Is it worth switching banks for a sign-up bonus?
An immediate cash bonus may sound great, but there is a lot to consider before jumping ship
A bonus is almost always a good thing — but what about when one requires switching banks to earn?
Lately, "banks are offering bigger cash bonuses," said The Wall Street Journal. More specifically, banks are promising "cash bonuses and promotional interest rates for opening new accounts." For example, "Chase and Wells Fargo now offer $300 bonuses to customers who open new checking accounts and set up direct deposits," while "Bank of America offers $200, and Citi has a promotional rate of 5% on new savings accounts for the first 90 days."
Before you jump ship on your current bank, here is what to consider.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
What exactly are bank bonuses, and how do they work?
Bank account bonuses are kind of like "credit card welcome bonuses," said Experian. These promotions are clearly meant to "incentivize new customers to open an account." They can come in the form of either promotional annual percentage yields (APY) or as a cash bonus, often ranging in amount from "from $100 up to $1,000."
To earn the bonus, you generally just have to "follow the rules that a bank has set to earn the bonus," and then "after you complete its requirements, the money will be sent to your account," said Business Insider.
The specifics of these requirements will vary depending on the bank and the promo offer. For example, "you may have to set up a direct deposit, meet a minimum account balance, or maintain a certain average daily balance," said Business Insider. Or, you may simply need to be a new customer — meaning you have not banked with the institution before (note, said Business Insider, that "there is often a time limitation after which you are considered a 'new user' again").
Are there any drawbacks to bank bonuses?
So what's the downside? There are at least a few, as it turns out:
You will have to jump through hoops to get that bonus. Often, you have to "complete one or more qualifying activities to receive a bonus, and those requirements may be difficult for many to achieve," said Experian. And it is generally the most generous bonuses that "have very stringent requirements for earning them, such as significant deposit requirements."
You may owe taxes on your bonus. Banks can "report any bonus they disburse to the IRS as income," which means that "you're responsible for paying the taxes on any bonus you receive," said Experian. Further, said Business Insider, depending on the size of the bonus, it "could bump you into a higher tax bracket."
You might face fees that could cut into your bonus earnings. You may jump on an account too quickly to see the strings attached if you only pay attention to the bonus value. But, there's a chance you could end up paying fees, such as "a monthly service fee on a checking account that doesn't meet a minimum balance requirement or receives monthly direct deposits," or even a fee if you "close your bank account too soon after opening it," said Business Insider.
When is it worth chasing a bank bonus offer?
While there are some people out there who make it a hobby to "chase bank account bonuses, opening many new accounts with no long-term intention to use the bank," said Money, it is generally not an activity worth pursuing unless it will actually pay off for you. As such, "before jumping on any offer, your first step should be doing the math," said the Journal.
"You do have to weigh the opportunity cost of putting your money in a higher yield savings account versus chasing the bonus, which maybe has no real APY but it does pay out a promotion, and kind of see what the difference is," said Ryan Johnson, the editor-in-chief of ProfitableContent.com, to Money.
Consider if the APYs the bank offers are consistently competitive, or just a flash in the pan.
Beyond that, take a hard look at any fees or requirements associated with the account. If an account suits your needs, you can easily meet the bonus stipulations, and you were thinking about switching to a new bank anyway, then you should consider an account bonus just that — a nice bonus.
Sign up for Today's Best Articles in your inbox
A free daily email with the biggest news stories of the day – and the best features from TheWeek.com
Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.
-
A beginner's guide to exploring the Amazon
The Week Recommends Trek carefully — and respectfully — in the world's largest rainforest
By Catherine Garcia, The Week US Published
-
What is the future of the International Space Station?
In the Spotlight A fiery retirement, launching the era of private space stations
By Joel Mathis, The Week US Published
-
What are the rules of a no-buy vs. low-buy year?
The Explainer These two revised approaches to purchasing could help you save big
By Becca Stanek, The Week US Published
-
What are the rules of a no-buy vs. low-buy year?
The Explainer These two revised approaches to purchasing could help you save big
By Becca Stanek, The Week US Published
-
How to avoid Blue Monday's financial woes
The Explainer The most depressing day of the year can actually be a catalyst for good money decisions
By Rebekah Evans, The Week UK Published
-
Hoping to sell your house in 2025? Here's what to expect.
The Explainer Will the housing market favor buyers or sellers this year?
By Becca Stanek, The Week US Published
-
How to decide on the right student loan repayment plan
The explainer President-elect Donald Trump seems unlikely to approve more student loan forgiveness, so you may want to consider other options
By Becca Stanek, The Week US Published
-
When does a Roth 401(k) make more sense?
The Explainer There are several key differences between a Roth 401(k) and a 401(k) that may make one option more beneficial than the other
By Becca Stanek, The Week US Published
-
4 tips to save if you're returning to the office
The Explainer There are ways to protect your budget as you change your daily work routine
By Becca Stanek, The Week US Published
-
How to map out your financial plan for this year
The Explainer Stay on track to meet your short- and long-term goals
By Becca Stanek, The Week US Published
-
Will you owe taxes on your year-end bonus?
The Explainer Since your bonus counts as supplemental wages, it can be subject to different federal withholding rules
By Becca Stanek, The Week US Published