How to tell if a bank account bonus is a good deal

Cimmerian/Getty Images
Bankrate Logo

Why you can trust Bankrate

While we adhere to strict , this post may contain references to products from our partners. Here's an explanation for .

You won’t have to look hard to find a bank handing out cash to new customers.

Bank account sign-up bonuses are easier to find these days. If you can meet a few requirements, you could find yourself with more cash to stash in a new checking or savings account.

But every bank promotion isn’t a good offer. As you’re searching for the best bank account account bonuses, it helps to know why banks are passing out free money and how to distinguish a deal from a dud.

Why banks offer bonuses

Data suggests that more banks are sending offers about sign-up bonuses through the mail. And the amount of money they’re shelling out is rising. If you take a quick look at banks like SunTrust and Citi, you’ll find promotions promising to pay $500 and $600, respectively.

Banks look at account bonuses as a way to set themselves apart from the competition, says Greg McBride, CFA, Bankrate’s chief financial analyst.

“Years ago, banks gave away toasters in bank branches,” he says. “People bank much differently now. In recent years, (during) the recession and the years that followed, money talks more than anything else.”

While banks have the option of raising the yield they’re offering checking and savings account holders, bonuses allow financial institutions to bring in new deposits without wasting too much money upfront.

“It’s much costlier to raise the payout on your entire deposit base, and it’s not a guarantee you’re going to bring in more money,” McBride says. “The account bonuses are really geared toward the objective of the bank: Open new accounts and bring new money in the door.”

Some credit unions offer bonuses

Credit unions are offering account bonuses, too. Finding a credit union that serves customers in all 50 states is easier than it used to be, but bonuses for consumers nationwide aren’t as common among these member-owned institutions. Offers like the $100 checking account bonus provided by 3Rivers Federal Credit Union — an institution based in Fort Wayne, Indiana — are available only for local residents.

Providing bonuses can be difficult for smaller financial institutions. They need enough capital and money at their disposal to promote a sign-up bonus, says Melissa Shaw, marketing director for 3Rivers. Earning a significant return on their investment could take awhile, and that’s risky because the new customer who receives the bonus could ultimately close the account.

Credit unions face other challenges as well.

“In addition to tracking, which can be a challenge, there is a need to develop appropriate disclosures, a process for issuing payouts, handling inquiries, training and communicating with the team, and more,” Shaw says. “There also has to be a strong program in place to onboard these new members so that they continue to be engaged with the credit union and its offerings.”

How to spot a good deal

The best bank account bonuses make it possible to earn a substantial amount of money without having to jump through too many hoops.

Chase Bank, for example, offers a $300 bonus to new customers who deposit at least $25 and have a direct deposit (of any amount) made within 60 days of opening the account.

However, with other bonuses, like one offered by HSBC, you have to deposit as much as $10,000 (and keep that money in your account for 90 days) to earn a few hundred bucks.

Unfortunately, the bigger the bonus, the greater your chances of having to meet multiple requirements.

“You’re going to need to move more money, you’re going to need to keep it there longer, you may need to do more transaction activity,” McBride says. “The easiest bonuses are probably going to be smaller bonuses.”

Bottom line: If you’re looking for a good deal, avoid the bonuses with high minimum deposit requirements that you can’t meet or strict rules, like having to post 30 debit card transactions in order to earn a single bonus.

You’ll also want to pay close attention to the kind of account you’re opening that comes with a bonus. You may need to keep thousands of dollars in your account at all times in order to avoid a monthly fee.

“The presence of the bonus does not absolve you of the responsibility of reading the fine print and knowing the details of the account,” McBride says. “Anytime you’re switching accounts or opening a new financial product, you’ve got to read all of the fine print and know the details to make sure it’s a good fit. That doesn’t change just because there’s an attractive bonus dangled in front of you.”

Years ago, banks gave away toasters in bank branches. … In recent years, (during) the recession and the years that followed, money talks more than anything else.

– Greg McBride, CFA, Bankrate’s chief financial analyst

Look beyond the bonus

Opening a new checking account just to get a sign-up bonus is a good idea only if the account is a good fit for your lifestyle. Make sure the account will continue to meet your financial needs even after you’ve received the bonus. If it has high fees, you may want to opt for a free checking account instead.

“What are the balance requirements? Are you able to avoid a monthly fee? Are you going to have easy ATM access?” McBride asks. “Those are overall critical points to evaluate when switching checking accounts.”

With savings account bonuses, on the other hand, your concerns are different, mainly because you can have multiple savings accounts that you move money between, McBride says.

With a savings account bonus, check out the yield that the account pays regularly. If it’s too low, you may be better off keeping your money in a high-yield savings account, particularly if you have a lot of money to put away.

And keep in mind that if you earn a bonus, that money will count as income in the eyes of the IRS. That means you’ll be expected to pay taxes. Even if you don’t get a 1099 tax form from the bank, the sign-up bonus is still reportable, says Melanie Ross, a senior financial adviser for NCA Financial Planners in Cleveland.

The easiest way to figure out how much you owe? Figure out which marginal tax bracket you fall into.

“Using your marginal tax bracket to calculate the tax liability is the quickest and most conservative way,” Ross says. “The reason a lot of folks use their marginal tax bracket to calculate the tax is because it’s the amount you’ll owe on the next dollar you earn. Also, because of the latest tax reform, all marginal rates have come down. So, for example, the old 25 percent is now 22 percent.”