It is often seen as a negative thing. However, any country that has a fixed exchange rate could also be seen as a currency manipulator, though this designation is rarely given to U.S. trade allies.

The Bottom Line

China’s main justification for devaluing the yuan in 2015 was the rise of the U.S. dollar. Other reasons included the country’s desire to shift toward domestic consumption and a service-based economy. While fears of further devaluations continued on the international investment scene for another year, they faded as China’s economy and foreign exchange reserves strengthened in 2017. The negative impact of currency devaluations on relations with the U.S. also contributed to China briefly being labeled as a currency manipulator in 2019 and early 2020.

Pet owners consider their pets family members and want to provide them with the medical care they need. But much like healthcare for humans, pet healthcare can be expensive, particularly if a pet requires emergency care or suffers from a chronic condition.

Fortunately, there are often vet office discounts and other cost-saving options available. Read on to learn how to save money while ensuring your furry family members get the care they deserve.

Key Takeaways

• Many vets offer various programs that can make care more affordable, including referral discounts, promotions, and loyalty programs.
• Buying quality pet insurance can also be a wise investment for pet owners.

Referral Discounts

Any business appreciates current customers referring new customers, and vets are no different. Kelly Broussard, a pet care service owner, explains, “Naturally, pet owners want a vet they can trust, so they often ask me for a recommendation. One personal recommendation is worth more than ten anonymous online reviews.”

Because this type of word-of-mouth advertising is so valuable, many vets offer incentives for clients who refer new patients to their practice. The incentives can include a percentage off of your next visit, a complimentary grooming service, or a free wellness check. If you’re happy with your vet’s care, don’t hesitate to let other pet owners know. It can save you money.

Coupons and Promotions

Another way to save is to watch for coupons and promotions that some vet offices offer. Some vets run seasonal promotions during the slower business months of the year or to coincide with special events like National Pet Dental Health Month, which is February.

Be sure to sign up for your vet’s newsletter and follow their social media accounts to be alerted to promotional events and discounts. Some practices also offer discounts for first-time customers, so it’s worthwhile to ask.

Preventative Care Packages

As the saying goes, an ounce of prevention is worth a pound of cure. Many veterinary clinics offer preventative care packages with discounted rates on essential services such as wellness checkups, vaccinations, and flea, tick, and heartworm prevention.

By paying upfront, you may be able to save 10-30% compared to paying for each service individually. These care packages can be especially cost-effective for those with multiple pets, as some vets offer further discounts for multi-pet clients. Of course, preventative care can also save money over the longer term as minor issues can be detected and dealt with before they become chronic and more costly to treat.

Pet Insurance

While pet insurance isn’t a discount, it is one of the best ways to reduce the cost of vet care. “I recommend pet insurance to all my clients,” Broussard says. “It can really make a difference in the cost of care, particularly in the event of an emergency or for pets with chronic conditions like diabetes.”

Pet insurance works like human health insurance. You pay a monthly premium, and the policy covers a portion of your pet’s medical expenses, like wellness exams and routine vaccinations.

Important

Having pet insurance can save you thousands of dollars over the life of your pet and can help you avoid the impossible decision of whether or not you can afford life-saving care for your pet.

Payment Plans and Financial Assistance

If your pet has an unexpected and costly emergency or a major procedure, many vet offices will work with you to provide a payment plan or financial assistance options. Some offices work with organizations that offer grants or low-interest loans to help pet owners afford the cost of care. There are also non-profit organizations dedicated to helping pet owners cover medical expenses, such as Pet Fund or RedRover.

Loyalty Programs

The cost of retaining customers is typically lower than the cost of finding new ones. Understanding this, some vet clinics offer rewards programs for loyal customers. The programs may offer points per dollar spent or discounts after a certain number of visits. These programs are a great way to thank customers and reward loyalty.

The Bottom Line

Don’t be afraid to ask what savings opportunities are available with pet care. While many vets may offer various ways to reduce the cost of your pet’s care, they may not offer them outright. Sometimes, you simply have to ask.

By taking advantage of referral programs, discounts, preventive care packages, and pet insurance, you can reduce the cost of caring for your pet without sacrificing the quality of that care so they will be a part of your family for many years.

Reviewed by Erika Rasure
Fact checked by Kirsten Rohrs Schmitt

Cryptocurrency ETFs: An Overview

Cryptocurrency exchange-traded funds (ETFs) track the price performance of cryptocurrencies by investing in a portfolio linked to their instruments. Like other such funds, crypto ETFs trade on regular stock exchanges, and investors can hold them in their standard brokerage accounts.

A growing roster of ETFs—a type of exchange-traded product (ETP)—in early 2024 began offering investors the chance to invest in bitcoin through their holdings. After about a decade of regulatory wrangling, the U.S. Securities and Exchange Commission (SEC), under pressure from a 2023 D.C. Circuit U.S. Court of Appeals ruling, authorized the first spot crypto ETFs in early 2024.

These investments allow retail traders to gain direct exposure to crypto prices without owning the assets directly. This makes it possible to speculate on cryptocurrency prices without doing business on a crypto exchange or dealing with the costs and complexities of directly owning digital assets.

However, crypto ETFs generally have higher fees than other ETFs, and while the funds themselves are regulated, there is no such oversight in the crypto markets where the funds are invested. For example, the SEC has argued that without proper oversight and surveillance-sharing agreements with regulated markets, it’s difficult to prevent fraudulent activities and ensure fair trading practices in the crypto markets.

Below, we take you through how these funds work, what worries the SEC still has around these products, what benefits they might have, and what this all means for everyday investors.

Key Takeaways

• Cryptocurrency exchange-traded funds (ETFs) offer a way to gain exposure to cryptocurrencies without buying and storing the digital assets yourself.
• These funds track cryptocurrency prices by investing in futures contracts rather than cryptocurrency itself.
• Spot ETFs, which invest directly in cryptocurrency, face greater regulatory hurdles due to U.S. Securities and Exchange Commission (SEC) concerns about investor risk.
• The ProShares Bitcoin ETF, the first and largest U.S. cryptocurrency futures ETF, started trading in October 2021.
• The SEC approved the first 11 spot cryptocurrency ETFs for the U.S. market in January 2024.

How Does a Cryptocurrency ETF Work?

While most ETFs replicate how indexes work by holding a basket of underlying assets, crypto ETFs have a couple of ways of tracking the performance of a digital currency. Spot ETFs directly hold the cryptocurrency, building a portfolio that replicates the performance of the digital assets it contains. Other crypto ETFs invest in futures contracts, which are agreements to buy or sell crypto at a preset date and price.

Given their portfolios, these ETFs have share prices that mimic changes in the price of derivatives instead of the cryptocurrencies themselves. Therefore, the price of shares in a given cryptocurrency ETF rises and falls in line with crypto futures contract prices. Like other derivatives, synthetic cryptocurrency ETFs have an additional risk because of the lack of oversight and valuation concerns in the crypto exchanges from where the funds would be pulling crypto.

While U.S. regulators refused to approve crypto ETFs for several years—the SEC turned away some 20 proposals in spot ETFs from 2018 to 2023 alone—they were readily available to investors in Europe and Canada. The SEC approved the first crypto futures ETFs for the U.S. market in October 2021 and the first spot crypto ETFs in January 2024.

Note

The first cryptocurrency ETF, the ProShares Bitcoin ETF (BITO), started trading in October 2021. This is an ETF that tracks bitcoin futures prices.

Cryptocurrency Futures ETFs

An analysis of the ProShares Bitcoin ETF, the first crypto ETF on U.S. markets, shows how crypto futures ETFs work. The fund assigns about half of its portfolio to Chicago Mercantile Exchange (CME) bitcoin futures that expire at the end of the current month and another half to CME bitcoin futures expiring the following month.

As the expiration of the contracts in the portfolio approaches, the fund rolls over its investments, selling the expiring contracts and buying contracts for the coming month. The costs associated with rolling over the contracts may account for some of the differences between the performance of the ETFs and their underlying cryptocurrencies.

ProShares also has the Ether ETF (EETH), an ether futures ETF like the one it provides for bitcoin. The fund tracks the price of ether with futures contracts. ProShares has ETFs that track a mix of bitcoin and ether using equal or market capitalization weighting for investors looking for exposure to several crypto tokens.

There are also inverse ETFs, such as the ProShares Short Bitcoin ETF (BITI). This uses futures to generate the inverse of Bitcoin’s returns, allowing investors to profit on days when cryptocurrency prices decline.

Spot Cryptocurrency ETFs

Investment funds can also directly trade and hold cryptocurrencies. Spot crypto ETFs are funds that buy cryptocurrencies and securitize them. Investors buy and sell shares as needed, just like a traditional ETF. In a spot crypto ETF, the fund can issue and redeem shares, offering retail and other investors a stake in the crypto market.

Starting in 2014, asset managers sought approval from the SEC for spot bitcoin ETFs. From October 2022 to October 2023, the SEC received more than 3,500 crypto-related fund applications. In January 2024, the SEC approved the first 11 spot bitcoin ETFs, opening the door to more spot cryptocurrency ETFs later.

Important

In January 2024, the SEC approved the first 11 spot bitcoin ETFs for U.S. markets. On their first trading day, they had about $4.6 billion in trading volume.

In May 2024, the SEC also started to pave the way for spot ether ETFs. The SEC approved a rule change that would allow for the listing and trading of eight spot ether ETFs.

Prior to this approval, the SEC expressed concerns about Ethereum’s staking feature and its previous worries with Bitcoin for fraud, volatility, and low investor protections in crypto markets.

Staking, which allows ether holders to earn income by locking up their tokens to help validate transactions on the network, is a crucial feature of Ethereum’s consensus mechanism.

This income-generating feature, which began on the ether platform in 2022, raises questions about how staking rewards should be taxed and reported. This gave the SEC another reason to be reluctant to approve spot ether ETFs, given the lack of regulatory clarity about their tax status.

Note that the SEC’s approval of a rule change for spot ether ETFs does not mean that these ETFs can start trading. Applications from the investment managers need to be reviewed, and further approvals need to be given.

The SEC under President Donald Trump is expected to take a friendlier approach to crypto, although how that will apply to crypto ETFs remains to be seen.

Advantages of Crypto ETFs

Cryptocurrency ETFs are a developing asset class, and given the regulatory uncertainty, the market may look different in the future. Nevertheless, owning shares in cryptocurrency ETFs has some advantages when accessing the crypto markets.

Exposure Without Ownership

The most significant benefit of cryptocurrency ETFs is that they provide exposure to crypto without additional ownership expenses or exposure to the risk of owning and holding them in a crypto wallet. For example, there are custody charges for cryptocurrencies, and some secure digital wallets charge an annual fee.

These charges can add up quickly. Cryptocurrencies also come with transaction and network fees, which the ETF providers take care of, even if you pay indirectly through the fund’s expense ratio.

Lowering the Learning Curve

Cryptocurrency jargon, derived mostly from its technological makeup, is still a roadblock to crypto adoption. Average investors often find it difficult to grasp the scope and roles of cryptocurrencies. Plus, these investors might be unfamiliar with networking technology, making crypto-speak, such as halving and blockchain, even more disinviting. Investing in a cryptocurrency ETF makes learning enough to get into crypto much more manageable.

More Security for Investors

Cryptocurrency exchanges, storage devices, wallets, and some poorly designed blockchains have been hacked since they were launched, leading to constant worries in the crypto world about security. Cryptocurrency security can be a tall order for individual investors, who may not be familiar with the required methods. A cryptocurrency ETF takes care of this for you.

Lower Costs for Investors

There are more than 9,000 cryptocurrencies available in trading markets worldwide. The infrastructure to buy and sell them is becoming more sound, but it’s still relatively untamed territory compared with securities exchanges.

For example, some tokens are available on certain cryptocurrency exchanges while others are not, and exchanges can operate in some countries but not others. There are also extra costs that come with buying crypto. Cryptocurrency ETFs allow you to diversify your holdings without the fees and hassles of buying and exchanging the tokens yourself.

Disadvantages of Crypto ETFs

The novelty of cryptocurrency ETFs is one of its drawbacks, not least since it’s still unknown how regulations in this area will evolve. Given the likelihood that more crypto ETFs will emerge, it’s important to be aware of their potential issues.

Risk of Tracking Error

Crypto ETFs do not always duplicate the price moves of the underlying digital token. This is especially true for ETFs that depend on futures contracts to track cryptocurrencies, which have to roll over their positions as contracts expire.

Higher ETF Fees

While crypto ETFs help investors avoid some costs of directly owning digital currencies, they have their own fees. Since they are often actively managed, crypto ETFs can have higher expense ratios than other ETFs. For example, the ProShares Bitcoin ETF’s expense ratio is 0.95%. For comparison, the expense ratio for the SPDR S&P 500 ETF is just 0.09%.

Volatility

Although cryptocurrency ETFs simplify some of what’s involved in trading digital currencies, they are still subject to the dramatic price swings of the crypto markets. This means more risk for you, which can be even more worrying if you are more accustomed to the lower volatility of more typical ETFs.

Lack of Direct Ownership

Investors in crypto ETFs are not the owners of the digital assets. While crypto ETFs do bring convenience, you won’t have control or access to the cryptocurrency itself, and the decentralization and anonymity associated with crypto don’t apply to ETF shareholders.

Pros

• Trade on stock exchanges using regular brokerage accounts

• Provide exposure to crypto without direct ownership

• Avoid crypto custody and trading expenses

• Reduce the learning curve

Cons

• Regulatory uncertainty

• Elevated fees and expenses

• Subject to volatility in crypto markets

• No direct ownership or control over underlying cryptocurrency

Alternatives to Cryptocurrency ETFs

In addition to allocating funds to futures and spot ETFs, investors can put their money into several other ETF-like products for crypto exposure. Let’s dig into these options.

Crypto Trusts

While the SEC has only reluctantly approved a handful of crypto ETFs, a similar product has already been available for years: bitcoin investment trusts. These are closed-end funds that resemble the spot crypto ETFs being proposed. They own bitcoins on behalf of investors, and their shares trade in over-the-counter (OTC) markets.

But these are not ETFs. They are open only to investment firms, accredited investors, or high-net-worth individuals (HNWIs) and are not accessible to the retail public. They tend to have a high minimum investment amount, and each purchase of shares is accompanied by a lockup period for investors.

Crypto ETPs

ETFs are one variety of exchange-traded products (ETPs). When discussed, however, crypto ETPs refer to those that specifically hold debt securities issued by special-purpose vehicles (SPVs) that hold the underlying crypto assets. The SPV uses the crypto as collateral to issue the ETPs, which are traded on exchanges.

Crypto ETPs fall under the Securities Act of 1933 and are less regulated than ETFs. Spot crypto ETPs, in other words, are not investment companies registered under the Investment Company Act of 1940. As a result, shareholders do not have the protections associated with ownership of ETF shares.

Another difference is that crypto ETFs can create and redeem shares based on market demand, helping the share price align with the fund’s net asset value. Crypto ETPs typically have a fixed supply of shares that trade at market-based prices, which can deviate from the underlying crypto value.

Companies That Hold Crypto

Investing in companies that hold cryptocurrencies on their balance sheet is another way to invest in crypto without owning the digital tokens. Some publicly listed companies hold a large number of bitcoins. For example, MicroStrategy (MSTR) owned over 528,000 bitcoins as of April 2025. Galaxy Digital Holdings (BRPHF) and Tesla (TSLA) are other publicly listed companies with bitcoins on their balance sheets.

Crypto-Related ETFs

Plenty of ETFs offer diversified exposure to companies that engage with blockchain technology or crypto companies. For example, the Amplify Transformational Data Sharing ETF (BLOK) holds a portfolio of companies that develop and use blockchain technologies.

Is It a Good Idea to Invest in a Crypto ETF?

Crypto ETFs are designed to mimic the assets so investors can gain exposure to significant price fluctuations. However, because prices vary so much, there is more risk involved in crypto ETFs. If you’re considering adding these to your portfolio, speaking with a financial advisor about your specific circumstances and goals is always prudent.

How Do the Taxes Compare for Crypto ETFs and Direct Crypto Investments?

The tax implications for crypto ETFs often differ from directly holding cryptocurrency. In many jurisdictions, crypto ETF gains are treated like capital gains, which can be more favorable than the tax treatment for direct cryptocurrency transactions. Consulting a tax advisor about your specific circumstances is always prudent in cases like this.

Is There a Crypto Index Fund?

There are a few cryptocurrency index funds, such as the Bitwise 10 (BITW) or Galaxy Crypto Index Fund. These funds are only available to non-U.S. investors or in the United States to accredited investors.

Can I Short Crypto ETFs?

Yes, you can short a crypto ETF, as you can with any ETF. Shorting allows you to gain from the decline in an asset’s price. This strategy, especially in the volatile world of cryptocurrencies, involves elevated risks and potentially unlimited losses, so it’s crucial to understand the dangers before going ahead.

The Bottom Line

ETFs are a retail investor-friendly way to gain exposure to assets that might otherwise be too costly. Brokers want to offer ETFs that hold cryptocurrency so that average investors can participate in cryptocurrency investing. However, these funds tend to come with additional risks and expenses, so it is important to research them thoroughly before making an investment decision.

The comments, opinions, and analyses expressed on Investopedia are for informational purposes only. Read our warranty and liability disclaimer for more info.

Reviewed by Michael J Boyle
Fact checked by Pete Rathburn

Yuan vs. Renminbi: An Overview

Chinese money is referred to by two names: the Chinese yuan (CNY) and renminbi (RMB), which translates to “People’s Currency.” The distinction between CNY and RMB is subtle. RMB is the official currency of China. The yuan is the principal unit of account for that currency.

Chinese currency defines the economy of one of the world’s biggest superpowers. It’s also central to one of the most debated issues involving China: its perceived mercantilist policy of artificially undervaluing currency against the U.S. dollar. This is believed to give its exports an unfair price advantage.

Key Takeaways

• The Chinese yuan (CNY) and renminbi (RMB) are closely linked terms for China’s currency.
• Renminbi is the official name of China’s currency.
• The renminbi’s principal unit is the Chinese yuan.
• CNY is the official ISO 4217 abbreviation for China’s currency.
• The yuan character is also used in the names of other currencies such as the New Taiwan Dollar and the Hong Kong Dollar.

Yuan (CNY)

The character yuan is used for round or circular things in Mandarin Chinese. This word was also used for the silver Spanish dollars introduced by European merchants in the 17th and 18th centuries.

China began to mint its own silver yuan coins in 1889. Both the Qing dynasty and early Republican government circulated silver yuan coins and banknotes. The traditional character for yuan is also used in the currencies of other Chinese-speaking regions in the 2020s, including the New Taiwan dollar and the Hong Kong dollar.

The modern-day Chinese yuan uses the abbreviation CNY to distinguish between the mainland currency and other uses of the word. Forex brokers will quote prices with the ticker CNY.

The largest banknote is 100 yuan, followed by 50 yuan, 20 yuan, 10 yuan, five yuan, and one yuan. One yuan can be further divided into jiao and fen. There are 10 jiao in a yuan, like dimes in a dollar, and 10 fen in a jiao.

Important

The word “yuan” is frequently used in Mandarin translations of foreign currencies. The U.S. dollar is translated as mei yuan.

Renminbi (RMB)

The People’s Bank of China (PBOC) was established during the Chinese Civil War. It issued the first RMB notes in December 1948, about a year before the Chinese Communist Party defeated the Kuomintang government.

The currency allowed the new administration to unify the Chinese economy, which was then divided among several regional currencies. It also distinguished the new administration from the previous government, whose policies had led to high levels of hyperinflation. The RMB was revalued at a rate of 10,000 to one in 1955. Each yuan in the new series replaced 10,000 old yuan.

The value of the RMB was tightly controlled during the period of the command economy. One yuan was pegged at 2.46 yuan to the U.S. dollar until 1971. The PBOC allowed the yuan to trade on international markets as the Chinese economy began opening to the world market, but the floating exchange rate was still tightly controlled.

Key Differences

One question continues to perplex many as Beijing looks at the internationalization of its currency: Does China have two currencies? Does it use CNY, RMB, or both?

RMB is the official currency of the People’s Republic of China. It means “people’s currency” in Mandarin. CNY is a unit of the currency. A popular analogy draws from British currency: RMB is the name of China’s currency just as sterling is the currency of Great Britain. A unit of renminbi is a CNY just as the pound is the basic unit of sterling.

RMB and CNY are often used interchangeably. A storekeeper in China might also express prices in terms of kuai, which translates into “pieces” and is similar to how Americans use “bucks” to mean dollars.

CNY is the official currency abbreviation for the Chinese yuan under the ISO 4217 standard, but RMB is often used as an unofficial abbreviation.

The Chinese yuan might trade for a different price in offshore markets such as Hong Kong due to China’s cross-border currency controls. The unofficial abbreviation CNH is sometimes used to refer to the offshore price of the Chinese yuan to distinguish between these two prices.

Note

One Chinese yuan can be divided into 10 jiao or 100 fen.

Special Considerations

The Chinese yuan wasn’t considered an international currency for years because of the Chinese government’s rigid controls. This began to change as the Chinese government began to promote international use of the RMB.

China uses currency controls to maintain the value of the Chinese yuan at a favorable level. The PBOC sets a midpoint value against the U.S. dollar every day based on previous trading sessions and movements in international currency markets. The price of the yuan is permitted to trade within 2% of that price. The midpoint might also be adjusted based on undefined countercyclical factors at times.

Some economists believe that these controls keep the yuan artificially devalued, making the country’s exports more attractive. The International Monetary Fund (IMF) reported in the summer of 2018 that the Chinese yuan was in line with fundamentals, only to then witness the yuan reach a 13-month low in response to an escalating tariff war with the United States.

This drop prompted then-U.S. Treasury Secretary Steven Mnuchin to comment that the Treasury was “going to very carefully review whether they have manipulated the currency.” The U.S. Treasury labeled China as a “currency manipulator” in 2019. This designation was removed the following year.

The Chinese yuan lost value during the COVID-19 pandemic, largely due to reduced economic activity and strict lockdowns. The yuan suffered its largest-ever monthly price drop in April 2022, losing 7% of its value over three months.

As of April 2025, the Chinese yuan has fallen to its lowest level vs. the U.S. dollar since 2007 amid an escalating U.S.-China trade war.

The RMB is one of the top five most-used currencies in the 2020s, in addition to the U.S. dollar, euro, yen, and British pound. The IMF increased the weight of the yuan in its Special Drawing Rights (SDRs) basket in 2022, an international reserve asset that the IMF created as a supplement to member countries’ official reserves.

How Many Renminbi Are There in a Dollar?

One USD is worth 7.30 Chinese yuan RMB as of April 11, 2025.

How Much Is One Chinese Yuan Worth?

One Chinese yuan is worth 13.7 U.S. cents as of April 11, 2025.

How Do You Buy Digital Yuan?

Only Chinese citizens can purchase digital yuan or e-CNY. It can be purchased through certain banks in select Chinese cities as well as through online payment services WeChat and Alipay.

The Bottom Line

The currency of China is referred to as either the Chinese yuan (CNY) or renminbi (RMB). The two terms are similar and are often used interchangeably. The key difference is that the RMB is the official currency. The yuan is its principal unit of measurement.

Correction—July 25, 2024: The article has been corrected to state the right currencies that use the yuan character.

Reviewed by Lea D. Uradu
Fact checked by Betsy Petrick

How Does Recording of Real Estate Records Work?

Just as in any transaction, keeping an official paper trail and record of any sale or change in ownership is an important part of verifying the history of a given property or purchase. Recording represents the act of putting a document into official county records, providing a traceable chain of title to a property.

Many types of real estate documents get recorded, depending on the type of property and real estate transaction. These include mortgages, deeds, easements, foreclosures, estoppels, leases, licenses, and fees.

Documents showing ownership, encumbrances, and lien priority also get recorded and help maintain proper real estate transactions.

Key Takeaways

• Recording of real estate represents putting a document into official county records and can provide a traceable chain of title.
• Recorded documents do not establish property ownership but help resolve disputes between parties with competing claims to a property.
• Check with your state and county recording division to determine which documents have been or must be recorded.

Recording Real Estate Documents

Recording real estate or property documents into the county records helps provide information for government authorities and buyers and sellers of real estate property.

Public Notice

Recorded documents are made public to be used to help resolve disputes between parties with competing claims to a property. However, recorded documents do not establish who owns a property.

Property Ownership

Recorded documents do not establish who owns a property since the title defines the asset’s legal owner. However, recording documents show the history or chain of title throughout the property’s history, which can help resolve disputes.

For instance, if two different claimants have conflicting deeds to a property, the date of recording can determine the ownership timeline. In most cases, these public records provide clarity; typically, the owner with the most recent deed would be considered the rightful owner. If issues arise, it would be wise to seek legal counsel.

Liens and Mortgages

A mortgage is the financing or loan that a bank or credit union provides to a homebuyer. However, the lien represents the claim on the property in case the borrower defaults on the mortgage loan. The mortgage lien gets recorded at the county clerk’s office. Courts use the date of a recording to determine the priority for which liens should receive payment first.

Real Estate Recording Systems

Real estate recording systems vary by state and are established by individual state statutes. Not all states use a process of instrument recording to track titles; some states use land registration systems instead. In any case, it is the responsibility of the local county or state to make sure that these official documents are kept on file.

To understand which documents have been or must be recorded, check with your state and county recording division. Some states have also passed recording acts or statutes that establish how official records are kept.

Important

Each state has its own recording system for property records and various requirements that come along with it.

Example of Real Estate Recording Requirements

Since each state and county has its own laws on what must be recorded, there are minute variations in recording requirements on what is required. For example, for Los Angeles County, all “courier services, third-party representatives, attorney services and messengers must drop off Deeds, Deed of Trust, Leases, and Notice of Default submitted for recording.”

What Is the Difference Between a Deed and a Title?

A deed represents the transfer of ownership of a property, while the title represents the proof of legal ownership.

What Types of Real Estate Documents Get Recorded?

The recording of real estate documents shows a history of transactions and a chain of title or ownership of the property. Other documents recorded in the county clerk’s office include deeds, mortgages, liens, and foreclosures.

What Is an Easement?

An easement allows someone to use another’s property for access. For example, a homeowner might have an access easement whereby the driveway can cross the neighbor’s property to access the street.

The Bottom Line

The recording of real estate documents constitutes the process of placing documents in the county records to establish a public record of activity or transactions regarding a property. Recording allows the public to trace the history of ownership of a property and help resolve disputes over the legal status of the property.

In 1913, John D. Rockefeller’s fortune peaked at an estimated $900 million (about $29.3 billion in today’s dollars). In 2024, the Rockefeller family’s estimated net worth was $10.3 billion. What has happened to the money?

Key Takeaways

• In 1913, John D. Rockefeller’s net worth was estimated around $900 million (about $29.3 billion in today’s dollars).
• As of 2024, the family fortune was worth around $10.3 billion. 
• The family’s wealth was protected and transferred to future generations through a series of irrevocable trusts established by Rockefeller’s son, John D. Rockefeller Jr. 
• John D. Rockefeller donated much of his wealth to various causes during his lifetime, a practice his descendants continued to honor.

Family Trusts

In 1934, John D. Rockefeller Jr. set up irrevocable trusts for his children and then did the same for his grandchildren in 1952. These trusts allowed the largely tax-free transfer of wealth through the generations.

Now, the Rockefeller fortune is divided among about 200 family members. Some of the family’s wealth is also managed by Rockefeller Capital Management, where John D. Rockefeller’s great-grandson, David Rockefeller Jr., is a former chairperson and current board member.

Over the generations, much of the family’s wealth has been contributed to philanthropic causes.

A Philanthropic Legacy

Philanthropy has always been a major part of the Rockefeller legacy. For example, John D. Rockefeller helped establish the University of Chicago by providing a large portion of the initial endowment. Between 1890 and 1910, he contributed $35 million to the university.

From 1901 to 1909, Rockefeller established various institutions and initiatives relating to medicine, education, and public health. In 1901, he founded the Rockefeller Institute for Medical Research (which would eventually become Rockefeller University). By the 1930s, his gifts to the Institute totaled $50 million.

In 1902, he created the General Education Board to promote national education “without the distinction of race, sex or creed.” In 1919, he donated $50 million to the cause to raise academic salaries, which were very low then.

In 1909, he established the Rockefeller Sanitary Commission for the Eradication of Hookworm Disease, which launched a public health campaign across 11 states.

In 1913, Rockefeller incorporated the Rockefeller Foundation with the following statement of purpose: “To promote the well-being of mankind throughout the world.”

Shortly after, he made gifts to the Foundation totaling $35 million. A year later, he did so again, but this time, totaling $65 million. Today, the foundation has a worldwide impact, focusing on energy, food, health, and innovation efforts.

Rockefeller’s commitment to philanthropy was such that, when he died in 1937, his estate was worth $26,410,837. However, he also passed much of his wealth to his son and other heirs.

Rockefeller’s last surviving grandson, David Rockefeller, continued his commitment to philanthropy in many different ways during his lifetime, including signing the Giving Pledge to give away more than half of his wealth. His son, David Rockefeller Jr., is currently heavily involved in the family’s wealth management and philanthropic giving. He served as chairperson for four different Rockefeller foundations over the years.

The Bottom Line

Many of the foundations established by Rockefeller family members are still going strong today. For example, the Rockefeller Foundation, the Rockefeller Brothers Fund, and the David Rockefeller fund have a combined endowment of over $5 billion. 

David Rockefeller Jr. attributes the family’s philanthropic impact to their commitment to shared values and practices. As he told CNBC, “I think the family has tried its best to live those values, to whom much is given, much is expected.”

Reviewed by Andy Smith
Fact checked by Hans Daniel Jasperson

Lump-Sum vs. Pension Payments: An Overview

Monthly pension payments are a fixed dollar amount. They begin at retirement and last until a retiree’s death. Some plans offer a survivor’s benefit for a living spouse. A lump sum distribution is a one-time cash disbursement at retirement. The retiree is solely responsible for managing the funds throughout their retirement years.

Those who are approaching retirement and who are eligible for a pension often weigh the choice between accepting the traditional, lifetime monthly payments or taking a lump-sum distribution.

Key Takeaways

• Pension payments are made for the remainder of a retiree’s life.
• Lump-sum distributions allow individuals to spend or invest the money.
• Those who take a lump sum might outlive their money.
• Pension payments can stop if a pension administrator goes bankrupt.

Lump-Sum Distributions

A lump-sum distribution is a one-time payment from a pension administrator. Individuals have access to a large sum of money that they can spend or invest.

A pension payment annuity is commonly a fixed payment but a lump sum offers flexibility. It may also provide regular income if it’s invested properly. Those who take a lump-sum distribution can name a beneficiary to receive any money that’s left after their deaths.

Income from pensions is taxable but individuals can roll over a lump sum into an IRA and control when to withdraw the funds and pay income tax. Retirees will eventually have to take required minimum distributions (RMDs) from their IRA but that won’t happen until age 73.

Note

Rolling a lump sum pension payment into an IRA lets individuals plan when they’ll take their distributions and when they’ll pay the associated taxes.

Pension Payments

A pension payment is a set monthly payment to a retiree for life and for the life of a surviving spouse in some cases. Some pensions include cost-of-living adjustments (COLA) so payments are indexed for inflation.

A regular pension check can help retirees budget and control overspending. Retirees with company health insurance may have to opt for pension payments because coverage might stop if an employee takes a lump sum.

Retirees with pension income were more likely to remain financially stable in 2020 than those who cashed out the lump sum, according to research from the Consumer Financial Protection Bureau. Of those with regular payments, 73% could maintain the same spending level after five years compared to only 56% of those who had chosen the lump sum.

Important

Pension payments could stop if a pension administrator goes bankrupt but the Pension Benefit Guaranty Corporation (PBGC), a federal agency, provides insurance that covers most people.

One threat to pensions is that an employer fails to pay long-term. However, pension benefits are safeguarded by the Pension Benefit Guaranty Corporation (PBGC), a government entity that collects insurance premiums from employers sponsoring insured pension plans. The PBGC only covers defined-benefit plans, not defined contribution plans like 401(k)s.

The maximum annual benefit was $85,295.40 in 2024 for a straight-life annuity for a 65-year-old retiree.

Key Differences

Lump Sum

• All pension money is distributed at once at retirement

• The retiree must manage the funds throughout retirement

• Lump sum money can be rolled over into an IRA

• Retirees can designate beneficiaries of the funds

Pension Payments

• Payments are made monthly to the retiree until death

• The PBGC provides insurance in case the pension administrator is unable to pay

• Monthly payments may cease once the retiree dies unless there are survivor’s benefits

• Companies may require retirees to take monthly payments to keep health insurance benefits

How Will I Use This in Real Life?

Planning for retirement can be a challenge because real life has a way of being unpredictable but the decision between taking a lump sum distribution or pension payments can come down to how well you know yourself.

That lump sum payment might not be the right choice for you if your risk tolerance is minimal and the thought of investing the money in the stock market gives you indigestion. You might consider a safer investment, however, or roll the money over into an IRA. Accepting a lump sum payment might be a disaster if spending freely and lavishly is your vice. You could deplete your retirement cushion if you treat it as an unexpected windfall.

Taking pension payments may be your best option if you value safe, steady income above all else, especially with the added benefit of PBGC insurance. And you may be able to keep your health insurance benefits if you continue taking your monthly payments.

It may help to make a checklist of all pertinent factors and organize them according to what’s most important to you.

How Do Companies Calculate Pension Payments and Lump Sum Distributions?

The typical recipient receives approximately the same amount of money whether choosing the pension or a lump sum. The pension administrator calculates the commuted value using the average lifespan of retirees and adjusts the payment schedule accordingly. Retirees with a longer-than-average lifespan will probably receive more money by taking lifetime payments.

What Are the Disadvantages of Taking a Lump Sum?

Taking a lump-sum payment can be very risky. Perhaps the greatest risk of cashing out a pension early is the prospect of running out of money. A monthly payment offers a steady income for the remainder of one’s life instead and it can also be passed on to a spouse in some cases. Retirees who choose a lump sum could put part of the money into a fixed annuity with the help of a financial advisor.

Is a Pension Plan the Same As a Defined Benefit Plan?

Yes, a private pension plan is a defined benefit plan where the employer makes most contributions on behalf of the employee toward their retirement.

The Bottom Line

A lump-sum pension payment makes sense for some. Having less upfront capital is better for others. Pension payments should align with a retiree’s personal goals in either case. A financial advisor can guide those who are considering whether to choose a monthly payment or invest a lump sum for the long term.

Fact checked by Michael Logan
Reviewed by Ebony Howard

Refinancing your mortgage involves taking out a new loan to pay off your existing mortgage, and, in doing so, hopefully getting a lower interest rate. However, there are several scenarios where refinancing wouldn’t be the best decision, such as if you’d end up with a longer repayment term or save too little to offset the costs.

Key Takeaways

• Refinancing will sometimes cost you more in interest in the long run, particularly if you extend your repayment term.
• The upfront costs of refinancing could mean that, even if your monthly payments decrease, you won’t break even before eventually moving.
• A cash-out refinance can provide you with additional funds for investing, but this is typically a risky move.

1. Consolidating Debt

When you get a cash-out refinance, you can leverage some or all of your home equity to take out a larger loan amount. In addition to repaying your old mortgage, this means you’ll also have excess funds that can be used to pay off your other outstanding debt. If you’re able to secure a lower interest rate, then consolidating debt in this manner can simplify your monthly payments and save you money in the long run.

However, if the reason you had so much outstanding debt was due to poor spending habits (presumably with a credit card), then refinancing will only provide a temporary solution. If you rack up new credit card debt on top of your now larger mortgage balance, you may be unable to afford your monthly payments for the latter, which might mean losing your home.

Refinancing may still be a good option if you need to pay down debt that’s grown out of control, but first you’ll need to address your spending habits to reduce your reliance on credit.

2. Getting a Longer Repayment Term

In addition to securing a different interest rate, you can also get a new repayment term when you refinance. While increasing your repayment term typically coincides with lower monthly payments, since they’re spread out over an extended period, you’ll also likely pay more over the life of the loan due to the interest having more time to accrue.

For some, having outstanding debt for a longer period is worth the breathing room it provides their monthly budgets. However, if you’re refinancing simply to get that lower monthly payment without thinking about the long-term costs, you could be inadvertently setting yourself back.

In order to determine how different repayment terms and interest rates affect your monthly and total payments, consider using a mortgage calculator.

3. Saving a Little Each Month

Refinancing just to save a little money each month sounds good in theory, but it’s easy to overlook the total costs in favor of small savings. When you add up expenses like appraisal fees and closing costs, refinancing typically costs around 3%–6% of the loan amount.

So if you’re refinancing a $500,000 mortgage, you might pay around $15,000 to $30,000 upfront. That means if you’re able to save $100 per month on your mortgage payment by securing a slightly lower interest rate, it would take around 12.5 to 25 years to offset those costs. Even if you ultimately come out ahead, you may not want to wait that long to break even.

4. Saving for a New Home

Refinancing your mortgage can potentially help you save for a new home. For example, if you can reduce your monthly payments via a lower interest rate and/or longer repayment term, you’ll have a little extra each month that you can put toward a down payment.

However, if you’re expecting to move within a few years of refinancing, you could end up costing yourself more than you’d save. As previously mentioned, it can take a couple of years to recoup the upfront costs of refinancing. So if you move before reaching your breakeven point, you’ll lose money on the refinance.

5. Changing the Loan Type

Another common reason to refinance is to get a different kind of mortgage, such as swapping an adjustable-rate mortgage (ARM) for a fixed-rate one, or vice versa.

Switching to a fixed-rate mortgage means you won’t have to worry about your interest rate rising, but you could still end up overpaying if interest rates eventually fall. Even if you decide to refinance again in the future to secure that lower rate, the additional closing costs could eat into those savings.

Meanwhile, if you’re switching to an ARM, then the risks are a bit more complex. Maybe you’ll get lucky and your rates will stay low throughout the life of your loan, but that’s unlikely. Since it’s difficult to predict whether rates will rise or fall, there’s no way to know exactly how much you’ll owe each month. So not only could you end up paying more than you would with a fixed rate, that uncertainty will make budgeting trickier.

6. Freeing Up Money for Investing

If you need money, you may be tempted to tap your home equity. However, when you get a cash-out refinance, those funds technically aren’t yours to keep. You can use them as you see fit, but you’ll still need to pay that amount back.

So if you invest that money, there’s an inherent risk you’ll lose it (or won’t earn sufficient returns). Should your investment falter, you’ll then have less capital to pay back your now larger mortgage.

7. Getting a No-Cost Mortgage

With a no-cost mortgage, you won’t be charged any upfront closing costs when refinancing. That may sound like a good deal, but you’ll most likely still end up paying those costs, they’ll just be rolled into the new loan amount or the interest rate will be raised to compensate.

You could still come out ahead in this scenario, but you’ll need to run the numbers and see what makes sense for your situation, rather than letting the offer lure you in.

Are There Limits on How Often You Can Refinance Your Mortgage?

Technically, there’s no limit on how many times you can refinance your home, at least from a legal perspective. That said, lenders may impose their own limits, typically to prevent borrowers overwhelmed by debt from constantly refinancing.

Moreover, each time you apply to refinance your mortgage, lenders will look at factors like your credit score, home equity, and debt-to-income (DTI) ratio. If you’re found lacking in these areas, you might not get approved for the refinance anyway. Additionally, you may not want to refinance too many times, as each time you do lenders will usually pull your credit report, which causes a temporary dip in your credit score

The Bottom Line

Refinancing your mortgage isn’t a decision to make lightly. While there’s plenty of situations when doing would work out in your favor, it’s easy to fall into the trap of lowering your monthly debt payments at the expense of your long-term savings. So before refinancing, be sure to calculate the total costs and confirm that this would be the best choice for your financial situation.