Not to brag (ok, to brag a little #humblebrag), but over the past two months Bank of America and Chase have each paid me $300, just for opening and funding new checking accounts, netting me a cool $600. Well, less taxes, and the annoying $6 worth of transfer fees Bank of America charged me (but more on that later.) How did I pull that off you might ask? Well, read on, my friend (don’t consider me a friend just yet? we can fix that!).
New Customer Incentives
You’ve probably seen them in the mail or in ads online. Open an account, set up direct deposit, get $100 or $200 or more! (Like the $300 a piece I netted above – man I wish there was a book that distilled some of these hot financial tips down into actionable advice.
As you’d guess, there are some terms to meet and hoops to jump through, but provided you follow the rules, which, as you’ll see, really aren’t that difficult, you get the extra cash free and clear.
Why Would They Do That?
Well, there’s an economic reason that has to do with the recent rising interest rates making demand deposit accounts (financial jargon for checking accounts) profitable for banks. A short time ago, when the Federal Funds rate was essentially zero, most banks actually lost money on money their customers held in checking and savings accounts, which, obviously, didn’t make them feel like going out to try and drum up checking and savings account customers.
But don’t worry about the technical stuff. Think about it like this: remember when you were a kid and everyone in the neighborhood was friends with that one boooooooring kid solely because he would let you use all of his badass toys?
Let’s face the facts, kids actually are perceptive and quite clever. That boring kid knew what was up; he knew he was boring and the only way the cool kids (you) would play with him was if he let you use his cool toys. Well, that’s basically what banks are doing.
Banks understand they’re boring. Nobody gets excited about their bank. Banks also understand inertia. People don’t like to make changes. Once you’ve picked your bank, set up all your automatic monthly payments, and pay check direct deposit, you don’t want anything to do with switching all of that when you change banks. So banks need to offer an incentive to get new customers.
Hence these offers. Think of them like the financial equivalent of that boring kid’s toys.
At the bottom of this post I share a great link to a Penny Hoarder article that lists banks that are offering some of these, and what you can do to take them up on their offers. But first, a few things to keep in mind:
4 Pitfalls to Avoid (And 1 Added Bonus!)
1) Direct Deposit Only
These offers typically require that you set up a recurring direct deposit, so if you don’t get paid regularly via direct deposit, you may not be able to take advantage. Most of these banks also have a minimum account balance requirement that is waived if you have direct deposit, but if you ever stop the direct deposit, you may get hit with the fee. Keep that in mind.
Which brings us to our next point…
2) Sneaky Fees
Many big banks (the ones making most of these offers) have fees for almost anything you can imagine. Keep this in mind. For example, one of the offers I utilized was through Bank of America. When I opened my account, I hadn’t realized I would be charged $6 per transfer to transfer money to a non-BofA account. So when I needed money in my Schwab account to write my rent check (because I didn’t want to pay the $50 fee for getting BofA checks!) I was in for a fun surprise.
My bonus offer was for $300, so totally worthwhile still, but looking at the account rule for potential “trap” fees is a good idea. In the end, if you’re getting even $100, you’re likely to make up little fees like this. But you need to beware lest they add up to more than you’re getting from the bonus.
3) Weigh the Hassle
Time is money, right? The Chase bonus I received required actually going into a Chase branch and sitting with a banker. It took 10 minutes of waiting for the next available banker and then around 30 minutes to open the account while the banker asked about my situation, fishing for opportunities to cross-sell me other Chase products.
For $300 it was worth some time on a Saturday morning to me, but it’s something to keep in mind. The Bank of America offer, on the other hand, took about 5 minutes to open up an online account. Easy peasy.
4) Other Costs
Two other costs to think about: closing fees and taxes. If you’re not really planning to use the account you open, you’ll want to see if there are any fees to close the account. It’s not a good idea to leave lots of bank accounts you don’t use laying around as that makes is super easy to accidentally make an online payment out of the wrong account and be hit with an overdraft fee.
Most of these offers require you to keep your money there for a set amount of time, say 60 or 90 days, but after that is satisfied and they pay you your bonus, you’re free to move the money out and close the account if you choose. Unless it specifies otherwise in the offer (you’ll want to read that), they can’t clawback your money.
One other factor is that the money you’re paid is considered interest income, which is fully taxable to you. They won’t withhold taxes from the bonus, but on your return, you’ll report the income and owe taxes on it. If you typically get a refund, this will just reduce the refund you would have otherwise received a bit. Something to keep in mind.
If the bonus offer is $100 but you’re paying 25% of that in taxes, $35 for an account closure fee, and get hit with a couple $5 surprise fees here and there, it may not be worth a 45 minute visit to the branch for the roughly $30 you’ll net after fees and taxes.
5) You May Find a Great Bank
If you’re not really happy with your current bank, you may actually find a bank you like from these offers. I’ve used Schwab as my primary bank for over 10 years and absolutely love it. The reason I opened an account with them to begin with? Because I received $100 of free trades for joining.
In the end, you’re not going to get rich off bank bonus offers, but if one offer helps you cover the cost of Christmas presents or helps pay down some high interest credit card debt, that’s a big win. Just make sure you’re smart about it and look before you leap.
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As promised, here’s a link to a post where you can find some current bank offers. Not all of these may still be available, but it can’t hurt to look: