How to Tell If a Bank Account Bonus Is a Good Deal
What’s better than free money? Bank bonus offers promise extra cash to new customers who bring assets or commit to working with the bank. So how do those promotions work, and what do you need to know before you pursue bonus cash?
Types of Bonuses
The most common—and rewarding—types of bonuses include cash bonuses for opening new accounts. To qualify, you typically need to bring new assets into the bank and meet additional requirements.
Checking accounts: Checking account bonuses are the easiest to find because they’re most likely to pay off for banks and credit unions. To earn the bonus, you may need to set up direct deposit into your account, make a significant deposit, use your debit card multiple times per month, and leave your money in the account for several months.
Those offers work well for banks because they result in stickier relationships—you’re likely to keep banking with the bank that has your checking account. Once you get in the habit of using an account, switching to another account is a hassle.
Unfortunately for customers, checking accounts also tend to have monthly maintenance fees. Those fees, along with overdraft charges and other service fees, can lead to healthy revenues for the bank. You may qualify for a fee waiver if you keep a large balance in your account, but that means missing out on interest earnings in a savings account or other vehicles.
Example: Chase Bank often has an active checking account bonus offer. New customers can open an account, set up direct deposit, and earn up to $200.
Savings accounts: Savings account bonuses are harder to find, but they’re out there. Those promotions typically require you to make a significant deposit—often $10,000, $25,000, or more. As a bonus, you may receive several hundred dollars.
Savings account offers can bring in new assets, but bonus-chasing enthusiasts with excess cash have learned that it’s easy to shift savings around and earn bonuses. That may explain why few banks actively promote savings account bonus offers.
Example: Discover Bank pays $150 to $200 to new customers who deposit at least $15,000.
Other types of bonuses: Some banks get creative and try to win your attention in different ways. For example, they might offer an extremely high-interest rate on a high-yield checking account, but you only earn that rate on the first $1,000 or so in your account.
Is the Bonus Worth It?
If you’re shopping for a new bank, a bonus offer can certainly sweeten the deal. But you should be aware of some potential pitfalls if you’re thinking of habitually chasing bank bonuses.
Can you qualify? The advertised headline may look appealing, but will you meet the requirements? Especially with savings account bonuses, you need a substantial amount of cash available. Also, you may need to set up direct deposit for some checking offers. If you don’t have an employer that pays by direct deposit, you’ll have to find another way to meet the requirement (transferring funds by ACH may work). Finally, some banks require that you use your debit card ten times or more each month. That’s a challenge for some people.
Interest rates: Evaluate the big picture before you settle on a bank. Do you come out ahead if you end up at a bank that pays a meager amount of interest? You may earn more by choosing a non-bonus-paying bank that consistently pays competitive rates—and you don’t need to go to the trouble of switching banks again.
Credit scores: Some banks pull your credit when you apply for a new account. If they use a “hard” pull, that inquiry can temporarily lower your credit scores. Plus, if you have too many inquiries on your credit reports in a short amount of time, the damage intensifies. Be mindful of whether or not you need to use your credit anytime soon. If your credit is already less-than-perfect or you’re planning to buy a house, it may make sense to minimize inquiries.
Fees: It’s great to get an extra $200, but how much will you pay the bank in fees over the next year? If you face monthly maintenance charges or other costs, you can easily wipe out the bonus. Investigate fee levels and options for waiving fees.
Taxable interest: When you receive a bank account bonus for opening your account, the amount you receive is typically treated as interest. As a result, you may need to pay taxes on those extra earnings, effectively reducing the amount you get to keep (and spend).
How to Find Bonus Offers
Bank bonuses can come and go quickly. To find current offers, search online with your favorite search engine. Banks that want to gather new assets often have paid advertisements at the top of search results, or you may end up on forums with recent discussions of current offers.
Look for local offers as well. Regional banks and small credit unions may also have attractive promotions that are only available to residents in your area. They don’t need to open up the offer to rate-chasers nationwide, so those deals may be better than megabank offers.
Why Don’t Banks Just Pay More?
Bonuses may seem like a strange concept. Instead of short-term cash offers, banks could just win customers by offering competitive interest rates, great service, and low fees. All that money spent on bonuses could go toward existing account holders.
While you can debate the wisdom of bank bonuses, banks seem to be interested in adding new customers—not rewarding loyal customers. It’s all about growth at some institutions, and (due to inertia) retaining existing customers isn’t difficult.
Internal Revenue Service. "Topic No. 403 Interest Received." Accessed Oct. 18, 2020.