Consumer

Is 'free' money to open a checking account worth it?

Aug. 29, 2014 at 1:15 PM ET

Be sure to read the fine print in those bank cash offers.
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Be sure to read the fine print in those bank cash offers.

You’ve no doubt received a flier in the mail or seen the billboards: Open a new checking account with us and receive $100 cash! Sounds like a deal, to be sure, and perhaps you’ve been considering switching banks anyway. But is there a catch? Cheapism.com checked out what’s meant by that small asterisk next to the $100.

For banks, the motivation behind the bonus offer is clear. Give someone a reason to move their checking account and it’s likely they’ll soon add a savings account, credit card, car loan or even a home mortgage. With interest rates so low it’s hard for any financial institution to stand out, and cash bonuses draw in crowds. From the consumer’s perspective, a little extra padding in the bank account never hurts — unless it comes at a price.

Read the fine print

If you’re not careful, the sign-up bonus and associated fine print could catch you off guard and cost you a pretty penny.  

  • The bonus is subject to taxes, and banks send a 1099-INT during tax season. Don’t blow the entire amount on the first weekend.
  • The bonus can be rescinded (even if you’ve already spent it) if the account isn’t kept open for a designated period of time.
  • Inactivity fees imposed by some banks range from $5 to $10 per month.
  • Service fees are often charged unless certain criteria are met. This may be a monthly balance, daily balance, and/or a number or total value of direct deposits per month.
  • Requirements may involve completing several online bill payments and/or using a new feature the bank has introduced, such as peer-to-peer money transfer.
  • Some banks perform a hard credit inquiry on applicants and this can ding your credit score by a few points.
  • The bonus is only available the first time you open an account.

Consumers who pay attention to the details (specifics vary by bank) and follow the rules get to enjoy the bonus cash.

But others may be reluctant to switch banks when they’ve already established a relationship that involves several types of accounts. Christina Lavingia, who recently posted a report on the subject at Go Banking Rates, says switching banks only makes sense for consumers with a checking and savings account, and maybe a credit card, who are itching for a change. The cash bonus may be enough to set the process in gear. When account arrangements are more complicated, she cautions, it’s hard to keep track of everything even when they’re all in one place. Establishing new accounts at additional banks in response to bonus offers and then managing them in order to avoid service fees can become a costly and time-consuming headache.

What’s in the offer?

The size of bank bonus offers and the accompanying details change over time, and if you don’t desperately need the money, it may make sense to wait until the deal hits a high mark ($250 is not unheard of). Note, too, that some offers are exclusive to new branch locations and others may be limited to consumers who receive a flier in the mail. Not surprisingly, there’s now a marketplace for those fliers, and some sell for more than $50 on eBay.

Of course, there’s no guarantee that the high offer you spurned several months ago will reappear, but the incentives circulating these days typically range between $100 and $150. It probably makes sense to pass on anything below that.

Is it worth it?

The big question is how much work are you willing to do for that $100 bonus? If funding an account, setting up direct deposit and making several online bill payments seems easy, then go for it. If you’re a money-management whiz who breaks nary a sweat while overseeing several bank accounts at once, take advantage of as many offers as you can fund. If that’s not you, don’t take the bait unless it’s long past time to part with your current financial institution.

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