Are Bank Bonuses Really Worth It?

Few words in the English language are as positive and upbeat as “bonus.” Sure, it can be used sarcastically at times, but it makes most of us think of extra cash around the holidays or perhaps a prize from a contest or raffle.

I’m sure you’ve seen advertisements online, found fliers in your mailbox, and been inundated with emails from banks about signing up for their newest, coolest, and sometimes life-changing bank accounts. To add a little sugar on top, banks routinely pay top dollar in the form of cash just to get you in the door.

In the case of your finances, the word “bonus” represents a great opportunity to earn hundreds or even thousands of dollars for doing something as simple as signing up for a new bank account. But is the time, effort, and commitment worth the hassle?

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Bank Bonuses Have Rules – Can You Follow Them?

The primary way a bank makes money is by taking the money you deposit and lending it to someone else. The bank pays you an interest rate for your money and charges the other person a higher rate for lending it to them. So, for the bank to consistently make money, they need new customers and a whole lot of deposits. This is where you come in.

One of the ways they encourage customers to open a new bank account is by offering them an upfront cash bonus. That cash bonus can be worth anywhere from $5 to sometimes as much as $5,000. With that free cash comes a variety of strings to make sure the bank is getting what they want out of you. The most common of these strings are:

• A recurring direct deposit requirement that meets a certain threshold
• A minimum amount of time before you’re allowed to withdraw funds
• A minimum deposit
• Monthly fees
• Taxes

I’d like to provide you with an example of each and we’ll see whether it’s worth your time and money to set up a new bank account specifically for the bank bonus.

Direct Deposit Is Almost Always Required

Almost all bank bonus opportunities today include a direct deposit requirement. Let’s take the $350 cash bonus being offered for opening a new BMO Harris Premier^TM Account and use it as our example.

For a new customer to earn the $350 cash bonus, they must be able to make a total of $7,500 in direct deposits over the course of the first 90 days the account is open. Simple math shows that your new checking account would need an average of $2,500 in direct deposits each month to hit this mark, which means you’re going to need a job earning an annual take-home salary of at least $30,000.

Not bad at all. When you think about it, BMO Harris is just making sure new customers who sign up have a job. This ensures a new flow of money coming into the account, which allows them to lend more. 

Setting up direct deposit takes no more than five minutes. For the tech-savvy, it’s generally as easy as adding account numbers to your work payroll account. For the less savvy, it’s as easy as asking your accounting department for a new direct deposit form and filling out the information by hand.

Your Initial Deposit – Look But Don’t Touch

Many banks also require a specific time commitment where customers are not allowed to pull any money out of the account after making an initial deposit. The Citi® Priority Checking Account offers up to a $2,000 cash bonus, but one of the requirements is maintaining a minimum balance for 60 days:

“Maintain the required Minimum Balance in your eligible account(s) for an additional 60 days from the 21st day.“

Citi is kind enough to allow you three weeks to figure out how you want to avoid touching your money for the next 60 days. (And I bet you thought all banks were money-hungry corporations looking only to squeeze out every last ounce of profit they can.)

Two months is a long time when you consider that you can’t withdraw your liquid assets. Do you have enough capital and cash elsewhere to be able to survive an emergency if one comes up? Would you care if the answer to that question was no and you had to withdraw funds early and forfeit the cash bonus?

Whatever you have to do, try to consider the money in your new account “untouchable.”

It Takes Money to Make Money

Unarguably the most difficult part of acquiring some of the best bank bonuses is the initial deposit requirement. Some banks tier their cash bonus structure so the more you have available to deposit, the higher your rewards will be. 

Using the Citi Priority Account as an example once again, it offers the following tiered structure on initial account deposits:

Not everyone has $300,000 available to take advantage of the $2,000 bonus. But obtaining a $1,000 bonus for a $75,000 deposit (the best value) may be within reach for some.

Depending on the size of the bonus you’re after, banks typically reward you at a rate of no more than about 1%. They’re in this to make money, not to lose it, thus there’s a cap on just how crazy some of these offers can get.

The best bonuses are the ones where you can find a little better than that standard 1%. The Citi Priority Account has a few tiers that fit the bill. 

Monthly Fees Can Cut Into Your Bonus

Setting aside the time and upfront financial commitment needed to score a nice bank bonus, there’s also a residual element to consider: bank fees.

Fees can eat into your cash bonus and make the whole process extremely unrewarding. The good news is a lot of the banks that offer upfront bonuses also offer ways to reduce your monthly fee to $0. The bad news is it requires a little bit more effort.

Looking at the Chase Total Checking® account and its $200 bonus offer, the brand charges a $12 monthly fee, but it’s waived if you do ANY of the following:

1. Execute direct deposits totaling $500 or more made to the account
2. Maintain a $1,500 minimum daily balance
3. Maintain an average daily balance of $5,000 or more in qualifying linked deposits or investments

Most other banks offer similar ways of wiggling out of a monthly fee, and if I’m being honest, hitting one of these requirements is gosh darn easy. 

Uncle Sam Gets His Fair Share!

The last thing you’ll want to consider (which few people do) is that a bank bonus is reported as income on your end-of-year 1099-INT statement. Unfortunately, this means when it comes time to file your taxes, you’ll have to give the government some of your hard-earned cash.

You can look at this two ways. You can be angry at having to fork over a percentage of your bonus, unlike when you sign up for a credit card bonus. Or you can resign yourself to the fact that when you make money, the government makes money, so whether it’s a bank bonus or a full-time job, taxes are a part of life.

I like the second way a lot more than the first. But when you’re trying to figure out how much money you’ll make based on the bank bonus, remember to stash a few dollars away for when April rolls around.

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So, Are Bank Bonuses Really Worth It?

If you don’t mind spending a few minutes setting up a new bank account, and you have the capital and time to park some of your money in a new place, then the clear answer is YES. Like with credit cards, I routinely take advantage of high cash bonuses from banks and set up new checking and savings accounts annually. 

The most important takeaway about signing up for a new bank account for the bonus is that you should only do so when you have the funds. If you find yourself having to move money from a retirement account or selling securities to meet a deposit requirement, then I believe you’re doing it wrong.

Keeping a sizable emergency fund is something I’ve been able to accomplish in my own personal finances. If you don’t have one, start working on it today. When the balance is large enough, put your money to work by moving it around from time to time. You’ll find that interest is great, but so are three- and four-figure bonuses in your savings. 

Take a minute, make sure you understand the bonus requirements and how to avoid the monthly maintenance fees, and get comfortable setting up direct deposits from time to time. 

And for our married readers, remember to have your spouse sign up and double the bonus!