Bank bonus offers: Are they worth it?
Credit cards aren’t the only game in town for flashy welcome bonuses; many financial institutions also advertise big payouts when you open a new checking or savings account.
As is the case with those credit card bonuses, though, there is plenty of fine print to dissect before deciding to go after a bank bonus offer. Signing up to earn a large cash bonus can be worthwhile, provided you can meet the promotional terms without paying avoidable fees. You also don’t want to end up with an account that’s a poor long-term fit or an inefficient place to park your cash. And if you decide to close it, you could face an early account closure fee.
Banks are required to disclose fees and conditions, but it’s up to you to review that information. The key is knowing what to look for before chasing a bank account welcome bonus.
How bank bonus offers usually work
Each bank determines its own rules and requirements for its accounts and promotions, but banking bonuses have some common characteristics and qualifications.
Separate the headline reward from the qualification rules
Earning a checking or savings account bonus comes with caveats. Usually, you earn the bonus after opening the new account and completing one or more additional qualifying actions. That could include setting up direct deposits, maintaining a minimum balance, depositing a specified amount of new money, completing a certain number of transactions, keeping the account open for a set period of time or some combination of those requirements. The timeframe to do these things varies widely, as does the payout timing once you’ve met the requirements. Check the bank’s promotional terms for any qualification deadlines as well as when you can expect to receive the bonus.
Additionally, don’t neglect the ongoing terms of the account in your eagerness to earn the bonus. Those terms matter long after the bonus is paid.
The six tradeoffs that can reduce a bank bonus’s value
The flashy promotion draws you in, but the small details are what will help you decide whether a bank bonus for a new account is worth pursuing. The goal is to get top value from a bank bonus without sacrificing other financial priorities.
Eligibility requirements
Some banks restrict bonuses to new customers or exclude previous account holders or those who have earned a bonus before. Check the promotional terms to ensure you qualify.
Qualification effort
Opening a new account can involve a fair amount of work. You’ll need to move money around, understand new rules and complete paperwork. Depending on the requirements to earn your bonus, you may also need to redirect your direct deposit or set up ongoing transfers. Decide how much administrative friction you’re willing to manage before pursuing a banking bonus.
Cash tied up and lost interest
Earning a bonus sometimes requires you to maintain a sizeable balance in the account for weeks or months. Tying up your money in that account could mean missing out on higher interest earnings in another account while waiting to qualify for the bonus. Do the math on the interest you’d earn in each account over the holding period. Is the banking bonus enough to make up the difference?
Fees and waiver rules
Take a close look at the fees associated with the account. Monthly maintenance, ATM, overdraft or other fees can erode the value of the reward. Some fees may be waived if you meet certain requirements, such as maintaining a minimum balance or receiving qualifying direct deposits. Check the details for each account to understand what the account could cost you.
Closing or clawback restrictions
You could face fees if you close an account too soon after opening it. Additionally, individual promotions may require you to keep the account open for a certain period of time or risk the bank reversing the bonus. Review the account agreement and promotional terms before opening the account.
Tax impact
Rewards connected to deposit accounts are generally considered taxable income, which means you may owe taxes on the reward. Depending on the promotion, your bank may report the bonus as interest income. Consult a tax professional and the institution’s tax reporting information, as well as current IRS guidance, to better understand your specific situation.
How to calculate whether a bank bonus is worth it
Once you understand the promotional rules as well as the account’s ongoing terms, it’s time to calculate whether the bonus is the right offer for you.
Build a true-cost comparison
Comparing terms and conditions for different bonus offers side by side can highlight which account offers better value. Let’s look at two hypothetical bonus opportunities:
| Savings account option 1 | Savings account option 2 | |
|---|---|---|
| Advertised bonus | $500 | $300 |
| Deposit requirement to earn bonus | $5,000 in first 30 days | $5,000 in first 30 days |
| Customer eligibility | New customers only | New customers only |
| Required holding period | 8 weeks from meeting initial funding requirement | 8 weeks from meeting initial funding requirement |
| Monthly maintenance fee | $5 | $0 |
| Bonus payout restriction | Account must be open and in good standing at time of payout to receive bonus | Account must be open and in good standing at time of payout to receive bonus |
| Ongoing APY | 0.50% | 3.00% |
| Estimated annual interest | $25 | $150 |
| First-year net earnings (including interest, bonus and fees) | $465 | $450 |
Estimates use simplified annual interest calculations and assume a constant $5,000 interest-earning balance during the first year. All monthly fees are deducted from annual earnings, and both bonuses are assumed to be earned. Figures exclude taxes and first-year interest on bonus proceeds.
Option 1 comes out ahead in the first year thanks to its significantly larger bonus. But what happens when the bonus disappears for subsequent years?
Check the account’s value after the bonus
Without the one-time bonus, each account’s interest rate and ongoing fees become more important to consider. Here’s what year two could look like, assuming you leave your initial deposit and first-year net earnings in the account, with interest rates and fees remaining unchanged.
| Option 1 | Option 2 | |
|---|---|---|
| Starting balance | $5,465 | $5,450 |
| Bonus in year 2 | $0 | $0 |
| Ongoing APY | 0.50% | 3.00% |
| Estimated annual interest | $27 | $164 |
| Monthly maintenance fee | $5 | $0 |
| Second-year net earnings | -$33 | $164 |
| Total net earnings through two years | $432 | $614 |
Option 1 offered the larger initial bonus, but its monthly fee and lower APY mean it trails Option 2 in net earnings after year two. Keep in mind that savings account interest rates are usually variable, so actual earnings may differ from these estimates.
Explore your savings projections: MoneyRates’ simple savings calculator
When a bank bonus offer may make sense – and when it may not
An attractive bonus offer is just one factor in deciding whether opening a new account makes sense for you.
If you can answer “yes” to the following, pursuing a bank bonus could make sense:
- Were you already looking to make a switch?
- Can you meet the bonus requirements using your normal cash flow?
- Can you avoid account fees?
- Do you expect to keep the account as long as the terms remain competitive?
On the other hand, you have to consider the possible drawbacks as well:
- Is changing your direct deposit cumbersome?
- To earn the bonus, do you need to limit access to your emergency savings?
- Are there fees you can’t avoid?
- Are you giving up significantly higher interest earnings elsewhere?
- Does the account work for you beyond the initial bonus offer?
The account’s long-term value and fit with your banking needs matter. Don’t ignore them just to earn a one-time bonus.
Frequently asked questions
Yes, cash bonuses for opening bank accounts are generally counted as taxable income, and banks often report them on IRS Form 1099-INT. Even if your bank doesn’t issue a tax form, you could still owe taxes on the bonus. Consult a tax professional for advice on your situation.
Yes, some promotional terms allow a bank to clawback a bonus if you fail to meet certain conditions, such as keeping the account open for a specified period of time. Check the terms for clawback provisions.
Usually not. Opening checking or savings accounts generally doesn’t affect your credit score because banks typically don’t perform hard credit inquiries when you open these types of accounts. However, some banks may check your credit or review your banking history through a specialized consumer reporting agency, such as ChexSystems.
Make sure you meet the requirements to earn and keep the bonus, including any minimum timeframe the account must remain open. Beyond that, keep the account as long as its ongoing terms remain competitive and meet your banking needs.
