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Format Forex Trading: Learn the Basics of Foreign Currency Investing

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Hands holding british pound coin and small money pouch

The currency markets are some of the most dynamic and high-volume in the world. More than $5 trillion trades hands every day, and currency markets are open 24 hours a day, five days a week, starting Sunday afternoon and running through Friday afternoon.

Here’s what you should know about trading forex, how to invest in the currency markets and whether it’s right for you.

What is forex trading?

Forex, short for foreign exchange, is the trading of currencies, and it takes place in the over-the-counter market or in negotiated transactions between counterparties, such as central banks. In the over-the-counter market, no exchange is involved, and a buyer and seller agree to a purchase price. Currency also can be traded through regulated futures and options markets.

In forex, traders use one currency to buy another, agreeing to an exchange rate for the currency pair. Like any other traders, forex traders are looking to sell the base currency later at a profit, exchanging it back to the counter currency or into another currency that looks attractively priced.

Forex brokers typically allow traders to highly leverage their equity, and it’s not unusual to see leverage of 50 times up to even 400 times the account’s equity. For example, at 100:1 leverage, a trader can buy $100,000 of currency with just $1,000 in equity. So a 1% upswing in the price doubles the trader’s equity. Of course, a 1% downswing wipes out the trader’s equity. However, many brokers limit leverage to 50:1, allowing customers to buy up to 50 times their equity.

In the United States, the currency market is regulated by the Commodity Futures Trading Commission (CFTC), an independent government agency, and the National Futures Association (NFA), a self-regulating industry group. But they regulate the futures and derivatives markets, not the spot market, where much of the trading in forex takes place. The spot market remains unregulated.

Foreign exchange markets explained

Currency trades are always grouped into pairs. For example, a typical trade might be EUR/USD, which is the pair for the euro and U.S. dollar. In this example, the euro is called the base currency, while the dollar is the counter currency. Currency quotes go out to four decimal places, and the first currency is priced in terms of the second currency. For example, the quote for EUR/USD might be 1.1503. This quote means that it costs $1.1503 to purchase one euro.

The standard unit in a forex quote is a pip, an acronym for percentage in point. Because forex brokers quote currencies to four decimal places, it’s convenient to have a term for this fourth digit, and that’s the pip. This is true except for transactions involving Japanese yen, where it’s the second digit past the decimal.

Currency trades are typically placed in lots that are sized as follows:

  • A micro lot: a trade for 1,000 units of the base currency
  • A mini lot: a trade for 10,000 units of the base currency
  • A standard lot: a trade for 100,000 units of the base currency

Brokers will specify the minimum lot size that they will allow you to trade. The minimum often is a micro lot, though some brokers have no minimum size.

The most common way to trade forex is to buy the base currency with counter currency. But more advanced traders often use derivatives such as futures and options to gain exposure:

  • Options give you the right, but not the obligation, to purchase a currency at a specified price by a certain date in the future. You can sell the option before it expires.
  • A futures contract obligates the buyer to purchase the currency if the contract is held to expiration, but it can be sold up until that point to avoid that obligation.

What are some major currency pairs?

There are seven major currency pairs, and the U.S. dollar is on one side of each one. These seven pairs comprise about 85% of all trading volume. In fact, the dollar participates in about nine of every 10 trades that takes place. The major pairs include:

  • EUR/USD: the euro against the dollar
  • USD/JPY: the dollar against the Japanese yen
  • USD/CHF: the dollar against the Swiss franc
  • USD/CAD: the dollar against the Canadian dollar
  • GBP/USD: the British pound against the dollar
  • AUD/USD: the Australian dollar against the dollar
  • NZD/USD: the New Zealand dollar against the dollar

Besides major currency pairs, there are also minor pairs and the exotics — currencies from emerging markets — both of which have a much lower volume of trading.

To measure the strength of the dollar, traders look at the U.S. Dollar Index, a weighted basket of currencies. It’s a quick gauge of the dollar against the currencies of some major trade partners, primarily the E.U., the U.K., Japan and Canada. Sweden and Switzerland are also part of the the basket. When the index rises, the dollar is stronger, meaning it buys more foreign currency.

How to trade forex

The big brokers that dominate stock and bond trading are not always present in the forex markets — though a couple are — but more specialized brokers fill the gap. Whether you go with a traditional or specialized broker, it’s easy to set up an account and start trading quickly, and the process is similar to establishing a stock brokerage account.

If you’re looking for a forex broker, you’ll want to consider the following characteristics:

  • Leverage: How much margin will the broker allow you?
  • Commissions and fees: How does the broker get paid — through a markup on the forex spread or via a straight fee?
  • Minimums: What’s the minimum account size, and what’s the minimum trade size?
  • Currency pairs: How many pairs does the broker offer?
  • Spreads: How wide are the broker’s spreads? The narrower, the better.

In particular, you should pay attention to a broker’s spreads and how they may affect your trading costs. Wider bid-ask spreads can increase your costs, and many brokers will factor your trading fees via a larger spread instead of charging a fixed fee as in stock trading.

For example, let’s say you want to buy 10,000 euros using the EUR/USD currency pair and you pull up a quote on your broker’s site. The bid for euros is 1.1797, while the ask is 1.1799. Sometimes this quote is abbreviated as 1.1797/99, with only the latter two digits quoted. To buy the base currency (euros here), it will cost you 1.1799 units of the counter currency (dollars here).

In this case, since you’re buying 10,000 units, you simply can move the decimal four places to the right, and the total transaction costs $11,799.

Sometimes brokers even quote spreads lower than a pip, breaking down the spreads into one-tenth of a pip. That’s even better for traders whose trading fee is a spread markup since it potentially narrows their costs further.

There are other ways to play forex without going into the forex markets directly. There are specialized exchange-traded funds (ETFs) that allow you to gain exposure to the major currencies and some of the minor ones. Mutual funds also offer currency exposure.

But investors shouldn’t forget that they may already have currency exposure, albeit indirectly, through their stock investments. Major multinational companies derive a huge portion of their revenues from outside the U.S., so their profits usually are already exposed to forex and can move higher when the dollar weakens and vice versa.

What are the risks?

Like any kind of trading, forex comes with its own specific risks. Here are some of the major risks for forex traders and what each means:

  • Leverage risk: Just like in other kinds of trading, leverage in forex can magnify the movement of a currency. That means gains can become increased, but so can losses. With leverage of 100:1, a 1% swing in the currency can double your profit — or your loss. Because of the common use of leverage in forex, it’s important to manage your position size and risk so you can live to trade another day.
  • Political risk: Currencies move for many reasons, but one of the most important is the actions that governments take. A move that is perceived as negative for growth can cause a currency’s value to plummet, as businesses and consumers need the currency less. The U.K.’s 2016 decision to explore leaving the European Union — also known as Brexit — was perceived as highly negative, and the value of sterling dropped in subsequent months. Markets are constantly looking for unstable situations and will discount currencies accordingly.
  • Interest rate risk: All else equal, higher interest rates generally cause a currency to increase in value and vice versa. So when a country’s central bank changes interest rates — especially unexpectedly — or an economy heats up, it can affect how the currency trades. Economies that are growing faster will tend to have higher interest rates, and traders are watching for the relative change in rates in the target countries, not just the absolute level of interest rates.
  • Devaluation risk: A country’s central bank can decide overnight if it wants to devalue its currency, making it worth less vis-a-vis other currencies. A country might devalue its currency slowly over time or in one swoop, and it might do so in order to increase its exports or to reduce the real cost of interest payments on its debt.
  • Exchange rate risk: The forex market can move for fundamental reasons (such as a country devaluing its currency) or for technical reasons (not enough buyers or sellers in the market at a given time). Whatever the cause, traders have to bear the risk that exchange rates will fluctuate, even if the cause is not always clear.

Is forex trading right for you?

Trading forex is not for everyone. With 24-hour markets and the presence of massive players in the market — who can shift trading in the market at their command — it can be tough to be a forex trader.

Also out in the forex market are the following players, each with its own agenda:

  • Central banks: Central banks, such as the Federal Reserve in the United States, can affect the forex markets both directly and indirectly. Their goal is to create economic growth and price stability in their country. Indirectly, central banks set short-term interest rates, which can have follow-on effects in exchange rates. Directly, central banks also can use their domestic currency to buy and sell foreign currencies.
  • Governments: Governments often seek to manage how their currency trades and can intervene directly in the market by buying or selling currencies, perhaps intending to keep the currency strong or weak. They also can devalue their currency.
  • Banks: Banks are among the largest traders in forex markets. They may trade forex among each other, trade to make a profit for their own account or facilitate transactions on behalf of their corporate customers.
  • Professional speculators and traders: These players may include hedge funds and other investment managers, all of whom are trading to make a profit. These traders may take a position in a currency to hedge an investment’s exposure to a specific currency.
  • Companies: Huge multinational companies use forex markets to offset exposure to specific currencies. For example, if a company builds products in one country and sells them to another or many others, then it’s exposed to currency risks. The company might want to offset some of this exposure, especially if there are expectations that currencies will move and affect the company’s profitability.
  • Individuals: Individuals are a relatively small portion of the forex markets, and they’re trading to make a profit for their own account.

Against this backdrop and multitrillion-dollar daily volume, individual traders should carefully calculate whether they want to trade forex. Competitors are huge and can move the market — and, importantly, have motives other than making money. So they take actions that can be completely antithetical to profit, especially yours. These players also are well-informed and know the macroeconomic landscape or at least have access to well-placed advisors who do.

So these elements all can make it difficult for individuals to succeed in the forex market. Traders need to follow and understand the macroeconomic news and reports, and with the markets trading 24 hours a day, new developments can happen at almost any time. Of course, these skills are on top of having the trading expertise to make a go of it.

Bottom line

Some traders can do quite well at trading forex, but currency is not a buy-and-hold kind of asset for long-term investment. Rather, it’s a trader’s game, with active moves in and out of the market, and you really have to stay committed to the practice.

That’s why many individual investors leave forex to the professionals and stick to tried-and-true investing in the stock market. (Here’s how to get started investing in stocks, which have a solid track record.)

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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SIMPLE IRA Contribution Limits 2020

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

SIMPLE IRAs are tax-advantaged retirement savings accounts that benefit small business owners and the people who work for them. In addition, you can use the SIMPLE IRA to save for retirement if you are self-employed. Like many other retirement savings vehicles, SIMPLE IRAs are subject to annual contribution limits.

SIMPLE IRA contribution limits

The annual SIMPLE IRA contribution limits for employees and employers in 2020 are as follows:

Annual SIMPLE IRA Contribution Limits

Employees under the age of 50


Employees 50 years and older

$13,500, plus $3,000 in catch-up contributions

Employer matching contributions

Up to 3% of employee’s salary

Employer non-elective contributions

2% of the employee’s salary

SIMPLE IRA contribution limits 2020 for employees

For 2020, the amount employees may contribute to a SIMPLE IRA plan is capped at $13,500 per year. That’s an increase from 2019’s limit of $13,000, and an even bigger leap from the $12,500 limit imposed from 2015 to 2018.

It’s worth noting that for employees who are also participating in other employer-sponsored retirement plans, such as 401(k) or 403(b) plans, aggregate annual contributions to all plans cannot exceed $19,500 in 2020. For those 50 and older, the overall annual limit for catch-up contributions is $6,500 for 2020, for a total ceiling of $26,000.

SIMPLE IRA contribution limits 2020 for employers

If a small business owner chooses to offer a SIMPLE IRA plan, they are required to make contributions to their employees’ accounts. They may choose to either match their employees’ contributions, up to a certain limit, or make non-elective contributions.

If an employer chooses matching contributions, their match is capped at 3% of an employee’s annual compensation. While an employer can make matching contributions of less than 3%, the match cannot be less than 1% of the employee’s annual compensation — and it cannot be less than 3% for more than two out of five consecutive years.

If an employer chooses non-elective contributions, they are required to put money into their employees’ SIMPLE IRAs regardless of whether the employees themselves make contributions. With non-elective contributions, the employer must make fixed contributions of 2% of their employees’ compensation. For 2020, the maximum amount of an employee’s total compensation that can be considered for calculating a non-elective contribution is capped at $285,000, up from 2019’s cap of $280,000.

What are the contribution deadlines for a SIMPLE IRA?

Employers are required to deposit their employees’ SIMPLE IRA contributions within 30 days after the end of the month in which those contributions were withheld. Employers are required to make their matching or non-elective SIMPLE IRA contributions by their tax return filing deadline, including extensions.

For people who are self-employed, the deadline for depositing SIMPLE IRA contributions for a calendar year is 30 days after the end of year, or Jan. 30.

SIMPLE IRA contribution limits vs. Roth contribution limits

While SIMPLE IRA contributions are capped at an annual limit of $13,500, annual Roth IRA contribution limits are much lower. For 2020, Roth IRA contributions are capped at $6,000, with an additional $1,000 allowed for catch-up contributions for those 50 and older.

Another differentiating factor of Roth IRAs is that they have income phaseout limits. Depending on how much you make, you may be limited to how much you can contribute or whether you can contribute at all. For 2020, single filers cannot contribute to a Roth IRA if they make more than $139,000, and if married and filing jointly, you’re only able to contribute if you earn less than $206,000.

Can you contribute to both a SIMPLE IRA and a Roth IRA?

You can contribute the maximum allowed amounts to both a SIMPLE IRA and a Roth IRA, as their contribution limits are not cumulative. In fact, most financial advisors recommend you max out both your SIMPLE IRA and Roth IRA if you can afford to do so, as they offer different tax benefits.

While SIMPLE IRA contributions are made pre-tax, and therefore lower your taxable income, your Roth IRA contributions are made with after-tax dollars, so qualified distributions are tax-free.

“Advisors talk about diversification all the time, and usually they are talking about stocks and bonds,” said Gregory Kurinec, a certified financial planner with Bentron Financial Group in Downers Grove, Ill. “But investors will want to diversify their accounts into different tax categories as well. By having a combination of pre-tax (SIMPLE IRA), after-tax advantage (Roth IRA) and non-qualified, this will allow the investor to pick and choose which account to take funds from to best impact their tax situation.”

What is a SIMPLE IRA?

A SIMPLE IRA is an effective retirement savings match plan, especially for small business owners. SIMPLE IRAs are available to small businesses with 100 employees or fewer.

SIMPLE IRAs require employers to make contributions on behalf of their employees, either up to 3% of their employee’s compensation as an employer match or a flat 2% of the employee’s compensation.

As with most financial products, when it comes to saving for your golden years, a SIMPLE IRA is just one of the many options available to you. Explore all of the options at your disposal when deciding how to build your nest egg.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

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Review of Altfest Personal Wealth Management

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone and is not intended to be a source of investment advice. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Altfest Personal Wealth Management is an investment management firm based in New York City. The firm typically only accepts clients with a minimum investment of $1 million. For these high net worth clients, Altfest Personal Wealth Management provides customized investment portfolios with comprehensive financial planning services. The firm has 16 employees who provide investment advisory services, and currently oversees $1.21 billion in assets under management (AUM).

All information included in this profile is accurate as of February 10th, 2020. For more information, please consult Altfest Personal Wealth Management’s website.

Assets under management: $1,210,000,000
Minimum investment: $1 million (waivable at the firm’s discretion for young professionals)
Fee structure: A percentage of AUM, ranging from 0.50% to 1.40%, depending on account size; hourly fees; fixed fees
Headquarters: 445 Park Avenue
Sixth Floor
New York, NY 10022

Overview of Altfest Personal Wealth Management

Dr. Lewis Altfest launched Altfest Personal Wealth Management in 1983. He is still the majority owner of the firm and acts as CEO. He runs the organization along with his wife, Dr. Karen Altfest, the firm’s executive vice president, and their son, Andrew Altfest, the firm’s president. Both Lewis and Karen hold Ph.Ds; Lewis is an associate professor of finance at Pace University.

Including the Altfests, the firm has 37 total employees, 16 of whom provide investment advisory services. Altfest Personal Wealth Management specializes in creating customized, actively managed investment portfolios for high net worth clients. The firm and the Altfest family have won numerous awards for their performance, and both Lewis and Karen are regular contributors to financial news programs and publications.

What types of clients does Altfest Personal Wealth Management serve?

Altfest Personal Wealth Management primarily works with individual investors. A client usually needs a portfolio of at least $1 million to open an account with the firm — however, Altfest does make exceptions to this account minimum for “young professionals” who they believe will become high net worth clients in the future. The firm’s individual client base is currently split 40/60 between individuals and high net worth individuals, with the SEC defining high net worth individuals as those with at least $750,000 under management or a net worth of at least $1.5 million.

While the firm works with a diverse range of clients, it specializes in advising women, executives and healthcare professionals. In addition to individual investors, Altfest Personal Wealth Management also works with pension plans, profit-sharing plans, trusts, estates, corporations and other business entities.

Services offered by Altfest Personal Wealth Management

Altfest Personal Wealth Management specializes in investment management and financial planning. However, the firm’s investment management services are available to individuals and small businesses only; these services are not offered to investment companies, pooled investment vehicles, large businesses and institutional clients.

Most of the firm’s investment accounts are run on a discretionary basis, meaning that Altfest Personal Wealth Management advisors can make trades on behalf of the client. The firm does have a few nondiscretionary accounts, where the client must approve all trades themselves.

If a client only wants a few investment recommendations, rather than the management of their entire portfolio, the firm can provide this service as well.

Altfest Personal Wealth Management also offers comprehensive financial planning, as many of its advisors hold the certified financial planner (CFP) designation, a professional certification for financial planners. The firm’s financial planning services include the creation of a detailed financial plan outlining the necessary steps to achieve their goals and objectives. The plan can address specific areas, such as college savings, estate planning and debt management.

More specifically, Altfest’s services include:

  • Investment advisory services and portfolio management (mainly discretionary but some non-discretionary)
  • Financial planning
    • Retirement planning
    • Trust and estate planning
    • Charitable planning
    • Education planning
    • Tax planning
    • Cash flow forecasting
    • Budgeting and strategic planning
    • Long-term care planning
    • Debt management
    • Divorce planning
  • Insurance and risk management
  • Workshops and seminars
  • Newsletters and publications

How Altfest Personal Wealth Management invests your money

Altfest Personal Wealth Management builds unique, customized portfolios for each client based on their time horizon, risk tolerance, income level and long-term goals.

As part of this analysis, the firm follows a system called Total Portfolio Management. Rather than only looking at a client’s investment history, the firm also gets to know their entire financial plan, including income, debts, spending requirements and future earnings potential. The firm uses this information to finetune a portfolio comprised of stocks, bonds, mutual funds, ETFs and private funds.

Altfest Personal Wealth Management follows an active investment approach: this means the firm is regularly trading in an attempt to earn above-average portfolio returns.

Fees Altfest Personal Wealth Management charges for its services

For portfolio management services, Altfest Personal Wealth Management charges a fee based on a percentage of assets under management, with the rate ranging from 0.50% to 1.00%, depending on the size of the client’s portfolio. Altfest does not charge trading commissions or performance-based fees.

Portfolio Size Annual Asset-Based Fee
First $3 million* 1.00%
Between $3,000,001 and $6,000,000 0.75%
Over $6,000,000 0.50%
*If a portfolio falls below $2 million in value at the end of the quarter, the firm will assess an additional 0.10% fee on top of the asset-based fee listed above.

For “young professional” clients who don’t meet the firm’s portfolio minimums, Altfest charges the following fee schedule:

  • In the first year, the firm charges an annual fee of either 1.10% of assets under management or $2,500 whichever is greater.
  • After the first year, the firm charges 1.10% of the portfolio value or $1,500 per year whichever is greater.

This rate includes cash flow analysis, investment analysis, investment management and 401(k) recommendations. Clients who want additional financial planning services will be billed at a rate of $250 per hour.

If a client only wants standalone investment recommendations, Altfest Personal Wealth Management charges either an hourly fee ranging from $500 to $800 an hour, or a fixed fee of at least $3,500 for specific investment recommendation requests.

Finally, some of the investments included in Altfest’s portfolio recommendations may carry additional fees. Clients are responsible for covering these costs, though the money won’t go to Altfest Personal Wealth Management.

Altfest Personal Wealth Management’s highlights

  • Wide range of awards: Over the past few years, Altfest Personal Wealth Management has been recognized as a top investment advisor by publications including Barron’s, Forbes, Financial Times and Financial Advisor magazine.
  • Highly educated management team: The heads of the firm, Dr. Lewis Altfest and Dr. Karen Altfest, both hold Ph.Ds; Lewis is also an associate professor of finance at Pace University. In addition, many of the financial advisors at the firm hold the CFP designation.
  • Customized investment approach: Altfest Personal Wealth Management designs a customized portfolio for every client, tailored to their specific needs, and don’t lump people into one-size-fits-all funds as some firms may do.
  • Extensive financial planning in addition investing: Altfest Personal Wealth Management also specializes in financial planning. When the firm creates a portfolio recommendation, it goes over a client’s entire financial situation before designing the portfolio, not just their existing investments.
  • Specialty in advising women, executive and healthcare clients: The firm specializes in advising women, executives and professionals in healthcare. Additionally, Forbes named Dr. Karen Altfest one of the top women advisors in the country in 2017, 2018 and 2019.

Altfest Personal Wealth Management’s downsides

  • Above-average investment fees: Altfest Personal Wealth Management charges an annual 1.00% asset-based fee on the first $3 million in a client’s account (plus an additional 0.10% per quarter if their portfolio value falls below $2 million). In comparison, the median investment management fee charged by firms for accounts over $2 million is 0.75%, according to Kitces.
  • High minimum to open an account: It takes at least $1 million to open an account with Altfest Personal Wealth Management. While the firm does waive the minimum at its discretion for “young professionals,” the typical investor would need to be quite wealthy to make use of the firm’s services.
  • Only has one location in New York City: The only way to visit the Altfest Personal Wealth Management office in person is in New York City, the firm’s only location.

Altfest Personal Wealth Management disciplinary disclosures

Whenever an SEC-registered firm or its employees or affiliates face disciplinary action, including a criminal charge, a regulatory infraction or a civil lawsuit, the firm is required to report that incident in its Form ADV, paperwork filed with the SEC. Altfest Personal Wealth Management reports in its Form ADV that it has faced no such incidents over the past 10 years, indicating a clean disciplinary record.

Altfest Personal Wealth Management onboarding process

To start the onboarding process with Altfest Personal Wealth Management, you can request a free consultation with one of its advisors. You can contact the firm either by phone at 212-406-0850, by email at [email protected] or by filling out a form on the firm’s website. As part of the onboarding form, the firm asks you to share your story, which helps the firm start determining whether you are a good fit based on your income and profession.

If it seems like a good match, the firm’s advisors will then get to work designing your customized investment portfolio based on your goals, risk tolerance and overall financial situation. When you’re ready to launch, the firm’s advisors would then take care of opening your new accounts, transferring over your existing accounts, making the necessary investments and keeping up with the records for your portfolio.

The bottom line: Is Altfest Personal Wealth Management right for you?

If you’re a high net worth individual or a young professional who wants personalized investment recommendations combined with financial planning, Altfest Personal Wealth Management could be a good choice. This may be especially true if you are in one of the firm’s specialty client categories: women, executives and healthcare professionals. Since Altfest Personal Wealth Management only has one location in New York City, however, the firm might be a better choice if you live in the Northeast rather than other parts of the country.

On the other hand, Altfest Personal Wealth Management’s comprehensive services do not come cheap. The firm’s fees are higher than average, and you’d need at least $1 million to open an account (unless Altfest waives the minimum because you’re a young professional). If you want a simpler investment strategy or prefer to manage your portfolio more on your own, you could find less expensive advisors than Altfest Personal Wealth Management.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.