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To some, it may sound like as much fun as the dentist, but switching car insurance companies can make a great deal of sense. Besides, getting new car insurance really doesn’t have to be an ordeal.

That being said, to make sure you’re getting the best policy for your situation — and potentially snagging a price cut when you make a successful switch — it’s important to follow a step-by-step plan. Read on to learn what to do if you’re wondering how to switch car insurance.

When Do You Need to Switch Car Insurance?

Wondering whether switching car insurance companies makes sense? Here are some common reasons to make the change:

•   Your life circumstances have changed: Many people seek a new policy when their life has changed. Clearly if you have bought a new car, you need to look into options. If you’re planning to move to another state (or even to a different zip code), if you want to add a spouse or a child to the plan, or even if you have a new job, your existing insurance might no longer be the best fit.

•   You want to lower costs: Getting the least expensive premium is often the goal of getting new car insurance. If you noticed a sharp increase in your premium and didn’t have an accident or any other triggering incident, then switching may be a good way to lower your car insurance premiums.

•   You’re dissatisfied or looking to get certain perks: There are other reasons to change insurers aside from cost. Maybe you had a poor customer service experience with your current provider. Or perhaps you want a service that another insurer offers, like free roadside assistance.

•   Your credit score changed drastically: Another reason you might want to consider getting new car insurance is a drastic decrease or increase in your credit score. That shift could have a good (or bad) effect on your present policy, but a different insurer could look at it differently, so it’s worth your time to investigate. (Note: California, Hawaii, Massachusetts, and Michigan don’t let insurers set policy rates based on credit scores. And Maryland, Oregon, and Utah have strict limitations in place.)

On the other hand, there are some times when changing up your insurance might not be the best idea, including when:

•   You’ve just had an accident or gotten a ticket.: If you’ve had a recent accident or received a ticket, it might not be a good time for a change. Your insurer will likely raise your rate, but the recalculation won’t take effect until your annual renewal time. You may as well take advantage of the months you have left before the policy renews.

•   You’ll lose certain benefits if you switch.: Some companies offer loyalty discounts or accident forgiveness clauses for customers who stick with them. Make sure the loss of those benefits is worth it to you.

How to Switch Car Insurance in 5 Steps

If you’re ready to change car insurance, here’s what to do.

1. Research and Evaluate Your Coverage Needs

Do you have too much insurance or too little? The former could strain your budget, but the latter could leave you exposed to financial disaster.

Nearly every state makes it a law that you pay for some liability coverage or you can’t drive the car. After figuring out that base, it’s time to determine your collision and comprehensive car insurance needs.

Taking into account your type of car, your driver’s record, and your assets, you can determine how much auto insurance coverage you really need. You need to know that before you approach insurers eager for your business.

2. Shop Around

There are many more car insurance companies out there than you may realize, making it a highly competitive business. Experts recommend that you get quotes from at least three insurers.

You’ll need to have facts ready to feed into the evaluation to get a quote, including:

•   The address where the car will be stored

•   The car’s make, model, and year

•   The Vehicle Identification Number (VIN)

•   Your driver’s license or Social Security number

Be prepared to give the same facts to each insurer so you can make an accurate comparison.

Also, check out the companies’ customer service records and review each company’s payment options. Don’t forget to find out what discounts that you could qualify for, too.

3. Contact Your Current Insurer

Once you’ve picked your new plan and have proof of insurance, contact your previous insurance company to cancel. Keep in mind that some insurance companies may penalize you if you cancel before the policy expires.

To be on the safe side, log onto your account and cancel the automatic payments after you’ve ended the old policy. Some experts recommend that you put this all in writing and send a letter to your insurer, specifying to cancel the coverage by the agreed-upon date.

4. Avoid a Coverage Gap

It’s extremely important to make sure there are no gaps in your auto insurance, even a single day. You’ll bring a firestorm of legal and financial problems on yourself if you have an accident while uninsured, and you may even lose your driver’s license.

Also, should you seek out a new insurer in the future, if you have a record of lapsed insurance, you could be stuck with an expensive policy. So before canceling your old insurance, make sure to triple-check the effective date of your new policy.

Recommended: Auto Insurance Terms, Explained

5. Print Out Your ID Cards and Switch

After you’ve signed up with your new insurer and canceled your old plan, take the former ID card out of your car or your wallet and replace it with your new one. If you haven’t received the card in the mail yet, you can always print it out.

If your state allows digital proof of ID, you can access your digital ID card through the insurer’s app.

How Often Can You Switch Car Insurance Providers?

You can switch companies as often as you like, and there is generally no penalty for doing so (though some insurers do charge a fee if you switch before the end of your coverage period). The Insurance Information Institute recommends reviewing your coverage once a year.

Aside from switching carriers entirely, you can also speak to your current insurer about updating your plan if your life circumstances have changed since you got your existing plan.

Recommended: Car Insurance Guide for New Drivers

The Takeaway

A better auto insurance plan might exist for you — but how to switch car insurance, you wonder? It’s not that hard. Making the change requires research into how much coverage you really need, obtaining quotes, and then, once you’ve decided to switch, canceling properly and making absolutely sure there are no coverage gaps.

When you’re ready to shop for auto insurance, SoFi can help. Our online auto insurance comparison tool lets you see quotes from a network of top insurance providers within minutes, saving you time and hassle.

SoFi brings you real rates, with no bait and switch.

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Photo credit: iStock/Edwin Tan

Auto Insurance: Must have a valid driver’s license. Not available in all states.
Home and Renters Insurance: Insurance not available in all states.
Experian is a registered trademark of Experian.
SoFi Insurance Agency, LLC. (“”SoFi””) is compensated by Experian for each customer who purchases a policy through the SoFi-Experian partnership.

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

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.

SOPRO-Q225-019

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If you own a home, you may be interested in tapping into your available home equity. One popular way to do that is with a home equity line of credit. This is different from a home equity loan, and can help you finance a major renovation or many other expenses.

Homeowners sitting on at least 20% equity — the home’s market value minus what is owed — may be able to secure a HELOC.Let’s take a look at what is a HELOC, how it works, the pros and cons and what alternatives to HELOC might be.

How Does a HELOC Work?

The purpose of a HELOC is to tap your home equity to get some cash to use on a variety of expenses. Home equity lines of credit offer what’s known as a revolving line of credit, similar to a credit card, and usually have low or no closing costs. The interest rate is likely to be variable (more on that in a minute), and the amount available is typically up to 85% of your home’s value, minus whatever you may still owe on your mortgage.

Once you secure a HELOC with a lender, you can draw against your approved credit line as needed until your draw period ends, which is usually 10 years. You then repay the balance over another 10 or 20 years, or refinance to a new loan. Worth noting: Payments may be low during the draw period; you might be paying interest only. You would then face steeper monthly payments during the repayment phase. Carefully review the details when apply

Here’s a look at possible HELOC uses:

•   HELOCs can be used for anything but are commonly used to cover big home expenses, like a home remodeling costs or building an addition. The average spend on a bath remodel in 2023 topped $9,000 according to the American Housing Survey, while a kitchen remodel was, on average, almost $17,000.

•   Personal spending: If, for example, you are laid off, you could tap your HELOC for cash to pay bills. Or you might dip into the line of credit to pay for a wedding (you only pay interest on the funds you are using, not the approved limit).

•   A HELOC can also be used to consolidate high-interest debt. Whatever homeowners use a home equity credit line or home equity loan for — investing in a new business, taking a dream vacation, funding a college education — they need to remember that they are using their home as collateral. That means if they can’t keep up with payments, the lender may force the sale of the home to satisfy the debt.

HELOC Options

Most HELOCs offer a variable interest rate, but you may have a choice. Here are the two main options:

•   Fixed Rate With a fixed-rate home equity line of credit, the interest rate is set and does not change. That means your monthly payments won’t vary either. You can use a HELOC interest calculator to see what your payments would look like based on your interest rate, how much of the credit line you use, and the repayment term.

•   Variable Rate Most HELOCs have a variable rate, which is frequently tied to the prime rate, a benchmark index that closely follows the economy. Even if your rate starts out low, it could go up (or down). A margin is added to the index to determine the interest you are charged. In some cases, you may be able to lock a variable-rate HELOC into a fixed rate.

•   Hybrid fixed-rate HELOCs are not the norm but have gained attention. They allow a borrower to withdraw money from the credit line and convert it to a fixed rate.

Note: SoFi does not offer hybrid fixed-rate HELOCs at this time.

HELOC Requirements

Now that you know what a HELOC is, think about what is involved in getting one. If you do decide to apply for a home equity line of credit, you will likely be evaluated on the basis of these criteria:

•   Home equity percentage: Lenders typically look for at least 15% or more commonly 20%.

•   A good credit score: Usually, a score of 680 will help you qualify, though many lenders prefer 700+. If you have a credit score between 621 and 679, you may be approved by some lenders.

•   Low debt-to-income (DTI) ratio: Here, a lender will see how your total housing costs and other debt (say, student loans) compare to your income. The lower your DTI percentage, the better you look to a lender. Your DTI will be calculated by your total debt divided by your monthly gross income. A lender might look for a figure in which debt accounts for anywhere between 36% to 50% of your total monthly income.

Other angles that lenders may look for is a specific income level that makes them feel comfortable that you can repay the debt, as well as a solid, dependable payment history. These are aspects of the factors mentioned above, but some lenders look more closely at these as independent factors.

Example of a HELOC

Here’s an example of how a HELOC might work. Let’s say your home is worth $300,000 and you currently have a mortgage of $200,000. If you seek a HELOC, the lender might allow you to borrow up to 80% of your home’s value:

   $300,000 x 0.8 = $240,000

Next, you would subtract the amount you owe on your mortgage ($200,000) from the qualifying amount noted above ($240,000) to find how big a HELOC you qualify for:

   $240,000 – $200,000 = $40,000.

One other aspect to note is a HELOC will be repaid in two distinct phases:

•   The first part is the draw period, which typically lasts 10 years. At this time, you can borrow money from your line of credit. Your minimum payment may be interest-only, though you can pay down the principal as well, if you like.

•   The next part of the HELOC is known as the repayment period, which is often also 10 years, but may vary. At this point, you will no longer be able to draw funds from the line of credit, and you will likely have monthly payments due that include both principal and interest. For this reason, the amount you pay is likely to rise considerably.

Difference Between a HELOC and a Home Equity Loan

Here’s a comparison of a home equity line of credit and a home equity loan.

•   A HELOC is a revolving line of credit that lets you borrow money as needed, up to your approved credit limit, pay back all or part of the balance, and then borrow up to the limit again through your draw period, typically 10 years.

   The interest rate is usually variable. You pay interest only on the amount of credit you actually use. It can be good for people who want flexibility in terms of how much they borrow and how they use it.

•   A home equity loan is a lump sum with a fixed rate on the loan. This can be a good option when you have a clear use for the funds in mind and you want to lock in a fixed rate that won’t vary.

Borrowing limits and repayment terms may also differ, but both use your home as collateral. That means if you were unable to make payments, you could lose your home.

Recommended: What are the Different Types of Home Equity Loans?

What Is the Process of Applying for a HELOC?

If you’re ready to apply for a home equity line of credit, follow these steps:

•   First, it’s wise to shop around with different lenders to reveal minimum credit score ranges required for HELOC approval. You can also check and compare terms, such as periodic and lifetime rate caps. You might also look into which index is used to determine rates and how much and how often it can change.

•   Then, you can get specific offers from a few lenders to see the best option for you. Banks (online and traditional) as well as credit unions often offer HELOCs.

•   When you’ve selected the offer you want to go with, you can submit your application. This usually is similar to a mortgage application. It will involve gathering documentation that reflects your home’s value, your income, your assets, and your credit score. You may or may not need a home appraisal.

•   Lastly, you’ll hopefully hear that you are approved from your lender. After that, it can take approximately 30 to 60 days for the funds to become available. Usually, the money will be accessible via a credit card or a checkbook.

How Much Can You Borrow With a HELOC?

Depending on your creditworthiness and debt-to-income ratio, you may be able to borrow up to 90% of the value of your home (or, in some cases, even more), less the amount owed on your first mortgage.

Thought of another way, most lenders require your combined loan-to-value ratio (CLTV) to be 90% or less for a home equity line of credit.

Here’s an example. Say your home is worth $500,000, you owe $300,000 on your mortgage, and you hope to tap $120,000 of home equity.

Combined loan balance (mortgage plus HELOC, $420,000) ÷ current appraised value (500,000) = CLTV (0.84)

Convert this to a percentage, and you arrive at 84%, just under many lenders’ CLTV threshold for approval.

In this example, the liens on your home would be a first mortgage with its existing terms at $300,000 and a second mortgage (the HELOC) with its own terms at $120,000.

How Do Payments On a HELOC Work?

During the first stage of your HELOC (what is called the draw period), you may be required to make minimum payments. These are often interest-only payments.

Once the draw period ends, your regular HELOC repayment period begins, when payments must be made toward both the interest and the principal.

Remember that if you have a variable-rate HELOC, your monthly payment could fluctuate over time. And it’s important to check the terms so you know whether you’ll be expected to make one final balloon payment at the end of the repayment period.

Pros of Taking Out a HELOC

Here are some of the benefits of a HELOC:

Initial Interest Rate and Acquisition Cost

A HELOC, secured by your home, may have a lower interest rate than unsecured loans and lines of credit. What is the interest rate on a HELOC? The average HELOC rate in mid-November of 2024 was 8.61%.

Lenders often offer a low introductory rate, or teaser rate. After that period ends, your rate (and payments) increase to the true market level (the index plus the margin). Lenders normally place periodic and lifetime rate caps on HELOCs.

The closing costs may be lower than those of a home equity loan. Some lenders waive HELOC closing costs entirely if you meet a minimum credit line and keep the line open for a few years.

Taking Out Money as You Need It

Instead of receiving a lump-sum loan, a HELOC gives you the option to draw on the money over time as needed. That way, you don’t borrow more than you actually use, and you don’t have to go back to the lender to apply for more loans if you end up requiring additional money.

Only Paying Interest on the Amount You’ve Withdrawn

Paying interest only on the amount plucked from the credit line is beneficial when you are not sure how much will be needed for a project or if you need to pay in intervals.

Also, you can pay the line off and let it sit open at a zero balance during the draw period in case you need to pull from it again later.

Cons of Taking Out a HELOC

Now, here are some downsides of HELOCs to consider:

Variable Interest Rate

Even though your initial interest rate may be low, if it’s variable and tied to the prime rate, it will likely go up and down with the federal funds rate. This means that over time, your monthly payment may fluctuate and become less (or more!) affordable.

Variable-rate HELOCs come with annual and lifetime rate caps, so check the details to know just how high your interest rate might go.

Potential Cost

Taking out a HELOC is placing a second mortgage lien on your home. You may have to deal with closing costs on the loan amount, though some HELOCs come with low or zero fees. Sometimes loans with no or low fees have an early closure fee.

Your Home Is on the Line

If you aren’t able to make payments and go into loan default, the lender could foreclose on your home. And if the HELOC is in second lien position, the lender could work with the first lienholder on your property to recover the borrowed money.

Adjustable-rate loans like HELOCs can be riskier than others because fluctuating rates can change your expected repayment amount.

It Could Affect Your Ability to Take On Other Debt

Just like other liabilities, adding on to your debt with a HELOC could affect your ability to take out other loans in the future. That’s because lenders consider your existing debt load before agreeing to offer you more.

Lenders will qualify borrowers based on the full line of credit draw even if the line has a zero balance. This may be something to consider if you expect to take on another home mortgage loan, a car loan, or other debts in the near future.

What Are Some Alternatives to HELOCs

If you’re looking to access cash, here are HELOC alternatives.

Cash-Out Refi

With a cash-out refinance, you replace your existing mortgage with a new mortgage given your home’s current value, with a goal of a lower interest rate, and cash out some of the equity that you have in the home. So if your current mortgage is $150,000 on a $250,000 value home, you might aim for a cash-out refinance that is $175,000 and use the $25,000 additional funds as needed.

Lenders typically require you to maintain at least 20% equity in your home (although there are exceptions). Be prepared to pay closing costs.

Generally, cash-out refinance guidelines may require more equity in the home vs. a HELOC.

Recommended: Cash Out Refi vs. Home Equity Line of Credit: Key Differences to Know

Home Equity Loan

What is a home equity loan again? It’s a lump-sum loan secured by your home. These loans almost always come with a fixed interest rate, which allows for consistent monthly payments.

Personal Loan

If you’re looking to finance a big-but-not-that-big project for personal reasons and you have a good estimate of how much money you’ll need, a low-rate personal loan that is not secured by your home could be a better fit.

With possibly few to zero upfront costs and minimal paperwork, a fixed-rate personal loan could be a quick way to access the money you need. Just know that an unsecured loan usually has a higher interest rate than a secured loan.

A personal loan might also be a better alternative to a HELOC if you bought your home recently and don’t have much equity built up yet.

The Takeaway

If you are looking to tap the equity of your home, a HELOC can give you money as needed, up to an approved limit, during a typical 10-year draw period. The rate is usually variable. Sometimes closing costs are waived. It can be an affordable way to get cash to use on anything from a home renovation to college costs.

SoFi now partners with Spring EQ to offer flexible HELOCs. Our HELOC options allow you to access up to 90% of your home’s value, or $500,000, at competitively lower rates. And the application process is quick and convenient.

Unlock your home’s value with a home equity line of credit brokered by SoFi.

FAQ

What can you use a HELOC for?

It’s up to you what you want to use the cash from a HELOC for. You could use it for a home renovation or addition, or for other expenses, such as college costs or a wedding.

How can you find out how much you can borrow?

Lenders typically require 20% equity in your home and then offer up to 90% or even more of your home’s value, minus the amount owed on your mortgage. There are online tools you can use to determine the exact amount, or contact your bank or credit union.

How long do you have to pay back a HELOC?

Typically, home equity lines of credit have 20-year terms. The first 10 years are considered the draw period and the second 10 years are the repayment phase.

How much does a HELOC cost?

When evaluating HELOC offers, check interest rates, the interest-rate cap, closing costs (which may or may not be billed), and other fees to see just how much you would be paying.

Can you sell your house if you have a HELOC?

Yes, you can sell a house if you have a HELOC. The home equity line of credit balance will typically be repaid from the proceeds of the sales when you close, along with your mortgage.

Does a HELOC hurt your credit?

A HELOC can hurt your credit score for a short period of time. Applying for a home equity line can temporarily lower your credit score because a hard credit pull is part of the process when you seek funding. This typically takes your score down a bit.

How do you apply for a HELOC?

First, you’ll shop around and collect a few offers. Once you select the one that suits you best, applying for a HELOC involves sharing much of the same information as you did when you applied for a mortgage. You need to pull together information on your income and assets. You will also need documentation of your home’s value and possibly an appraisal.

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SoFi Mortgages
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*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

^²SoFi Bank, N.A. NMLS #696891 (Member FDIC), offers loans directly or we may assist you in obtaining a loan from SpringEQ, a state licensed lender, NMLS #1464945.
All loan terms, fees, and rates may vary based upon your individual financial and personal circumstances and state.
You should consider and discuss with your loan officer whether a Cash Out Refinance, Home Equity Loan or a Home Equity Line of Credit is appropriate. Please note that the SoFi member discount does not apply to Home Equity Loans or Lines of Credit not originated by SoFi Bank. Terms and conditions will apply. Before you apply, please note that not all products are offered in all states, and all loans are subject to eligibility restrictions and limitations, including requirements related to loan applicant’s credit, income, property, and a minimum loan amount. Lowest rates are reserved for the most creditworthy borrowers. Products, rates, benefits, terms, and conditions are subject to change without notice. Learn more at SoFi.com/eligibility-criteria. Information current as of 06/27/24.
In the event SoFi serves as broker to Spring EQ for your loan, SoFi will be paid a fee.

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.

Checking Your Rates: To check the rates and terms you may qualify for, SoFi conducts a soft credit pull that will not affect your credit score. However, if you choose a product and continue your application, we will request your full credit report from one or more consumer reporting agencies, which is considered a hard credit pull and may affect your credit.

Disclaimer: Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating. For details, see the FTC’s website .

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.

SOHL-Q424-141

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“In trust for” (ITF) and “payable on death” (POD) are two designations that you can use to pass on bank accounts or other financial accounts after you’re gone. The main difference between in trust for vs. payable on death is that the former has a trustee while the latter does not.

Which one you opt for can depend on your personal wishes for passing on those assets. Understanding how each one works can make it easier to choose between a POD vs. trust account when crafting an estate plan.

This guide will help you learn the pros and cons of each type of financial account and compare them.

What Is Payable on Death (POD)?

A payable on death account allows the owner to pass the assets in that account to a named beneficiary once they die. For example, you might open an online savings account and name your adult child as the beneficiary.

During your lifetime, you’d be able to use the account however you wish. You could make deposits or withdrawals, and the beneficiary would have no rights to the account. Once you pass away, the beneficiary would inherit the account from you. You can use POD designations with multiple bank accounts to name different beneficiaries.

How Payable on Death Works

Payable on death works by allowing the owner of a financial account to choose one or more beneficiaries to inherit the account. The account owner would fill out a POD form or beneficiary designation form with their bank or the financial institution that holds the account.

When the POD account owner passes away, the bank would be required to release any assets in the account to the individual or individuals named as beneficiaries. The beneficiary will typically need to present a death certificate first to prove that the account owner has passed away.

In a sense, payable on death is similar to designating a beneficiary for a 401(k) plan or Individual Retirement Account (IRA). For example, 401(k) beneficiary rules do not allow access to the account while the owner is alive. Once the owner passes away, however, the beneficiary would be entitled to receive all the funds.

Payable on Death Rules

The main rule to know about payable on death is that the beneficiary has no access to the money in the account until the account owner dies. So again, say that you name your adult child as the beneficiary to your savings account. Even though they’re listed as the beneficiary, they would not be able to go to the bank and withdraw money from the account as long as you’re still living.

Additional rules apply when there are multiple beneficiaries. All beneficiaries would be entitled to an equal share of the assets in the account. For example, assume that you have four children instead of just one. If you name all of them beneficiaries on a savings account, they’d each be entitled to 25% of the account’s assets when you pass away.

What Is In Trust For?

An in trust for, or ITF, account allows a grantor to designate a trustee who will manage financial assets on behalf of one or more named beneficiaries. The grantor is the person who owns the account; they can also be the trustee during their lifetime. The beneficiary is the person who will inherit the account assets when the grantor passes away.

After the grantor dies, the trustee can continue to manage the assets in the account on behalf of the trustee. An in trust for arrangement offers a greater degree of control than payable on death in this way: The trustee is obligated to carry out the wishes of the trust grantor.

Recommended: Putting Your House in a Trust

How In Trust For Works

An in trust for arrangement works by allowing the owner of a financial account or asset to establish a trust to hold those assets. In trust for can apply to savings accounts, checking accounts, or other bank accounts, as well as investment accounts.

The grantor sets the terms of the trust, and the trustee is responsible for ensuring those terms are carried out. For example, the grantor may specify that the beneficiary cannot receive assets from the account until they turn 30 or get married. The trustee would manage the assets in the account until either one of those events comes to pass.

In Trust For Rules

In trust for rules allow for flexibility, since the grantor can decide:

•   Who should serve as trustee

•   Who will be named as beneficiaries

•   How assets in the trust should be managed

•   When and how beneficiaries will have access to those assets.

An in trust for arrangement could allow the beneficiaries access to trust assets while the grantor is still alive, if that’s the wish of the grantor. Meanwhile, trustees are required to follow a fiduciary duty when managing trust assets. In simpler terms, they must act in the best interests of the beneficiaries.

If the trust is revocable, the grantor has the power to change its terms or revoke it while they’re living. Once they pass away, the trust becomes irrevocable and cannot be altered.

In Trust For vs. Payable on Death

When choosing between in trust for vs. payable on death, it might seem a little confusing since they both allow you to designate a beneficiary for financial accounts. Comparing them side-by-side can make it easier to see how they overlap and where they differ.

Similarities

First, consider the similarities:

•   Whether you designate a financial account as a POD vs. trust, the end goal is the same: to pass on assets in the account to one or more named beneficiaries. As the owner of the account, you have the power to decide who to name as a beneficiary to your accounts. If you’re creating an in trust for account, you can also choose who should act as trustee.

•   Whether you choose payable on death vs. in trust for, the assets in the account avoid probate. Probate is a legal process in which a deceased person’s assets are inventoried, any outstanding debts owed by their estate are paid, and remaining assets are distributed to their heirs.

Going through probate can be costly and time-consuming for heirs. Naming a beneficiary, whether it’s through an in trust for or POD arrangement, allows those assets to bypass the probate process.

Differences

Next, look at how these two kinds of accounts vary

•   The main difference between a beneficiary in trust vs. payable on death account is that one has a trustee and the other doesn’t. When you name a trustee, you’re essentially choosing someone to manage assets on behalf of your beneficiary rather than handing them over directly.

The upside is an in trust for arrangement allows you to have greater control over what happens to the assets that you’re passing on. Setting up an in trust for arrangement usually requires a little more paperwork than establishing a POD account.

Depending on the value of the assets in question, you might need an estate planning attorney’s help to set up an in trust for account.

Pros and Cons of POD

Payable on death accounts have advantages and disadvantages. Here are the main benefits to know:

•   Account owners can decide who gets their assets, without needing to include them in a will.

•   Beneficiaries can bypass the probate process.

•   Naming beneficiaries means that heirs don’t have to go looking for lost bank accounts when you pass away.

Are there some cons? It depends.

•   If you’re the account owner, you may appreciate the fact that you can leave assets to heirs and still have the use of them during your lifetime.

•   Beneficiaries, on the other hand, may be unhappy about having to wait to gain control of those assets until you pass away.

Pros and Cons of In Trust For

In trust for arrangements have similar pros and cons. On the plus side:

•   You’ll be able to pass money on to named heirs. If you’ve ever been in a situation where you’re trying to track down unclaimed money from deceased relatives, then you might appreciate an in trust for situation which would eliminate any questions about who gets what.

•   This kind of arrangement could also be helpful in situations where it’s likely that heirs may dispute the division of assets. By creating an in trust for agreement, you can decide who will get the assets, who will manage them as trustee, and when beneficiaries can receive the assets.

•   Again, both POD and in trust for accounts can be excluded from probate.

Also be aware of the potential cons:

•   Trusts can be costly to establish if you’re working with an attorney.

•   The trustee is also entitled to collect a fee for overseeing the trust, which can add to the total cost.

Recommended: What Is the Difference Between Will and Estate Planning?

The Takeaway

In trust for and payable on death are designed to make the process of passing on bank accounts and other financial accounts easier. You might consider setting up either one if you’d like to ensure that your assets go to the right people when you pass away. Your bank accounts typically have value, and you probably want to make sure that those assets you tended to during your lifetime get into the hands of the right people with a minimum of effort and expense.

Interested in opening an online bank account? When you sign up for a SoFi Checking and Savings account with direct deposit, you’ll get a competitive annual percentage yield (APY), pay zero account fees, and enjoy an array of rewards, such as access to the Allpoint Network of 55,000+ fee-free ATMs globally. Qualifying accounts can even 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 3.80% APY on SoFi Checking and Savings.

FAQ

Is In Trust For or Payable on Death better?

Whether it’s better to choose in trust for vs. payable on death can depend on the specifics of your situation. In trust for is usually better when you want to maintain a greater degree of control over the financial assets that you’re passing on. Payable on death may be preferable when you simply want to ensure that a specific beneficiary inherits a financial account.

Is ITF the same as POD?

ITF stands for in trust for, which is an arrangement in which a grantor establishes a trust to hold assets on behalf of one or more beneficiaries. POD stands for payable on death, which means that assets in a financial account are payable to one or more named beneficiaries when the account owner passes away.

What is the difference between In Trust For and a beneficiary?

In trust for means that a financial account or asset is being held in trust on behalf of one or more beneficiaries. A trustee is responsible for managing the assets for the beneficiaries, according to the terms set by the person who created the trust. A beneficiary is someone who stands to benefit financially from the death of another person, either by inheriting assets or receiving proceeds from a life insurance policy.

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SoFi members with Eligible Direct Deposit activity can earn 3.80% annual percentage yield (APY) on savings balances (including Vaults) and 0.50% APY on checking balances. Eligible Direct Deposit means a recurring deposit of regular income to an account holder’s SoFi Checking or Savings account, including payroll, pension, or government benefit payments (e.g., Social Security), made by the account holder’s employer, payroll or benefits provider or government agency (“Eligible Direct Deposit”) via the Automated Clearing House (“ACH”) Network during a 30-day Evaluation Period (as defined below).

Although we do our best to recognize all Eligible Direct Deposits, a small number of employers, payroll providers, benefits providers, or government agencies do not designate payments as direct deposit. To ensure you're earning 3.80% APY, we encourage you to check your APY Details page the day after your Eligible Direct Deposit arrives. If your APY is not showing as 3.80%, contact us at 855-456-7634 with the details of your Eligible Direct Deposit. As long as SoFi Bank can validate those details, you will start earning 3.80% APY from the date you contact SoFi for the rest of the current 30-day Evaluation Period. You will also be eligible for 3.80% APY on future Eligible Direct Deposits, as long as SoFi Bank can validate them.

Deposits that are not from an employer, payroll, or benefits provider 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, or are non-recurring in nature (e.g., IRS tax refunds), do not constitute Eligible Direct Deposit activity. There is no minimum Eligible Direct Deposit amount required to qualify for the stated interest rate. SoFi members with Eligible Direct Deposit are eligible for other SoFi Plus benefits.

As an alternative to Direct Deposit, SoFi members with Qualifying Deposits can earn 3.80% 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 members with Qualifying Deposits are not eligible for other SoFi Plus benefits.

SoFi Bank shall, in its sole discretion, assess each account holder’s Eligible 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 an Eligible Direct Deposit or receipt of $5,000 in Qualifying Deposits to your account, you will begin earning 3.80% 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 Eligible 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 Eligible 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 Eligible 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 Eligible Direct Deposit or Qualifying Deposits until SoFi Bank recognizes Eligible Direct Deposit activity or receives $5,000 in Qualifying Deposits in a subsequent 30-Day Evaluation Period. For the avoidance of doubt, an account holder with both Eligible Direct Deposit activity and Qualifying Deposits will earn the rates earned by account holders with Eligible Direct Deposit.

Separately, SoFi members who enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days can also earn 3.80% APY on savings balances (including Vaults) and 0.50% APY on checking balances. For additional details, see the SoFi Plus Terms and Conditions at https://www.sofi.com/terms-of-use/#plus.

Members without either Eligible Direct Deposit activity or Qualifying Deposits, as determined by SoFi Bank, during a 30-Day Evaluation Period and, if applicable, the grace period, or who do not enroll in SoFi Plus by paying the SoFi Plus Subscription Fee every 30 days, will earn 1.00% 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 1/24/25. There is no minimum balance requirement. Additional information can be found at http://www.sofi.com/legal/banking-rate-sheet.
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.

This article is not intended to be legal advice. Please consult an attorney for advice.

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