Cashing in on bank account bonuses
Have you seen any promotions like this lately?
“Earn up to $600* from Chase Bank when you open a new personal checking and savings account" or, “Enjoy a $2,500 bonus* when you begin a banking relationship with Wells Fargo Premier”
Many banks are offering bonuses to entice you to open an account. Some offers are more attractive than others, and the asterisk always means there is fine print you should read.
Why banks are offer bonuses
This has happened before and will happen again, but it’s been a while since the offers have been so attractive.
At the end of last year, we wrote about how interest rates have been steadily rising. Meaning if you have your money in a High-Yield Savings Account (HYSA), your APY should be going up as well. As we know from the Learn To Invest course, not all banks offer high APYs (or the annual rate of return you receive from your savings account). So what do those banks do to remain competitive? They’ll instead offer account opening bonuses rather than raise their own interest rates.
Bank account bonus requirements
Different banks offer different bonuses, with varying requirements that need to be met to receive the bonus offer. Below are the requirements we most often see:
A certain amount of money needs to be transferred to the account: Usually the more money you move to that account, the bigger the bonus. Sometimes banks have tiered offerings. For example, if you move $5,000 or less over, you get a $250 bonus, but if you move more than $5,000, you’ll get a $350 bonus.
The money you transferred needs to remain in the account for a set amount of time: anywhere from 3-6 months is quite common to see.
You are a new customer: Or, if you closed an account with that bank, enough time has passed that you are considered a new customer to them.
Sometimes a direct deposit might be required: Meaning funds are electronically transferred directly to your bank account.
Banks know #4 is the hardest to complete, and also the “stickiest”. First, you need a way to complete a direct deposit to your account. For most of you this means changing where your paycheck gets automatically deposited. You’ll have to go into your company’s payroll or benefits system and input your new bank's account and routing numbers. And if you want to change banks again, you’ll have to do this all over again. In reality, this doesn’t take a lot of time, but it is a point of friction that banks hope they can create so you don’t redirect your paycheck again.
But since we are a community of DIYers, we know we can make these changes if we need to!
If you do pursue a bank account bonus, make sure that you can easily shut down the account from this new bank if and when you are ready to leave. You don’t want to move your cash to a new checking account, just to find out it is $50 to close down that account later on
Bank account bonus vs. High-yield savings account
Which should you choose? Well it depends on the offer. Let’s do a quick comparison. Let's say that you have $15,000 in your savings account. Some of this is for your emergency fund, and some of this is for a home down payment. All of this sits in CIT Bank's HYSA, which currently offers a 4.05% APY. Because there are no requirements to meet, you can take out this money at any time if you find the house of your dreams.
Alternatively, you can move your money to Chase. They only have a 0.01% APY, but they are currently offering a bonus of up to $600* if you commit to the following:
Receive $300 when you open a Chase Total checking account (need a direct deposit post to the account within 90 days)
Receive $200 when you open a Chase savings account and deposit $15,000 or more in new money within 30 days (must maintain a balance of $15,000 for 90 days)
Receive an extra $100 bonus when you complete both of the above bonuses
*Open link in incognito mode if it is not taking you directly to the bonus.
So, in summary: You would receive $600 on your $15,000, or you can also view this as a 4% return in 90 days. Whereas with CIT, you would have only received $152 in 3 months.
The math behind this? 4.05% is the annual percentage yield for CIT Bank. It is the yield for 12 months, not the 3 month period we need to compare to Chase's offer. To find a comparable return for CIT, we must multiply the APY of 4.05% by 3/12, or 3 out of 12 months. $15,000 x (4.05% x 3/12) = $151.89
So in this example, it makes a lot of sense to move your money to Chase to get this bonus, but you will want to move it back to CIT bank after you receive this bonus because your money is no longer working for you with a 0.01% interest rate.
P.S. If you do find the house of your dreams in less than 90 days, you can still get your money out from Chase for the down payment, you just won’t get the bonus.
Is it worth the energy?
If you have an extra hour or two over the next 90 days, then we absolutely recommend doing this. It’s pretty minimal effort to get an extra $450 dollars. With that said, you should be diligent. If you think there is a chance you won’t make the switch back (maybe you’ll forget, or things are looking busy down the line) this approach might not be right for you.
Where can you find the best bank account bonuses?
Our favorite unbiased resource for this is Doctor of Credit, who keeps an eye on a number of credit card offerings but maintains an up-to-date page on where you can find the best bonuses.
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