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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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Minimalism is a lifestyle choice that centers on embracing simplicity and eliminating physical, mental, or emotional clutter. Financial minimalism is an extension of that idea. It advocates for spending less on material items and investing your time, money, and energy into experiences that enrich your life in some way.

Becoming a financial minimalist can help you to improve your money situation if you’re able to pay down debt, grow savings, and invest to build wealth while still enjoying life. Adopting a minimalist finance approach can take some getting used to but can have a significant payoff and lower your financial stress too.

Read on to learn:

•   What financial minimalism means

•   What the benefits of financial minimalism are

•   How to practice financial minimalism.

What Is Financial Minimalism?

There’s no set definition of financial minimalism or what it means to be a financial minimalist. Broadly speaking, financial minimalism is about taking a “less is more” point of view when it comes to spending on unnecessary things and focusing more of your attention, money, and energy on experiences and purchases that add value to your life.

Minimalist finance emphasizes being intentional about how you use your money. Rather than spending money impulsively or mindlessly, you’re considerate of whether a particular purchase might offer any lasting benefit.
Instead of clearing out the junk in your home, you’re clearing out the clutter in your financial life.

In this way, becoming a financial minimalist can alleviate some money stress. You have guardrails in place for spending, you likely make fewer purchases, and you hopefully have less debt to worry about as well.

How Does Financial Minimalism Work?

Financial minimalism works by requiring you to be conscious of how you spend money. Becoming a minimalist with money doesn’t mean you live a deprived lifestyle. Instead, you choose to include only those things in your life that are meaningful to you and align with your values and minimalist belief.

Here’s what financial minimalists don’t do:

•   Spend money aimlessly, without thought to what they’re spending it on

•   Rack up high-interest credit card debt for unnecessary purchases

•   Live above their means and spend more than they earn

•   Forget about planning for the future and their long-term goals

•   Neglect saving and investing.

Because financial minimalists don’t do these things, they also don’t worry as much about money, as mentioned above.

Sixty percent of Americans say they feel anxious when thinking about their personal finances, and 50% of Americans say thinking about money in general makes them feel stressed, according to joint research from the Global Financial Literacy Excellence Center at George Washington University and the FINRA Investor Education Foundation. Adhering to a minimalist finance strategy could help you to overcome the money stress in your life.

Benefits of Financial Minimalism

The exact benefits financial minimalism can deliver will depend on how you apply it. But generally, financial minimalism can benefit you in the following ways:

•   Minimalist finance can help you reduce or eliminate unnecessary spending from your budget.

•   Spending less allows you to save more or use extra money in your budget to pay off debt more quickly.

•   You may be less likely to run up new debts if you’re living within or below your means.

•   Minimalism can help you clarify and prioritize needs vs. wants in your budget.

•   Being intentional with spending can help you to plan out your financial goals and direct money toward the things that matter most to you.

•   Your home is likely to be less cluttered with “stuff,” since you’re cutting back on unnecessary spending.

•   Your mind may feel less cluttered as well if you’re not constantly worrying about how much debt you have or how to stretch your budget and bank account until your next payday.

Those are all good reasons to consider minimalism. It can be an especially wise path if you’re interested in how to gain financial freedom for yourself and your family.

Tips for Achieving Financial Minimalism

Ready to give financial minimalism a try? These tips can help you create a personal financial plan for embracing a minimalist lifestyle.

1. Removing Monthly Subscriptions

Streaming and subscription services can seem like a money-saver. After all, spending $15 a month on Netflix is a bargain compared to spending $100 a month on cable. The problem is that many people end up paying for subscriptions they don’t use. That can include streaming services, gym memberships, subscriptions for apps or financial products like credit reporting, magazine subscriptions, and other recurring memberships.

Auditing your subscription services can help you find ones that you aren’t using and can afford to cut out. Even eliminating $25 or $50 a month in unnecessary subscriptions can free up money that you can use for something else.

2. Budgeting

A budget is essential for managing your money and pursuing a minimalist lifestyle. When you have a budget, you have a plan for how you’ll spend each month. If you don’t have a budget, it’s a good idea to make one (even a basic line-item budget) before tackling anything else on this list.

Here’s how you make a budget:

•   Add up your monthly after-tax income

•   Make a list of basic living expenses (your needs, including debt payments)

•   Make a second list of everything else you spend money on (your wants)

•   Subtract expenses from income

Ideally, you have money left over after doing the math. Those funds might go towards savings goals. If you don’t, you’ll need to go back to your expenses to see what you can reduce or eliminate in order to bring your budget in line.

3. Being Mindful of All Your Purchases

Financial minimalism is all about not spending money on things you don’t need. If you struggle with impulse spending, you might try imposing a 48-hour waiting period on purchases that you didn’t plan for in your budget. That cooling off period can give you time to decide if it’s something you really need.

You could also try a no-spend challenge where you challenge yourself not to spend money on anything for a set time period. No coffee to-go, movies on-demand, and so on. Some people pull this off as a 30-day no-spend challenge.

4. Cutting Eating Out and Focusing on Eating at Home

Eating out can kill your budget and sabotage your financial minimalist efforts. Planning meals at home and grocery shopping only for the items on your list can be an easy way to get food spending under control.

If you’d still like to eat out occasionally, you can set up what’s known as a sinking fund just for dining out and add a little money to it every payday. For example, you could save $20 per month in the fund, then once you hit $100 you could treat yourself to a meal out. That way, you still get a reward while being disciplined about saving and planned spending.

5. Not Showing Off for Social Media

FOMO or fear of missing out can lead you to make poor financial decisions in order to keep up with what everyone on Instagram is doing. If you’re tempted to show off on social media and purchase things to do so, consider a social media fast. Taking a break from your social accounts can be a good way to put what matters to you into perspective. You may well feel less pressured to spend money projecting a certain lifestyle online.

6. Reducing Debt If Possible

Getting rid of debt can allow you to reduce your monthly expenses and stretch your money further. If you have credit cards, student loans, or other debts, consider which ones you’d like to pay off first. Then formulate a plan for paying down the balances. There are ways to pay off debt without using savings.

You might also seek guidance from a nonprofit like the National Foundation for Credit Counseling, or NFCC.

7. Cutting Out Unnecessary Expenses

Anything you don’t need to live is technically an unnecessary expense. You might try minimizing purchases by avoiding those things that aren’t vital. Depending on what your budget looks like, that might include new clothes, electronics, online shopping, or anything else that doesn’t add positive value to your life in some way.
The more unnecessary expenses you can cut out, the better when aiming for financial minimalism.

8. Living Below Your Means

Those who are thinking about “how to improve my life financially,” take note of this idea. Living below your means simply means that you don’t spend more than you earn. If you’ve done your budget and your expenses are higher than your income, you’ll either need to find ways to cut spending down or earn more money. The wider the gap between what you spend and what you earn, the more money you’ll have to fund the financial goals that are important to you.

Recommended: Guide to Financially Downsizing Your Life and Saving Money

9. Getting Rid of Items You No Longer Need

Extra stuff around the house can make your home feel cluttered and disorganized. Ditching things you no longer need or use can make it easier to breathe and reinforce your commitment to living simply. As you sort through your things, consider what you can donate or give away, what should be trashed, what can be recycled, and what you might be able to sell for a little extra cash. Whether you try a Freecycle site, post things on eBay, or give your excess stuff to a local charity, your loss can be someone else’s gain.

10. Investing If Possible

Saving money is important, but investing it can be the best way to build wealth. If you’ve pared down your budget and have money to save and invest, consider putting some of it into the market for long-term goals. While there is risk involved, historically you can reap the best rewards this way. Following advice about investing for beginners can help you get started.

(Have a shorter-term goal in mind? or a high-yield savings account, where it can benefit from the power of compounding interest.)

11. Embracing Free Time

When financial minimalism is the goal, you sometimes have to be creative about how you spend your time. Rather than going out for a pricey dinner with friends, for example, you may be spending more time at home instead. Hosting a potluck or taking a walk with a friend can be an inexpensive way to socialize.

Finding ways to embrace your free time can be a good reminder of why you’ve chosen to pursue minimalism. Some of the ways you can do that include exploring free (or low-cost) hobbies, getting into an exercise or meditation routine, or contemplating your financial goals and your next steps along the minimalist path.

12. Separating Money for Yourself First

“Pay yourself first” is an oft-repeated piece of financial advice and it simply means that before you pay any other bills or expenses, you set aside something in savings. How much you should save a month will vary person to person, and where the money goes may differ.

It could mean depositing $50 to start an emergency fund whenever you are paid or contributing 10% of your annual salary to a 401k at work. Automatic transfers on payday can help whisk the money to where you want it, rather than have it hit your checking account and tempt you to spend it.

Managing Your Finances With SoFi

If you want to spend less, save more, and lower your money stress, giving financial minimalism a try could help. Becoming a financial minimalist can help you really take control of your money and grow it.

Keeping your money in the right place can give you a boost, too. With SoFi, you can get checking and savings in one convenient place, with no hidden fees. When you open a bank account online with direct deposit, you can earn a competitive APY on balances, which means your money may grow faster. Eligible accounts can also access their paycheck 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

Can minimalism cause financial freedom?

Minimalism can help you to achieve financial freedom if you’re committed to paying down debt, cutting out unnecessary spending, saving, and investing. If you follow minimalist principles, it’s possible to live well on less, build wealth, and perhaps even retire early.

Can minimalism hurt financial freedom?

Minimalism won’t necessarily hurt financial freedom, though it may take some getting used to in the beginning if you feel deprived because you’re spending less. Implementing one or two steps toward financial minimalism at a time can make it easier to transition to this kind of lifestyle gradually.

Is it OK if I am not a financial minimalist?

Financial minimalism may not be right for everyone and that’s perfectly acceptable. You can, however, apply some of the principles of financial minimalism to improve your money situation. For example, making a budget and dropping a subscription or two can be relatively easy ways to help rein in overspending and avoid debt.

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Photo credit: iStock/mphillips007

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.

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.

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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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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If you’re a student with some downtime over winter break, you could spend it catching up on sleep and binge-worthy shows. Or you could take on a temporary job and learn some new skills, make connections, and earn some cash. Extra money could help cover holiday presents, the cost of shopping the post-holiday sales, and of course with school expenses.

Not sure where to start job-wise? Keep reading to learn how to make money in the winter with these 21 ideas.

Winter Break Gigs and Cash Ideas for College Students

It may seem difficult to find a job that will only last a few weeks during winter break, but that’s actually a great time of year to find temporary work and make supplemental income as a college student. Whether helping out with the holiday rush, tapping your creative side, or otherwise digging into a project, there are many options.

Here, consider 21 popular ways to make quick cash.

1. Wrapping Gifts at a Store

When trying to figure out how to make money in the winter, it can help to think about what types of jobs are more in demand at that time of year. For example, many department stores and boutiques hire gift wrappers only for the holiday season. The temporary nature of this role makes it a great fit for students who only want to work for a few weeks over winter break. And there’s something so satisfying about creating a perfectly wrapped gift.

Recommended: 5 Ways to Achieve Financial Security

2. Working as a Server for a Caterer

Another seasonal job students can pursue is working as a server for a catering company. You may find that many businesses need extra hands to help with holiday parties. Catering hiring needs shoot up once office and personal holiday parties get scheduled.

3. Pet Sitting

The holidays are a time when many people travel, but they don’t always take their furbaby with them. That makes it prime time to earn some cash by pet sitting. Feeding a Siamese or walking a Pomeranian could be an easy way to make money in the winter, not to mention a really fun one.

4.Tutoring

Are you an algebra ace? Almost fluent in Spanish? You could share your knowledge and earn some cash in the winter. Plenty of parents hire tutors over the holidays to help their kids catch up on subjects they’re struggling with or to help them get a head start before the new semester begins. This is also a great side job to keep during the school year.

5. Doing Holiday Shopping

How else to make money over winter break? Some busy professionals and families need help with errands and holiday shopping and prep in the winter. Ask around if any friends or family know someone who could use this kind of assistance. Or you could check online freelance job boards like Fiverr and TaskRabbit.

Recommended: 8 Ways to Make Your Money Work for You

6. Selling Unwanted Clothes or Goods

Plenty of people are searching for a bargain at the end of the year. Consider digging through your closet and selling clothes (or other belongings) that are no longer being used online or to a used clothing store (like Buffalo Exchange or Crossroads) or a consignment shop. This can help you save money for college expenses next term or use the cash for something fun, like concert tickets.

7. Knitting and Crocheting

If you have a skill like knitting and crocheting, you can sell your wares (scarves, mittens, and more) at a local holiday fair or through an online portal like Etsy. The same holds true for other crafts or creative pursuits, like ceramics, jewelry making, and photography.

8. Start a YouTube Channel

If you’re on social media all the time, why not try to monetize it? Many people make money from their YouTube accounts, not to mention Instagram and other platforms. The holidays could be the perfect time to make and upload some shopping or unboxing videos. You could make some cash in the short term, as well as set up a passive income stream for future earnings.

9. Selling Old Textbooks

To make money over winter break, students can have an edge: selling last semester’s textbooks. Used textbooks might be bought back by a bookstore, whether a bricks-and-mortar or online one. You get the cash, and other students can nab a good deal by purchasing your old books.

10. Get a Restaurant or Café Job

Your local coffee bar or Italian eatery is likely to be extra busy this time of year. Whether you have barista or table-bussing skills, check for “Help Wanted” signs in windows and online job boards for opportunities to join the team.

11. House Sitting

Similar to pet sitting, house sitting is one of the easiest ways to make money during the winter, but with even less responsibility than taking care of a pet. As people travel to see relatives and vacation, they may need someone to occupy their home, water plants, pick up the mail, and more.

Recommended: Guide to Practicing Financial Self-Care

12. Shoveling Snow

One way to get a workout in and make some extra cash at the same time is to offer snow shoveling services. Walking around your neighborhood after a snowstorm and offering to clear driveways can be a big help to busy professionals and the elderly who need a helping hand.

13. Selling Christmas Trees

Christmas tree lots hire a lot of seasonal help to assist customers with their tree buying needs. It can be a fun way to earn extra cash, plus tree lots smell great and can really get you in the holiday spirit.

14. Babysitting

Holiday parties leave parents with a lot of babysitting needs. Have some fun watching holiday movies with the kids while mom and dad get a night off. Check through your network or on local community boards (try online ones like Facebook groups or Nextdoor, too) to see who could use a hand.

15. Driving a Snowbird’s Car South for Them

Some people choose to flee colder climates in winter months and may need help getting their car to their new location. People who move south during the winter often hire someone to drive their car down so they can fly and skip the long drive. Yes, you’d have to finance a way to get back to your home base, but it could still net you a chunk of change.

Recommended: Are You Bad With Money? Here’s How to Get Better

16. Selling Baked Goods

Baking is a great way to make money from home easily. If there are holiday parties coming up or local fairs, cookies and cakes are likely to be in high demand; see who could use some of your famous coconut chocolate-chip treats.

17. Cleaning Houses

Everyone wants a clean home before their guests arrive for the holidays. Offering cleaning services is a great way to make some extra cash over winter break. Also, post-holiday cleanup is likely to be in demand, after the family has visited, feasted, and opened gifts.

18. Lawn Mowing and Landscaping

It doesn’t snow in every part of the country. If you live somewhere warm, you can offer lawn mowing and landscaping services to their neighbors who may be too busy during the holidays to get their home looking sparkling clean for guests.

19. Drive for a Rideshare App

From airport pickups to post-holiday party pickups, a lot of people choose to use a rideshare service during the winter months. Signing up for one of these apps can also give you the flexibility to work only when it suits you. Another benefit of a side hustle like this is that it’s easy to continue during the school year.

20. Food Delivery

With the rise of food ordering and grocery apps, many people are ordering online. Getting their grub to them could be a way to earn extra cash. Also, the holidays are a busy time, so more people may be willing to pay a little extra to have their takeout or groceries delivered straight to their home. This could mean more opportunities for you.

21. Dog Walking

About 70% of American households have a pet, according to 2022 American Pet Products Association data. And a lot of those pets are dogs in need of walking. This can be one of the most fun ways to make money during winter break: taking a doggo out for a walk and perhaps a game of fetch.

Banking With SoFi

Now that you know how to make money in the winter, let’s look at how you can make that money work for you. When you open an online bank account with SoFi, you don’t have to worry about paying any account fees. Plus, our account comes with super simple tools to help you work towards savings goals when in college.

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

Is it better to make passive income or active income during the winter?

Earning passive income (say, from a YouTube channel or investments) is great, but it can take a lot of upfront work to get that stream of money flowing. Students who need cash ASAP may want to focus on earning active income during the winter. They can also use their time off to set up a passive income stream that can pay off down the road.

Can I put these winter jobs on a resume?

Yes — students can put a winter job on their resume. They will want to be honest about how long they held the job, but there’s no harm in showing off skills and experience gained even if it was only for a short period of time.

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Photo credit: iStock/Alena Ivochkina

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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Editor's Note: For the latest developments regarding federal student loan debt repayment, check out our student debt guide.

President Joe Biden’s plan to forgive up to $10K or $20K of a borrower’s federal student loan debt may have tax implications at the state level. Under the American Rescue Plan Act of 2021, virtually all student loans forgiven in the years 2021 through 2025 are excluded from federal income taxation.

State tax forgiveness is another matter, however. States are not prohibited from imposing and collecting taxes on federally forgiven loans. Read on to learn the tax implications that residents of Arkansas, California, Indiana, Minnesota, Mississippi, North Carolina, West Virginia, and Wisconsin may face.

Tax Implications by State

Most states have no plans to tax Biden’s student loan forgiveness plan, according to the Tax Foundation, a nonprofit policy group. But at least eight states may consider federal student loan forgiveness to be taxable: Arkansas, California, Indiana, Minnesota, Mississippi, North Carolina, West Virginia, and Wisconsin. Taxpayers in these states may have to pay hundreds of dollars more in state income tax if they receive thousands of dollars in federal student debt relief.

The Biden administration’s forgiveness plan would provide up to $10K in debt relief to federal student loan borrowers with annual incomes below $125,000 ($250,000 for married couples). Some borrowers may qualify for $20K in debt forgiveness if they’re Pell Grant recipients who fall below the income cap.

Here’s more information about the states that may tax debt forgiveness:

Arkansas

Arkansas does not automatically follow federal tax code changes. This means Arkansas may collect taxes on federally forgiven student loans.

The Arkansas Department of Finance and Administration in a local news report suggested the state is reviewing whether Biden’s debt relief plan carries statewide income tax implications.

California

California does not conform to the student loan forgiveness provisions under the federal American Rescue Plan Act of 2021, according to the Tax Foundation. That means Californians who receive $10K or $20K of debt relief from the Biden plan may have to pay state taxes on the amount forgiven.

Indiana

The Indiana Department of Revenue plans to tax federal student loan forgiveness, according to the Associated Press. Unless state lawmakers change the law, Pell Grant recipients in Indiana could owe about $646, the AP reported.

Minnesota

After President Biden and Vice President Kamala Harris championed their broad student loan forgiveness plan, the state of Minnesota acknowledged state tax implications.

In a note posted on the Minnesota Department of Revenue website as of early September 2022, the state said student loan forgiveness under the Biden-Harris Administration “is included as taxable income on a Minnesota individual income tax return and does not qualify for a subtraction under current Minnesota law.”

Minnesota lawmakers in local news reports have suggested they may change the law to remove the state’s income tax implications.

Mississippi

Mississippi plans to tax the $10K or $20K of federal student loan forgiveness that qualified borrowers may receive in the near future, according to published news reports.

State lawmakers could amend Mississippi’s law to eliminate the income tax liability, but at the moment, Mississippi’s elected leaders have not indicated whether they would do that.

North Carolina

The North Carolina Department of Revenue said federal student loan forgiveness is considered taxable income under state law until further notice. “The Department of Revenue is monitoring any further enactments by the General Assembly that could change the taxability of student loan forgiveness in North Carolina,” the state’s Department of Revenue said in an online post dated Aug. 31, 2022.

West Virginia

West Virginia may tax Biden’s debt forgiveness, according to the Washington Post. West Virginia is reportedly seeking guidance from the IRS on whether it should treat federal student debt relief as income. It’s not clear where West Virginia might end up on the issue.

Wisconsin

Wisconsin may tax federal student loan forgiveness, according to the Tax Foundation’s independent analysis. Local news reports suggest Wisconsin’s Democratic governor supports a legislative change to remove the tax liability issue, but at least one Republican state legislator went on record to oppose such a change.

Other Biden Administration Plans

The federal government offers income-based repayment plans that may lead to loan forgiveness after 20 or 25 years. The Biden administration, however, is proposing a rule that may allow some borrowers on a federal income-driven repayment plan to have their loans forgiven after 10 years.

The Income-Contingent Repayment or ICR plan may cap a borrower’s monthly payment at 20% of their discretionary income in many cases. The Biden administration’s proposed rule would allow some federal student loan borrowers to have monthly payments as low as 5% of their discretionary income.

Impact of Student Loan Refinancing

For those wondering how refinancing affects forgiveness, you won’t be eligible for federal student loan forgiveness if you refinance your student loans with a private lender. What you can do, however, is consider student loan refinancing after taking advantage of your federal options.

Biden’s loan forgiveness plan stops far short of the $50,000 student loan cancellation that some progressive Democrats advocated. This means borrowers with $50,000 of federal student loan debt could refinance their remaining balance after receiving partial forgiveness from the Biden plan.

Refinancing federal student loans may provide borrowers with a lower interest rate, but these borrowers would also be forfeiting other federal benefits they might be eligible for. Public employees with federal student loans, for example, may benefit from the Public Service Loan Forgiveness program. The PSLF program is not available to borrowers who refinance student loans.

Recommended: Will Refinanced Student Loans Be Forgiven?

Federal Tax Break For Paying Student Loans

Eligible taxpayers who have paid interest on a qualified education loan may claim a deduction on federal income taxes, including a tax deduction on refinanced student loans. The student loan interest deduction can reduce your taxable income by up to $2,500 during an annual tax period.

Recommended: Are student loans tax deductible?

Is Private Student Loan Forgiveness Possible?

The difference between private student loans vs. federal student loans is that federal student loans come from the U.S. Department of Education, whereas private student loans come from banks, credit unions, and other private lenders not affiliated with the federal government.

Lenders of private student loans generally have no obligation to offer private student loan forgiveness. Private lenders, however, may reach debt settlement agreements with delinquent borrowers.

Private student loan debt settlement may include partial debt forgiveness, which may qualify as taxable income at the state level. Forgiveness of private education loans are temporarily excluded from federal income tax for the years 2021 through 2025.

The Takeaway

Student loans forgiven before January 2026 are excluded from federal income taxation, but they may be taxable at the state level for some borrowers. At least eight states may consider taxing federal student loan forgiveness. Be sure to check out the requirements of your state.

If you’re carrying more than $20,000 of student loan debt or earn too much money to qualify for Biden’s loan forgiveness plan, student loan refinancing may be right for you. Refinancing what’s left after receiving $10K of forgiveness may allow you to save money before rates rise even higher. You can check if you prequalify and view your rate without impacting your credit score.

Explore student loan refinancing with SoFi.

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SoFi Student Loan Refinance
If you are a federal student loan borrower, you should consider all of your repayment opportunities including the opportunity to refinance your student loan debt at a lower APR or to extend your term to achieve a lower monthly payment. Please note that once you refinance federal student loans you will no longer be eligible for current or future flexible payment options available to federal loan borrowers, including but not limited to income-based repayment plans or extended repayment plans.

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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.

Tax Information: This article provides general background information only and is not intended to serve as legal or tax advice or as a substitute for legal counsel. You should consult your own attorney and/or tax advisor if you have a question requiring legal or tax advice.

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