Unlocking Bank Account Bonuses: Do They Really Pay Off?

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• Banks are keen to attract new customers with cash bonuses for opening checking or savings accounts.
• You’ll need to meet specific conditions to snag that bank account bonus.
• Sometimes, a high Annual Percentage Yield (APY) can earn you more than a one-time bonus, depending on how long you keep your funds there.

Have you been inundated with emails about enticing checking account bonuses? But is it really worth your time?

The answer hinges on how much effort you’re willing to invest, the specifics of the bank’s policies, and the account’s interest rate. In many instances, cashing in on a bonus could be well worth your while!

Types of Bank Account Bonuses

Most folks don’t switch banks frequently unless there’s a major reason. To lure in new clients, banks often offer bonuses on checking and savings accounts. This can help cover the costs associated with switching, like purchasing new checks, and it can also put some extra cash in your pocket.

Financial expert Jay Zigmont, PhD, CFP, points out that banks tend to roll out better offers for checking accounts than for savings accounts, largely because they won’t be paying you interest on that money in the future.

That’s why it’s common to see smaller bonuses for savings accounts compared to checking accounts.

Additionally, brick-and-mortar banks often offer bonuses more frequently than online institutions, which typically provide higher yields on savings accounts.

How Bank Account Bonuses Work

Earning a bank account bonus is generally pretty straightforward. Just follow the bank’s guidelines, and once you meet the requirements, the bonus will be deposited into your account.

These requirements can differ based on the bank and the type of account—common stipulations include setting up a direct deposit, maintaining a minimum balance, or keeping a certain average daily balance.

One potential hurdle is if you’ve previously banked with that institution; bonuses are usually reserved for new customers. However, many banks have a time frame after which you can be considered a “new” client again.

Typically, you might need to wait anywhere from six months to two years after closing your account before you’re eligible for a bonus again. Checking your eligibility based on this timeframe could pay off, especially if your old bank is now offering one of the best account bonuses out there. Bonuses can range from $100 to $400 when opening a checking account.

Keep in mind, however, that these bonuses are taxable. “That cash is effectively prepaid interest,” Zigmont explains, “so it’s not just a gift—you’ll need to pay taxes on it.”

In most scenarios, the bank will provide you with a 1099-INT form to report your interest income. But even if you don’t receive a form, you’re still obligated to claim it as income.

These extra funds might even push you into a higher tax bracket. But only the portion of your income that exceeds the threshold for the higher bracket will be taxed at that elevated rate.

To determine the overall tax percentage on your income, you can calculate your effective tax rate.

Benefits of Bank Account Bonuses

You can score a cash bonus just by opening a bank account and fulfilling the bank’s promotional criteria—criteria that may align with actions you were already planning to take.

If this new account becomes your main checking account, you might want to switch your paycheck deposits along with transferring a few thousand dollars to cover monthly bills.

For instance, some banks offer up to $300 if you deposit less than $3,000 into your checking account via direct deposits. In this case, earning that bonus could be effortless on your part. If you can manage a larger deposit, typically in the six-figure range, you could reap even higher rewards with the best checking account bonuses ranging from several hundred to several thousand dollars.

The bonus will be credited straight to your account. Just remember, your account needs to remain open for that to happen. Review the terms and conditions carefully to avoid accidentally closing your account prematurely, as it may take up to two months for the bonus to be posted.

Considerations Before Chasing Bonuses

Don’t let the excitement of a bonus blind you to crucial details about the bank account you’re eyeing. Make sure you’re aware of all the common bank fees associated with that account, as they might differ significantly from those at your old bank.

For example, you might be charged a monthly service fee if your checking account doesn’t meet the minimum balance requirement or doesn’t receive regular direct deposits. You could also incur fees if you close your account too soon after opening it.

Think about the time and energy it takes to secure the bonus. Zigmont suggests that while taking the bonus is generally a good idea, it’s not worth it if it demands excessive effort, such as maintaining a challenging minimum balance.

How to Maximize the Value of Bank Account Bonuses

Your biggest risk of missing out on a bank bonus is misunderstanding the conditions set by the bank.

For instance, some bonuses require you to maintain an average daily balance. If that requirement is $1,000, and you transfer that amount into your new account, you need to ensure it stays there for the required time. If the transfer takes a few days, you might only have an average balance of $980 instead of the $1,000 needed.

“Remember, you’re starting a new bank account,” Zigmont points out. “It might take you a week or two to move your money over, so you want to know what period they’re considering. If you take a week to fund the account, you could have a few days with a zero balance in that average.”

Another stipulation that could hinder your chances of earning a bonus is the direct deposit requirement. If you already have a paycheck set up for direct deposit, changing it to a new bank should be a breeze, just ensure you can finalize it within the required time frame.

Are Bank Account Bonuses Right for You?

An account’s interest rate is a key factor to weigh before pursuing a bonus. Some banks offer these bonuses to make up for lower APYs.

This is particularly true for checking accounts, where most of the best checking accounts come with very low interest rates. This means you’re not missing out on much by opting for a bonus. But that’s not the case for savings accounts.

Currently, you can find some of the best savings account offers boasting 4% to 5% APYs. Unfortunately, these lucrative offers are often found at online banks, which usually don’t give out bonuses like traditional banks do.

To maximize your earnings, evaluate whether you’d gain more from a high-yield savings account’s interest or by receiving a bonus. For instance, suppose you’re looking to move $5,000 into a savings account and are weighing a bank offering a 4% APY with no bonus against another bank providing 0.01% APY and a $525 bonus.

First, calculate the compound interest. In one year, at 4% APY, your money would grow to $5,203.71. Meanwhile, at 0.01% APY, you’d only reach $5,000.50, but with the bonus included, you’d have $5,525.50.

Initially, the bonus seems to have the upper hand. But after three years, the high-interest account will likely outpace the bonus, assuming interest rates stay stable.

Ultimately, how long you intend to keep your funds in the account will determine which route is best for you.

Common Bank Account Bonus FAQs