Bank interest rates are hardly considered a big perk — there are many Scrooge-like accounts out there that barely pay enough to offer loose change. But some people are getting $100, $200, even more than $300 from their banks. Their secret? Free money promotions. Banks are paying customers to open savings and checking accounts.
Bank account sign-up bonuses may not be as widespread as credit card perks, but they can be lucrative — and can come in handy if you want to build up an emergency fund. Consider:
- Say you have $10,000 in a savings account that earns 0.20% annual percentage yield, or APY — that’s close to nothing, but still roughly double the national average for savings accounts. You’d end up with an extra $20 or so after a year.
- If you move that nest egg to an account with a free money bonus, you could snag a perk of $150 or more, often within a couple of months of account opening. So you could earn more money in less time, compared with the first account.
Check the fine print
Before signing up for this type of promotional offer, take a good look at the terms. You probably need to be a new customer to qualify. If you’ve had an account at the same place since the days before online banking, don’t expect your trusty institution to roll out the red carpet with an offer.
That can work in your favor if you’re willing to switch, though. An old customer at Bank No. 1 is a desirable new customer at Bank No. 2, and the latter may indeed roll out that red carpet with a tempting promotional offer.
You’ll probably have to meet a few more requirements to qualify. Some banks require hefty deposits — think $10,000 or more — to score a bonus. Or they may require you to set up direct deposit. Or make a certain number of transactions within a few months. Or any combination of the above. In return, the bank offers to make a deposit of its own to you.
Look for a short-term deal, but long-term savings
Short-term perks are nice, but it pays to play the long game. Know how much an account will cost you over time. For example, many banks charge monthly fees that are waived only if you keep a minimum balance. If you’re paying a fee each month, a lucrative account quickly loses its luster.
In addition, institutions may charge overdraft fees that could set you back $100 or more if you have a few transactions in the red. Ouch. What’s the use of getting a bonus if you end up paying it back to the bank in fees?
That said, if you have the cash and think you can avoid penalties, a promotional offer can be worth going after.
Find the sweet spot
Found a bank offering a bonus? You can do even better. The real free-money sweet spot is an account that pays a bonus and offers a high interest rate, too. Forget about accounts with APYs of 1% or less. The best savings accounts have APYs north of 2%. Add in the magic of compound interest, and you’re looking at serious money. (Use an online compound interest calculator to see how fast your cash could grow.)
To increase your chances of finding a bonus plus a great rate, look at online banks. They tend to have higher rates and lower account fees than their brick-and-mortar counterparts, and some also offer cash bonuses to sweeten the deal.
Tie up loose ends
If you opened a new bank account recently and are thinking about switching again to score a promotional bonus, check with your current institution about early account closing fees. Some banks require that you keep your existing account open for a minimum amount of time, often around six months, to avoid a penalty. Also, know that your new bank may require you to keep your new account open for a while — typically also around six months — to avoid having to forfeit any perks.
A bank bonus can be a boost to your bottom line, as long as you play by the rules and can dodge account fees. And the compounding of that money is like icing on the cake.