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A correspondent bank helps to connect domestic and foreign banks that need to do business together. Correspondent banks can facilitate different types of transactions, including wire transfers, cash and treasury management, and foreign exchange settlement.

Correspondent banking plays an important part in the international financial system and the flow of cross-border payments. Correspondent banks are often a subject of scrutiny as they can also be used to perform illegal operations, such as money laundering.

If you’re wondering how they work and if you need to use one, read on to learn:

•   What is a correspondent bank?

•   How does correspondent banking work?

•   How much does it cost to use a correspondent bank?

•   What are nostro vs. vostro accounts?

•   What is the difference between correspondent and intermediary banking?

What Is Correspondent Banking?

Correspondent banking is a formal system through which banks in different countries are able to provide payment services to one another. Correspondent banking makes it easier for funds to move between domestic and foreign banks, regardless of whether they have an established relationship. This plays an important role in smoothing international transactions.

What is a correspondent bank? Simply, it’s the financial institution or bank that connects other banks within a correspondent banking system. Foreign banks may rely on correspondent banking if establishing one or more branches in another country isn’t feasible. While correspondent banking is often used to facilitate business transactions on a larger scale, individual consumers may also use correspondent banking to complete a money transfer from one bank to another.

For example, if you’re Canadian but living in the U.S. temporarily for work, you may use cross-border banking services to transfer funds between your U.S. and Canadian bank accounts. A correspondent bank would handle those transactions for you so that you never lose access to your money. (You’ll learn more details about how correspondent banking works below.)

Recommended: Separate vs. Joint Bank Account in Marriage

How Correspondent Banking Works

Correspondent banking works by allowing payments to move between banks located in different countries that may not have a formal relationship with one another. In a typical correspondent arrangement, you have two respondent banks and one correspondent bank.

The correspondent bank is effectively a liaison or halfway point between the two respondent banks. The main role of the correspondent bank is to provide necessary financial services to the two respondent banks. The types of services correspondent banks can provide include:

•   Wire transfers

•   Check clearing and payment

•   Trade finance

•   Cash and treasury management

•   Securities, derivatives or foreign exchange settlement.

In exchange for these services, correspondent banks can charge respondent banks fees.

Correspondent banks operate through the Society for Worldwide Interbank Financial Telecommunication (SWIFT network). SWIFT allows for the secure transfer of financial messages to correspondent banks and other financial institutions around the world. Millions of messages move through the SWIFT network on a daily basis, transmitting financial information.

Correspondent Banking Example

Curious about how exactly correspondent banking works? Money moves from respondent bank to respondent bank in a sequential way, with the correspondent bank in the middle. Here’s an example:

•   Say you run an auto repair business, and you need to order parts from a supplier in Canada. The supplier only accepts wire transfers as payment so you go to your local bank to schedule one.

•   Since your bank and the supplier’s Canadian bank do not have an established banking relationship, there needs to be an intermediary. In order to send the wire transfer, your bank will need to connect to a correspondent bank in the SWIFT network that has a relationship with the supplier’s bank.

•   Once your bank is connected to the correspondent bank, it can facilitate the wire transfer from your account. The money will move from your account to the correspondent bank, along with an added fee.

•   The correspondent bank will then send the money along to the supplier’s bank in Canada, less the amount of the fee.

You might also use correspondent banking if you’re working in one country and want to send part of your pay to your bank account in your home country. You could send a wire transfer through the local bank you have an account with, which would forward it to the correspondent bank. The correspondent bank would then send the money to your account at your home bank.

Recommended: Should I Open More Than One Bank Account?

Additional Considerations

Correspondent banks may operate largely behind the scenes for most consumers, but they play an important role in international financial transactions. Without correspondent banking, it might be much more difficult to complete international wire transfers as many banks do not have formal relationships with banks in other countries.

While correspondent banking is used to facilitate legitimate financial transactions, it can also be a vehicle for criminal activity. Two of the biggest concerns center around the use of correspondent banks to launder money and fund terrorist organizations. In the U.S., regulatory requirements exist that aim to bar the use of correspondent banking for these types of transactions, though they’re not always foolproof.

Recommended: Why Your Bank Account Is Frozen

Vostro vs. Nostro Accounts: How Banks Settle Cross-Border Transactions

Correspondent banks handle large amounts of money every day, which can easily get confusing. They keep track of the movement of funds between respondent banks using nostro and vostro accounts. These accounts allow one bank to hold another bank’s money on deposit during the completion of international financial transactions. Here’s the difference:

•   Vostro means “yours” in Latin, while nostro means “ours.” Vostro and nostro can be used to describe the same account for recordkeeping purposes. The label that’s used describes which bank holds the funds.

•   For example, say a Canadian bank has an account with a U.S. bank and funds are held in U.S. currency. The Canadian bank would apply the nostro label to that account signifying that the money in it is “ours.”

•   Meanwhile, the U.S. bank would refer to it as a vostro account, acknowledging to the Canadian bank that the money is “yours”.

Correspondent banks use nostro and vostro accounts to settle transactions and identify accounts as money flows between them. For every vostro account, there’s a corresponding nostro account and vice versa.

Correspondent vs. Intermediary Banking

Intermediary banking is similar to correspondent banking in that it involves the transfer of funds between banks that do not have an established relationship with one another. Similar to a correspondent bank, an intermediary bank acts as a middleman for the other banks involved in the transaction.

But consider these distinctions:

•   Intermediary banks primarily assist in completing wire transfers between different banks, either domestically or internationally. For example, the U.S. Department of the Treasury acts as an intermediary bank in wire transfers between other banks.

•   In intermediary banking, there are three parties: the sender bank, the beneficiary bank, and the intermediary bank. It’s the intermediary bank’s role to ensure that money from the sender bank gets to the beneficiary bank.

Typical Correspondent Bank Fees

As mentioned, correspondent banks can charge fees for the services they provide. The fees charged can depend on the bank itself and the service that’s being provided. Fees are typically charged in the currency of the payment.

A general range for wire transfer fees for this kind of transaction can be anywhere from $0 to $50, depending on the bank. The easiest way to get a sense of what you might pay for correspondent banking is to check your bank’s fee schedule for wire transfers. Banks can charge fees for:

•   Incoming domestic wire transfers

•   Outgoing domestic wire transfers

•   Incoming international wire transfers

•   Outgoing international wire transfers

International wire transfers are typically more expensive than domestic transfers. Some banks may charge no fee at all to receive incoming domestic or international wire transfers. But you may still be charged a fee by the correspondent or intermediary bank. It can be wise to investigate before you conduct the transaction so you can be prepared.

Recommended: How to Set Up Direct Deposit

Difference Between Correspondent and Intermediary Banks

Correspondent and intermediary banking share some similarities, but it’s important to understand what sets them apart. Here are some of the key differences between correspondent and intermediary banks:

•   Correspondent banks can handle transactions in multiple currencies.

•   Intermediary bank transactions typically involve a single currency.

•   Correspondent banks can be used to facilitate a number of different transaction types.

•   Intermediary banks are most often used in situations involving wire transfers between two unconnected banks.

•   Correspondent banks are the middle ground between two respondent banks, which may or may not be located in the same country.

•   Intermediary banks act on behalf of sender and beneficiary banks.

The Takeaway

Correspondent banks make it easier for money to move across borders and around the world. If you simply need to move money between banks in the same country, there are alternative banking options you can turn to.

For example, you can open a checking and savings account with SoFi and connect them to accounts at traditional banks. SoFi’s high-yield bank accounts may help you grow your money faster, too, thanks to our competitive APY when you sign up with direct deposit and our no-fee policy. What’s more, eligible accounts can access their paychecks up to two days early.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

Why is a correspondent bank needed?

Correspondent banks are necessary because they help to facilitate cross-border payments between banks that have no formal banking relationship. Without correspondent banking, it would be more difficult to complete international financial transactions.

What is the difference between correspondent bank and beneficiary bank?

A correspondent bank is a go-between for two different respondent banks in an international financial transaction. A beneficiary bank is the bank that receives money from a sender bank through a third-party intermediary bank.

What is correspondent and respondent bank?

A correspondent bank is a financial institution that helps respondent banks to complete financial transactions. A respondent bank is a bank that needs help connecting to another respondent bank through a third-party, i.e., the correspondent bank.

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Photo credit: iStock/Auris

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

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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Most of us know the term “pay it forward.” It is an act of kindness and giving, from passing along soccer cleats to the younger player next-door to volunteering in a soup kitchen as a way of giving back. It’s all about putting generosity into action and participating in a cycle of giving that empowers both you and others.

By paying your good fortune (financial, healthwise, or otherwise) forward, you both help others and may inspire people to also give what they can to assist others and lift spirits.

The United Nations lists 17 goals to transform the world. The positive actions have the potential, the UN says, to change our lives and our planet and “to enable all people to contribute to the betterment of the world.”

Need some affordable ways to be part of this positive change? Read on to learn 23 ways to do just that, including:

•   Gestures that lift spirits, from running errands to letting people take your place in line

•   Giving back to your community

•   Passing on meaningful possessions instead of tossing them.

Is Paying It Forward the Same as Karma?

The concepts of paying it forward and karma are similar yet different.

Paying it forward involves helping others without expecting anything in return, except the hope, perhaps, that the recipient might keep the cycle going, thus making the world a better place. You may also have heard of this concept called “random acts of kindness.”

The word karma, on the other hand, comes from the Hindu and Buddhist religious concept that a person’s actions in this and previous states of existence decide their future fate when reincarnated.

In everyday usage, the idea is that if we send the universe positive energy, also known as good karma, it will come back to us. On the flip side, bad karma is often believed to bring more bad events or bad luck.

Simple Ways to Pay It Forward

If you’d like to test-drive some pay-it-forward ideas, there are plenty of options. Here, you’ll find 23; notice how doing one can make you want to try another.

1. Letting Someone Go in Front of You in Line

This is a present to a harried parent with a sick child at the pharmacy or a driver merging into a crowded highway toll lane. Kindness is connection in a busy world and is applicable anywhere, from an airport restroom to Home Depot aisles.

2. Paying for a Stranger’s Coffee or Meal

At Starbucks, several hundred customers have kept drive-thru pay-it-forward chains going, each covering the tab of the customer in the car behind them. But you could also buy someone a java at any coffee shop or drive-through, or be kind and give the cashier money to pay for a full meal of another patron, just to make their day.

3. Sharing Your Green Thumb.

Tend the flowers in a public patch to give beauty to your town. Donate homegrown veggies to a food pantry, or leave extra zucchini, beans, rhubarb, and more by your mailbox for others to take for free. It could really help someone who is struggling to pay for groceries in a given month.

4. Donating Blankets, Pajamas, Socks, and Toiletries to Shelters

Unhoused families might move from shelter to shelter for available beds. Donate new blankets, PJs, socks, and unopened mini shampoos, lotions, and soaps from hotel stays for the gift of personal care.

Recommended: How to Make End-of-Year Donations

5. Leaving a Big Tip for a Server or Waiter

Servers and waitstaff are on their feet, catering to our whims (dressing on the side, hold the onions), and their base salary is generally low. Tips even the score. Yes, there are guidelines of how much you should tip, but occasionally, it can be nice to go a bit overboard. This is one of the fun pay-it-forward random acts of kindness: To surprise the server, slip them a generous cash bonus before you leave.

6. Returning Another Person’s Shopping Cart

This helps another customer in a crowded parking lot. Save them the extra steps and scoot their cart back once they’ve emptied it.

7. Sending an Email of Gratitude

Amid spam, advertising, and billing statements, a note of gratitude is a grace. Maybe it’s time to thank unheralded people like the school reading teacher or your family doctor for all they do every day.

8. Sharing Your Food With Someone

Are Costco multipacks too big to store, but you like the bargain prices? Share them with a friend or neighbor free of charge.

Recommended: 31 Tips for Cutting Your Grocery Bill

9. Learning the Names of People You See Every Day

Get to know the crossing guard, train conductor, and neighbor who walks her poodle by your house every morning. (Learn the poodle’s name, too.) This is a sign of respect and appreciation that says “I see you and notice you. You are not anonymous.”

10. Leaving Extra Quarters at the Laundromat

These shiny silver timesavers can be a real boon for the next person lugging in dirty wash and detergent.

11. Asking for Charitable Donations Instead of Gifts for Your Birthday

More and more kids and adults share this kind of gift request on Facebook and in party invitations. Money goes to good causes, from the Breast Cancer Research Foundation to the World Wildlife Fund, rather than material gifts. Need inspiration? Spend a bit of time researching the best charities to support.

12. Helping Someone With a Task

Give a neighbor a hand raking leaves, shoveling snow, or with a work-related task, such as proofreading a resume or printing a document. Offering to help without any payment expected can deepen your bonds.

13. Writing a Recommendation for a Coworker

Leave a golden review on LinkedIn or write a glowing letter someone can take along when leaving a job. This can help them move ahead in their professional pursuits.

Recommended: Financial Moves to Make During a Job Transition

14. Writing a Message to Someone Who Made a Difference in Your Life

Did your fifth-grade teacher see in you skills other people missed? Did your first boss train you in a way that’s made your work life so much easier? A handwritten note or card sent by snail mail is one of the best pay-it-forward examples. You’ll probably make their day and then some.

Giving Away Items on Letgo, Craigslist, Etc.

Your daughter’s riding boots from all those lessons at the horse barn deserve a good home. So does the dollhouse your brother built her. Instead of tossing them in haste, post them on sites so someone else can nab them, like freecycle sites or Nextdoor or a local Facebook group. Reduce/reuse/recycle helps the planet, too.

16. Encouraging Someone Who Needs It With a Few Words

We all need some positive encouragement now and then. Say “You got this” to a parent who is job-hunting or “Good for you, walking” when you pass someone on a steep hill.

Recommended: 5 Ways to Achieve Financial Security

17. Leaving Coupons Next to Corresponding Products in the Grocery Store

That diaper coupon you can’t use because your baby is too big now? Leave the coupon on a package for another shopper. Same with any other coupons that could brighten someone else’s day.

18. Purchasing Extra Food to Leave at Shelters

When you go grocery shopping, add shelf-stable pasta, sauce, rice, nuts, boxed milk, nut butters, wholesome cereals, and canned fruit for others in need. You could also make a monetary donation to a shelter or other nonprofit.

Recommended reading: Things to Do with Your Tax Refund

19. Cleaning Up Your Local Beach or Public Area

Bring trash bags, gloves, and perhaps family members to help collect garbage that clogs our natural areas. You can also help keep plastic out of our bodies of water this way.

20. Running an Errand for a Busy Loved One

Is your sister a full-time nurse raising two kids? Once a week, drop off a heat-and-eat dinner or shuttle kids home from activities.

21. Volunteering Your Time

Whether you make it a regular or a once-in-a-while activity, give a couple of hours of your time. Help at church, the school library, the local soup kitchen, or town park and garden cleanups. Volunteering can prove to be a fun, free way to spend your leisure time.

22. Donating Blood

Sign up to donate blood or give platelets (The latter takes longer but meets critical needs.) You leave on a high, knowing hospitals, patients, and their families are waiting for your vital gift.

23. Giving up Your Seat to Someone

Do it on the subway, bus, or train. If you’re hailing a taxi and other people are waiting, too, why not let them get the first one? It’s a nice way to be charitable.

Banking With SoFi

Paying it forward can help improve our world, little by little. You might give money, time, skills, or all of the above. A random act of kindness in your apartment building, or even with courteous driving, can turn someone’s bad day around. Looking out for another person, not just for yourself, makes everyone feel better.

That said, it’s wise to take care of your money so you’re in a position to give back to others. A SoFi Checking and Savings account can help you do just that. When you open an online bank account, you’ll earn a competitive APY and pay no fees, which can help your money grow. You’ll also have a suite of features that help you track and optimize your spending and saving.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

How do I pay it forward at work?

In the office, treat co-workers to coffee and fruit as an act of friendship and gratitude. If everyone on your team is now remote, make a donation in their names to a nonprofit near company headquarters.

Where did the concept of “pay it forward” begin?

The phrase may be traced to the 1916 book, In the Garden of Delight, by Lily Hardy Hammond: “You don’t pay love back; you pay it forward,” she wrote. There was a movie with the title “Pay It Forward” in 2000, and a Pay It Forward Day launched in 2007 in Australia and has been adopted by many counties as an opportunity to do acts of kindness.

How often should you pay for kindness?

The term “pay for kindness” is a misnomer. We do not pay for kindness. Rather, we can pay forward to others the thoughtful gestures and generosity we received by keeping the cycle going. And if we receive an act of kindness, we can repay it by doing one too.

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Photo credit: iStock/Vladimir Vladimirov

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

SoFi® Checking and Savings is offered through SoFi Bank, N.A. ©2023 SoFi Bank, N.A. All rights reserved. Member FDIC. Equal Housing Lender.
The SoFi Bank Debit Mastercard® is issued by SoFi Bank, N.A., pursuant to license by Mastercard International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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Figuring out how to live on one income, either by design or circumstance, can seem daunting. And it may put a lot of financial pressure on that one wage earner.

But did you know that almost half of all American households live on a single income? While 53.3% of Americans are dual-income according to the latest federal data, that leaves 46.7% as one-paycheck households. There’s strength in those numbers, proving that it can be done.

If you are learning how to live off one income, read on for 12 smart strategies that will help you make the most of your money and live well, including:

•   Making a realistic budget

•   Reducing food expenses but still eating well

•   Downsizing your home

•   Earning extra income

•   Focusing on what you have.

Is It Possible to Live on One Income (After Living on Two?)

Maybe you or your spouse is now a stay-at-home parent, you’re caring for an elderly relative, or one of you lost your job.

No matter the reason, stepping off the full-time work wheel appears to be trending. The U.S. Census Bureau’s latest report reveals that the number of full-time, year-round workers dipped by about 13.7 million in a single year. The COVID-19 pandemic likely played a role in that, but it does indicate fewer people in the workforce and potentially a rise in single-income households.

While today, dual-income households hold a slight majority, single-paycheck households can sail smoothly. Think of how many of our ancestors navigated life with one breadwinner per family. It is indeed possible to survive on one income and even thrive.

12 Tips for Living on a Single Income

How to make it on one income? Start with a newly streamlined (but livable) budget and move on to other changes one by one.

1. Making a Budget

First step, reality check. To successfully live off one income, document your household’s take-home pay. Also take stock of the kinds of income you could count among your assets, such as money you might earn from a side hustle or dividends from any stocks you might own.

Then, tally all expenses that are musts, such as:

•   Mortgage or rent

•   Groceries (even that annual Costo membership fee)

•   Health insurance costs

•   Transportation, such as car payments, gas, insurance, and repairs

•   Utilities

•   Child care

•   Work-related expenses (commuting, clothing, etc.)

Discretionary income is what is left after your “fixed” or “necessary expenses” are covered. This would be money to use on a weekend brunch with friends, taking the kids to the theme park, or other moderate splurges. But you don’t want to spend all of that money; you also want to allocate some towards paying down debt and saving towards other financial goals, such as an emergency fund or retirement.

To streamline the budget-making process, you may want to use an online tool (many banks provide them) or try an app that helps with this process. If you’re raising kids on your own with one paycheck, it can be especially important to learn how to budget as a single parent.

2. Freezing Extra Food

This can save a lot of dough and consolidate your food prep time, too. Take a few hours a week to cook foods that freeze and reheat well, such as lasagna, chili, soup, or pot pie. Bake and stash muffins and bread for weekday or game-day breakfasts. The homemade food you prepare is likely to be more wholesome (no preservatives) and less expensive than store-bought.

To make freezing a breeze, make sure you have some containers and foil wrap on hand; then use masking tape or stickers to mark and date contents and reheating instructions.

3. Transitioning to One Car

Becoming a one-car household is not only better for your budget (gas, insurance, new tires, car repairs) but it helps the planet, too. Perhaps your partner can take public transportation to work and leave the car home for grocery runs, doctor appointments, and shuttling kids.

If one of you has to drive to work and thereby leaves the other without wheels, drill down on clear communication and scheduling. For instance, you need the car back by 6 p.m. to make a meeting. Otherwise, you might take public transportation or call the occasional Uber to get places. Carpools can also work for kids’ activities and work commutes.

If you’re a newly single parent balancing car costs along with everything else, create a reasonable post divorce budget to guide you. Transportation is often vital but can be delivered at a nice price.

4. Monitoring Utilities and Electricity

Saving money on utilities is increasingly easy with tools like smart thermostats. Lower it when the family is out (say, during school hours) and at night when everyone is under blankets in winter. In summer, keep the house warmer if you’re at work; no need to cool an empty house.

Keep maintenance appointments for your home’s heating and cooling systems; just like a car, it needs tune-ups to run best. Teach the whole family to switch off lights and T.V. when they leave a room. Target “phantom” energy use, which is the energy appliances (especially electronics) use when “sleeping” but still plugged in. These dollars add up.

5. Downsizing Your Home

If you’re living on one income and housing costs are eating up a big chunk of your budget (which is common in this hot housing market), you might want to consider moving to a smaller house, apartment, or condo. You’ll be on trend with the tiny-house movement and the shift toward minimalist living.

When you shrink your footprint, you generally save money on property taxes, utilities, electricity, and lawn and snow care. In most cases (depending on location), the smaller the space, the lower the bills. All of this can feel freeing.

Another way to downsize (though not literally) can be to move to a home with fewer amenities or one that’s in a neighborhood a bit farther away from downtown. You may be able to get the same square footage for less.

Recommended: What’s Net Worth vs. Income?

6. Doing Meal Planning and Buying Groceries on Sale

Even on a budget ,you can eat well — even better than grabbing unhealthy, overpriced takeout. Plan meals around what’s in your pantry and what’s on sale each week. It can be fun to explore the budget-priced recipes online; plenty of sites have “meals under $10” and similar categories to help provide inspiration.

You might enjoy scheduling meals by day of the week (Meatless Monday, Taco Tuesday, and Sunday Roast Chicken are a few examples), and shop based on what’s in season and on sale. Summer tomatoes (maybe from your garden) yield gazpacho or homemade spaghetti sauce. Winter vegetables like carrots are perfect for roasting and or adding to soups.

7. Paying Off High-Interest Debt

High-interest debt, the kind you accumulate on credit cards, can have steep interest rates (they’re currently ranging from 15% to 19% in many cases). If you carry a balance, that means everything you buy with plastic is costing you significantly more than what the receipt says because you take on that hefty annual percentage rate (APR).

If you’re dogged by this kind of debt, work to control any impulsive or compulsive shopping. You might try to negotiate a lower interest rate with your credit card issuer, or make the switch to a balance transfer card, which offers no or low interest for a period of time. A personal loan at a lower interest rate can also help consolidate your high-interest debt.

Recommended: How Does APR on Credit Cards Work?

8. Getting a Roommate

Sharing housing expenses by renting out a spare room can immediately free up funds in your budget. And you might like it. Many people get a budget boost by sharing the costs of rent, laundry detergent, coffee, utilities, and the cable bill. And you may also like having an additional member of the household with whom you can chat and bond.

9. Using Credit Cards Responsibly

The old rule still holds: Don’t use credit, generally not even for gas or food, unless you can pay off the balance every month. If not, you will incur interest that will build and build.

Before making a big, unplanned purchase, you might try the wait-and-see method, which means walking away for anywhere from 48 hours to 30 days (it’s your choice), and then seeing if, after some time has elapsed, you still feel you have to have it. In many cases, the desire has faded.

Still having trouble with debt? Consider working with a non-profit like the National Foundation for Credit Counseling (NFCC ).

10. Earning Extra Income

Another angle on being a single-income household is to see how you might bring in more money. It’s not just side hustles (moonlighting as a writer or web designer, for instance) or cleaning offices at night after your full-time job at school.

Consider new ideas for how to create your own passive income, from rental properties to advertising on your car.

Recommended: Ways to Create Residual Income

11. Finding a Travel Buddy

When budgeting for single-income life, you don’t have to give up vacations indefinitely. Instead, find ways to save money on travel. Whether you’re visiting the West Coast or the Mediterranean, sharing a hotel room or Airbnb with a friend brings big savings.

A travel buddy can also chip in for the rental car, gas, toll, park entrance fees, and taxi/Uber costs. Many tours and trips offer more economical shared rooms and charge extra for private rooms. Or you could consider camping with a friend or family member; that’s another great way to enjoy an inexpensive getaway.

12. Focusing on What You Have

As you trim expenses and get into your groove as a one-paycheck household, don’t lose sight of the gifts you have, riches that can supersede a second income. That includes more family time, good health, companionship, a roof over your head, heat, food in the freezer, a car that runs. Remember, wealth comes in many forms.

One last tip: If luxury-focused social media accounts are making you feel as if you’re missing out on the good life, unfollow them! Most are unrealistic representations that fail to reflect real life.

The Takeaway

Learning how to live on one income after having two may take practice and require some smart budgeting hacks, but it can be done without major deprivation. By experimenting with a variety of strategies, you’ll find the ones that work best for you, financially and personally. You’ll also likely feel a surge of pride when you hit on the right combination of moves that lessen any money stress and enhance your financial wellbeing.

SoFi can also help you make the most of your money. Try banking smarter with our linked Checking and Savings account, which lets you spend and save in one convenient place. And when you open an online bank account with direct deposit, you’ll earn a competitive APY and pay no fees, which can help your money grow that much faster.

Better banking is here with SoFi, NerdWallet’s 2024 winner for Best Checking Account Overall. Enjoy up to 4.60% APY on SoFi Checking and Savings.

FAQ

How do you budget for a single income?

To budget for a single income, start with the take-home earnings you will live on and subtract essential expenses, such as a roof over your head, food, debt, and health insurance. Then look at wrangling your negotiable costs, such as owning one car vs. two or how much you budget for meals, to make ends meet. An online budgeting tool or consumer finance app can help.

How many families live off of one income?

An estimated 47% of family households live off one income, according to recent U.S. Census data.

What is the average income for a single person in the U.S.?

The median annual income in 2021 in the U.S. was $45,760, according to government data.

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

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SoFi members with direct deposit activity can earn 4.60% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Direct Deposit means a deposit to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below). Deposits that are not from an employer or government agency, including but not limited to check deposits, peer-to-peer transfers (e.g., transfers from PayPal, Venmo, etc.), merchant transactions (e.g., transactions from PayPal, Stripe, Square, etc.), and bank ACH funds transfers and wire transfers from external accounts, do not constitute Direct Deposit activity. There is no minimum Direct Deposit amount required to qualify for the stated interest rate.

SoFi members with Qualifying Deposits can earn 4.60% APY on savings balances (including Vaults) and 0.50% APY on checking balances. Qualifying Deposits means one or more deposits that, in the aggregate, are equal to or greater than $5,000 to an account holder’s SoFi Checking and Savings account (“Qualifying Deposits”) during a 30-day Evaluation Period (as defined below). Qualifying Deposits only include those deposits from the following eligible sources: (i) ACH transfers, (ii) inbound wire transfers, (iii) peer-to-peer transfers (i.e., external transfers from PayPal, Venmo, etc. and internal peer-to-peer transfers from a SoFi account belonging to another account holder), (iv) check deposits, (v) instant funding to your SoFi Bank Debit Card, (vi) push payments to your SoFi Bank Debit Card, and (vii) cash deposits. Qualifying Deposits do not include: (i) transfers between an account holder’s Checking account, Savings account, and/or Vaults; (ii) interest payments; (iii) bonuses issued by SoFi Bank or its affiliates; or (iv) credits, reversals, and refunds from SoFi Bank, N.A. (“SoFi Bank”) or from a merchant.

SoFi Bank shall, in its sole discretion, assess each account holder’s Direct Deposit activity and Qualifying Deposits throughout each 30-Day Evaluation Period to determine the applicability of rates and may request additional documentation for verification of eligibility. The 30-Day Evaluation Period refers to the “Start Date” and “End Date” set forth on the APY Details page of your account, which comprises a period of 30 calendar days (the “30-Day Evaluation Period”). You can access the APY Details page at any time by logging into your SoFi account on the SoFi mobile app or SoFi website and selecting either (i) Banking > Savings > Current APY or (ii) Banking > Checking > Current APY. Upon receiving a Direct Deposit or $5,000 in Qualifying Deposits to your account, you will begin earning 4.60% APY on savings balances (including Vaults) and 0.50% on checking balances on or before the following calendar day. You will continue to earn these APYs for (i) the remainder of the current 30-Day Evaluation Period and through the end of the subsequent 30-Day Evaluation Period and (ii) any following 30-day Evaluation Periods during which SoFi Bank determines you to have Direct Deposit activity or $5,000 in Qualifying Deposits without interruption.

SoFi Bank reserves the right to grant a grace period to account holders following a change in Direct Deposit activity or Qualifying Deposits activity before adjusting rates. If SoFi Bank grants you a grace period, the dates for such grace period will be reflected on the APY Details page of your account. If SoFi Bank determines that you did not have Direct Deposit activity or $5,000 in Qualifying Deposits during the current 30-day Evaluation Period and, if applicable, the grace period, then you will begin earning the rates earned by account holders without either Direct Deposit or Qualifying Deposits until you have Direct Deposit activity or $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Direct Deposit.

Members without either Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, will earn 1.20% APY on savings balances (including Vaults) and 0.50% APY on checking balances.

Interest rates are variable and subject to change at any time. These rates are current as of 10/24/2023. There is no minimum balance requirement. Additional information can be found at https://www.sofi.com/legal/banking-rate-sheet.

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

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

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Parents pay an average of $177 more monthly when they put a teen driver on their auto insurance policy, according to data from Quadrant Information Services. Insurance companies bump up teen driver rates because they represent significantly more risk for claims compared to older drivers. However, parents can help defray insurance costs by practicing safe driving with their teen and looking into the many available discounts.

We’ll do a deep dive into how much car insurance is a month once your teen starts driving. Keep reading to find a breakdown of costs by state and the factors that affect insurance pricing.

Why Auto Insurance Rates Are So High for Young Drivers

Many teens are highly responsible and conscientious behind the wheel. Unfortunately, statistics support the stereotype of young drivers being less safe: Beginner drivers ages 16 to 19 are almost three times more likely to get into a fatal crash than drivers 20 and older. Whether it’s due to recklessness or just lack of confidence and comfort on the road, youth often leads to more insurance claims.

As a result, auto insurance companies charge higher rates for inexperienced drivers. Parents who are doing some personal insurance planning should expect much higher premiums for several years.

Recommended: Does Auto Insurance Roadside Assistance Cover Keys Locked in a Car

Age at Which Car Insurance Rates Drop Significantly

As teens mature and gain experience on the road, rates drop. So, how much is monthly car insurance for a 16-year-old versus a 20-year-old? That depends on many factors, including their city, state, gender, and vehicle type.

On average, monthly coverage for a 16-year-old costs $534 for female drivers and $599 for male drivers on their own policy. When a driver reaches 20 years old, the rate drops to $258 for female drivers and $295 for male drivers. Once a driver turns 25, their rate will continue to decrease as long as they have few to no claims.

The cost will go on dropping until age 60, at which point prices may start increasing again. Just as younger drivers generate more insurance claims, the oldest drivers do as well.

Recommended: How to Get Car Insurance

Factors Besides Age That Impact Car Insurance Costs

Insurance companies use age as a primary factor in determining risk, but there are additional considerations. Keep these in mind if you’re wondering how to lower car insurance costs for your family:

•   Insurance types and limits. How much coverage you want or need will affect the cost. For example, collision, medical expenses, and gap coverages cost more than the barebones liability coverage required in many states. (If you’re unfamiliar with insurance terminology, this list of car insurance terms can help.)

•   Deductible amount. All types of deductibles in insurance have an inverse relationship with premiums. In other words, if you want a lower rate, you can opt for a higher deductible.

•   Past issues with insurers. For example, if you missed payments with other insurance companies or have gone without car insurance for months at a time, your current auto insurer will assess you as a higher-risk customer.

•   Insured vehicle. The costs to fix luxury and economy cars vary widely. In addition, some cars suffer theft more often. Your insurer will take your vehicle type into account when assigning an insurance rate.

•   Location. Your zip code affects factors such as weather, crime, and repair costs.

•   Personal characteristics. If you’re married and own a home, your insurer will likely charge you a lower rate. In addition, your education level, career, and gender can impact insurance rates.

Recommended: How to Lower Car Insurance

Is Age the Biggest Factor for Car Insurance Rates?

Typically, age will be the most significant factor for car insurance rates, regardless of driving record. Still, age is only one part of the calculation: A driver with a history of accidents and traffic violations will see their rates skyrocket, no matter their age.

Age influences rates more than other considerations partly because of teenage driving habits: Driving at night and on weekends, forgoing seatbelts, texting while driving, and drunk driving all correlate with younger drivers.

Another factor affecting car insurance rates is gender. Although several states have outlawed using gender to set auto insurance rates, insurers in the remaining states base rates on how often men and women get into accidents. For example, recent statistics show women are half as likely as men to die in auto accidents, so they often receive lower rates.

State Insurance Coverage Requirements

Each state has its own laws setting minimum insurance coverage for drivers. That’s one reason why car insurance rates vary significantly from state to state. Idaho, Maine, and Ohio lead the country in least expensive car insurance. At the other end of the spectrum, the most expensive states for car insurance are Delaware, Florida, and Louisiana.

One of the key insurance tips for first time drivers is to only pay for what you need.

Non-Owner State Minimum Liability Only

Not owning a car usually means you don’t need car insurance. But if you regularly rent or borrow vehicles, non-owner liability insurance can cover you in case you inflict property damage or bodily injury through an accident. Average non-owner premiums range from $14 per month in South Dakota to $83 in New Jersey.

State Minimum Liability Only

Every state varies in its stipulations, but usually, you will have to purchase an auto policy covering bodily harm and property damage. The level of coverage is indicated by three numbers.

California’s minimum required coverage, for example, is 15/30/5. That represents $15,000 of bodily injury coverage per person, with a maximum of $30,000 per accident, and another $5,000 for property damage per accident. That’s on the low side. Maine and Alaska have the highest minimum requirements, with 50/100/25.

Drivers in California will pay an average of $49 a month for minimum liability, while in Maine they’ll pay just $35 — despite the better coverage.

Recommended: How Much Does Insurance Go Up After an Accident?

50/100/50 Liability Only

This form of liability insurance covers up to $50,000 of bodily injury for others, with a maximum payout of $100,000 per accident. An additional $50,000 of coverage goes toward property damage for others involved in the accident.

100/300/100 Liability with $500 Comp/Coll Deductible

Also known as full coverage, this policy grants $100,000 for bodily injury with a maximum of $300,000 per accident. Plus, the policy will pay up to $100,000 for damage to other people’s property. Lastly, you’ll receive comprehensive and collision coverage with a $500 deductible.

How Much Is Car Insurance by the Month?

On average, car insurance costs $144 per month for full coverage and $53 per month for minimum liability coverage across the country. However, as noted above, your monthly car insurance premium will depend on a host of factors, including age, driving record, and state.

Average Car Insurance Rates for Young Drivers

When adding a young driver to a family policy, parents should brace themselves for a substantial increase. To give you an idea of what to expect, the table below shows the monthly insurance premiums for a 16-year-old girl in every state (boys pay a bit more). The first figure shows how much she’d pay on her own policy, and the second is the upcharge to add her to the family policy.

State	Teen Policy	Add-on to Parents’ Policy
Alaska	$428	$135
Alabama	$527	$134
Arkansas	$597	$164
Arizona	$618	$190
California	$521	$240
Colorado	$624	$167
Connecticut	$806	$129
Washington, D.C.	$576	$139
Delaware	$873	$128
Florida	$906	$264
Georgia	$554	$147
Hawaii	$126	$5
Iowa	$380	$93
Idaho	$443	$104
Illinois	$635	$162
Indiana	$440	$128
Kansas	$464	$124
Kentucky	$715	$206
Louisiana	$1,086	$343
Massachusetts	$589	$164
Maryland	$478	$181
Maine	$363	$125
Michigan	$683	$320
Minnesota	$408	$139
Missouri	$700	$235
Mississippi	$523	$153
Montana	$577	$147
North Carolina	$325	$166
North Dakota	$551	$100
Nebraska	$577	$135
New Hampshire	$452	$107
New Jersey	$750	$200
New Mexico	$499	$143
Nevada	$767	$202
New York	$512	$168
Ohio	$395	$107
Oklahoma	$597	$165
Oregon	$465	$139
Pennsylvania	$657	$164
Rhode Island	$843	$210
South Carolina	$544	$184
South Dakota	$479	$93
Tennessee	$533	$142
Texas	$670	$204
Utah	$622	$202
Virginia	$450	$160
Vermont	$331	$113
Washington	$476	$165
Wisconsin	$543	$209
West Virginia	$547	$166
Wyoming	$475	$135

Data courtesy of Quadrant Information Services.

Recommended: The Cheapest Way to Rent A Car

Is it Possible to Lower Car Insurance Rates for Young Drivers?

While putting your teen on your auto policy will inevitably raise your premiums, you can mitigate the rate hike in a few ways:

•   Maintain one family policy. Although adding a young driver to your policy is costly, opening up a separate policy for your teenager costs even more. Generally, having multiple drivers on one policy is cheaper than multiple policies. Ask your insurer for quotes for both scenarios to ensure you’re getting the best deal.

•   Rack up the discounts. Many insurers provide discounts to students who maintain at least a B average. College students can qualify for an additional discount, especially if they don’t have a car and their school is at least 100 miles away from home.

•   Compare policies. Shopping around for a better deal can save you hundreds, if not thousands of dollars.

Are There Discount Insurance Providers?

While there is no dollar store version of an auto insurance company (no, not even online insurance companies) most companies offer discounts to teen drivers:

•   Incident-free driving. Incident-free means no accidents or tickets.

•   Driver tracking. Many insurers have implemented programs that track driving habits through a device installed in your car. Teens who avoid speeding or braking hard can receive a discount.

•   Driver education. Teens who take courses in safe driving can earn money off their parents’ policy.

•   Student discounts. High school and college students can earn discounts for receiving good grades, or for going to school 100 miles away with no car.

The Takeaway

Younger drivers pay considerably more for car insurance than older drivers. For example, the nationwide average cost of insurance for a 16-year-old girl, when added to her parents’ policy, is $345 per month. That isn’t bad compared to what the same girl would pay for her own policy: $565 per month. Car insurance premiums tend to drop at ages 20 and 25, assuming drivers have a clean record. By the way, men generally pay more than women until age 35.

SoFi’s online tool makes looking for the best deal on auto insurance easy. Compare rates among the top insurers in your area, and see quotes in a matter of minutes.

See real rates, with no bait and switch.

FAQ

Does car insurance vary by age?

Yes. Car insurance costs vary by age because younger drivers present more risk for insurance companies. Statistics show that the older the driver, the less chance they have of getting into an accident or filing a claim.

At what age is car insurance cheapest?

Car insurance is cheapest for drivers in their 50s. Insurance costs typically decrease with age. However, upon turning 60, insurance costs start to creep up again.

Is male or female car insurance higher?

Typically, men are charged higher car insurance prices than women. Statistics show that younger men get into more accidents, speed more often, and drive under the influence of alcohol more frequently than women. However, starting at age 35, men and women receive almost identical rates.

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Photo credit: iStock/RyanJLane

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SoFi is compensated by Gabi for each customer who completes an application through the SoFi-Gabi partnership.

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

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

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Although you might not think twice about amassing miles and points, it’s wise to learn what happens to credit card rewards when you die. After all, you don’t want the work that went into earning rewards — and the value of those credit card rewards — to be all for naught.

While some credit card rewards die with you, some issuers do allow redemptions or transfers after death. Here’s a closer look at what happens to credit card rewards when you die, as well as what steps you can take to avoid forfeiting your rewards.

Recommended: Can You Buy Crypto With a Credit Card

What Are Credit Card Rewards?

Credit card rewards are a type of currency that can come in the form of credit card points, miles, or cash back rewards. They’re designed to incentivize cardholders to make eligible purchases on their rewards credit card.

As you make purchases and earn various credit card rewards, you can choose to hold onto the rewards in your account until you have enough to redeem toward a high-value purpose. Each rewards program lets cardholders redeem rewards in different ways, depending on its rules. Common redemption options include statement credits, travel bookings and reservations, special experiences, merchandise, gift cards, and more.

Recommended: Tips for Using a Credit Card Responsibly

What Happens to Your Credit Card Rewards Upon Death?

Having a stockpile of credit card rewards after death might lead to a sticky situation for your surviving family. Akin to your credit card debt after death not passing on to your survivors in some states, some credit card rewards “die with you” and can’t be redeemed or transferred to your family or estate.

Conversely, some credit card issuers, like American Express and Bank of America, offer a limited period during which authorized trustees of your estate can redeem unused rewards. Certain programs that permit reward redemptions or transfers after death might require the outstanding account balance to be paid in full.

In other words, what happens to your credit card rewards after you pass on essentially depends on the terms laid out in your rewards program agreement. Some rewards terms specifically state that rewards aren’t the property of the cardholder and can’t be transferred through inheritance.

Recommended: What is the Average Credit Card Limit

What To Do With Credit Card Rewards if the Account Holder Dies

If you know that your deceased loved one amassed points, credit card miles, or cash back rewards, there are a few steps you can take to address it:

1.    Check on accounts and rewards balances. If your deceased loved one gave you access to their account before their death, log in to get an overview of their remaining rewards balances across all accounts. If you don’t have access to their accounts, proceed to the next step.

2.    Prepare paperwork. You’ll likely need to provide proof of the primary cardholder’s death, such as a copy of their death certificate. Additionally, you might need to provide the name and contact information of the authorized trustee, letter of testamentary, or other details.

3.    Contact the card issuer. You must inform the card issuer in the event of a primary cardholder’s death. Supply the necessary documentation you’ve gathered, and inquire about your options to redeem the rewards.

Generally, credit card companies offer at least one of a few options, though how a credit card works will vary by issuer. The rewards might be forfeited if they’re non-transferable or expire upon the cardholder’s death. Some credit card terms automatically convert the rewards into a statement credit, while other issuers allow rewards redemption or transfers to another existing, active account.

Ways You Can Avoid Forfeiting Your Credit Card Rewards

You’re ultimately at the mercy of your reward program’s user agreement in terms of what to do with credit card rewards after death. However, planning ahead can help you avoid relinquishing earned rewards.

Not Hoarding Your Points

To avoid facing a scenario in which your credit card rewards die with you, make an effort to redeem credit card points or miles on a rolling basis.

For example, at the end of each year, use credit card rewards to travel for less or apply them to your account as a statement credit. Keep in mind that different redemption options have varying valuations, so look into which redemption strategy makes sense for your situation.

Recommended: Does Applying For a Credit Card Hurt Your Credit Score

Choosing Cards With Favorable Death Terms

Although a particular program might offer enticing rewards — such as the chance to enjoy credit card bonuses — it might not be advantageous if the program has strict terms regarding a cardholder’s death.

American Express, for instance, has fairly lenient terms when dealing with the rewards balances of a deceased cardholder.

Recommended: How to Avoid Interest On a Credit Card

Using a Reward-Tracking Tool

If you have multiple rewards credit cards in your rotation, using a reward tracking app can help you and your surviving family organize and track your rewards. Apps like AwardWallet and MaxRewards let you easily see all of your rewards in one view.

Naming a Beneficiary in Your Will

Although it’s not a foolproof way to avoid forfeiting your credit card rewards, adding a beneficiary to your will is a smart move. This way, if your card issuer allows rewards transfers or redemptions by authorized individuals, your beneficiary is formally named on your estate documents as your desired recipient.

The Takeaway

Since there’s no way to know when an accident or unforeseen health issue will result in your death, it’s best to be prepared. If possible, redeem earned credit card rewards in a timely manner so you can enjoy them in life.

If you don’t have a rewards card yet, the SoFi credit card can help you earn cash-back rewards on your purchases.

The SoFi Credit Card offers unlimited 2% cash back on all eligible purchases. There are no spending categories or reward caps to worry about.¹

Take advantage of this offer by applying for a SoFi credit card today.

FAQ

Can I transfer points from the account of a late family member?

Whether you’re allowed to transfer points from your deceased relative’s rewards credit card account depends on the card program’s rules. Some banks allow points transfers, while other programs state that points are non-transferable. Contact the card issuer’s customer support team to learn about its point transfer policy.

Can an authorized user use credit card rewards upon the death of the account owner?

It depends. Not all credit card rewards programs allow authorized users to use a primary cardholder’s earned rewards. Those that do might have restrictions on how and when rewards can be redeemed after a primary user’s death, if at all.

What happens to the miles when someone dies?

Miles earned by a deceased primary credit card rewards cardholder might be forfeited, transferred, or redeemed by the estate or surviving family, depending on the rewards program. Terms vary between card issuers, and even across travel rewards programs, so call the program’s support team to learn about its terms.

Can estates redeem points after death?

Some rewards credit cards allow estates to redeem points after the primary cardholder’s death. American Express, for example, allows estates to request points redemption by submitting a formal written request, death certificate, and other details related to the redemption.

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¹Members earn 2 rewards points for every dollar spent on purchases. No rewards points will be earned with respect to reversed transactions, returned purchases, or other similar transactions. When you elect to redeem rewards points into your SoFi Checking or Savings account, SoFi Money® account, SoFi Active Invest account, SoFi Credit Card account, or SoFi Personal, Private Student, or Student Loan Refinance, your rewards points will redeem at a rate of 1 cent per every point. For more details please visit the Rewards page. Brokerage and Active investing products offered through SoFi Securities LLC, member FINRA/SIPC. SoFi Securities LLC is an affiliate of SoFi Bank, N.A.

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

The SoFi Credit Card is issued by SoFi Bank, N.A. pursuant to license by Mastercard® International Incorporated and can be used everywhere Mastercard is accepted. Mastercard is a registered trademark, and the circles design is a trademark of Mastercard International Incorporated.

¹See Rewards Details at SoFi.com/card/rewards.

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