Right now, banks are looking for ways to get a little more money in their accounts. Banks take the money you put in, and then lend it out to others for interest. So, even if a bank is paying you interest, the money it makes from loans more than offsets the cost. In order to get more deposits coming in, many banks have started offering cash bonuses. If you sign up for an account, you could get free money. And this free money goes beyond $25 or $50. You could get more than $200 in free cash at some banks.
However, as with most things in life that are “free”, there is a catch with the cash offered by banks. Most of these banks have a laundry lists of requirements that you are required to fulfill before you get the cash. In most cases, the bigger the cash bonus, the more onerous the requirements. Here are some of the things to watch out for:
Some of the bigger cash bonuses (like Citi’s $300 bonus for opening a Citigold checking account) require that you open extra accounts. In order to qualify for the cash pay out, you have a limited time to sign up for other deposit accounts. This might include savings accounts or CDs. You may even need to link your new account to another deposit account.
Many banks are also perfectly happy to accept a loan account or a credit card account as well. This means that you can pay the bank interest in an amount that will surely offset the cash bonus given you within a relatively short period of time, if you don’t pay of the loan. Some banks will require only that you use one extra product, but some expect you to open three or more extra accounts before handing over the cash bonus.
Debit Card Transactions
Another way for banks to recover the cash bonus money they provide you with is to require that you make debit transactions. You may be required to make a certain number of transactions within a set period of time to get the bonus. For many people, though, this requirement isn’t too bad; most people use debit cards several times a week. The requirement from the Capital One 360 Checking account that you use the debit card at least three times in 45 days really isn’t so bad — but the cash bonus is only $50. Many accounts offering bigger bonuses, might require you to use the debit card more often, or sign up for automatic deposits or automatic debits.
Make sure that you understand whether the debit transactions have to be signed for, like a credit card, or PIN transactions. Many people are dismayed to find that their PIN transactions don’t count toward the cash bonus. Banks make a little bit more from signature transactions, so they encourage you to use your debit card like a credit card, signing for purchases. (But remember, the money still comes out of your account almost immediately.)
Banks make money off the interchange fees that come from using debit cards. Each time you swipe your card, the merchant has to pay fees to the issuer. This can be a great way for banks to raise a little more revenue from your business. Some banks also charge you a monthly fee if you don’t use the debit card as directed by the account.
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For some accounts, you have a small minimum balance to maintain — or no minimum balance at all. However, if you want the cash bonus, you may have to ignore the regular account balance rules and make sure you are doing what you should to maintain a certain amount in your account for a specific period of time. In some cases, you may only need to maintain a monthly minimum balance for one or two months. Some cash back bonus programs, though, expect that your daily balance will not fall below a specific minimum. If your balance drops below the minimum within the waiting period for your money, then you might be dismayed to find that your cash bonus evaporates.
Is the Account Really Worth It?
Not only do you need to consider the fine print associated with the cash bonus offer, but you also need to think about whether the account itself is worth having. Many bank accounts these days come with different fees, from statement fees to minimum balance requirements. The regular features of the account can quickly negate the value of the cash bonus. If your checking account charges you $9 a month when your account falls below $1,000, it doesn’t matter if you only have to keep $500 in your account for three months in order to get a $75 cash bonus. You’ll spend $27 in those three months if you don’t lock up the whole $1,000, reducing your total to $48.
You should also understand the fine print associated with debit cards for the account. You may not be required to make a certain number of debit purchases to get your cash bonus, but the account you open may charge a fee if you don’t make a minimum number of debit transactions each month. Additionally, some banks are starting to charge annual fees for certain “rewards” debit cards. If the cash bonus account comes with a debit card sporting an annual fee, it might not be worth it — unless the cash bonus is really big.
Don’t Forget About Taxes
Realize, too, that we are required to report all of our income to the IRS and pay taxes on it. Even if you don’t get a statement from your bank, you are supposed to report the income. Your cash bonus will be taxed at your regular income tax rate, and counts as part of your income. (Note, too, that interest you earn on a deposit bank account is also taxed as regular income.) This is something to consider when you calculate the true value of a cash bonus from opening a bank account.
If you aren’t careful, the value of your cash bonus could quickly disappear as taxes and fees take their toll.