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Should You Chase Bank Promotions?

As the economy recovers and banks are taken off life support, in the good way, financial institutions are becoming more aggressive with their promotional offers. The days of toasters and coffee mugs are long gone. The big banks are offering a Benjamin [3] for new accounts. Sometimes two, if you’re happy jumping through their hoops.

What does the prototypical bank promotion look like? The bank wants to get new accounts and it wants those new accounts to stick. The typical bank promotion will require a minimum balance, a scheduled direct deposit each month, and that you keep the account open for at least a hundred days. A few banks will deviate from this prototype a little, perhaps adding in a bill payment or two or debit card activity, but they all follow this pattern.

Is it worth trying to sign up for a bunch of these?

What To Watch For

There are two things you need to watch for whenever you consider a bank promotion:

Is It Worth It?

The promotional money, or the retail value of the promotion item, will be reported on a 1099-INT [4] and you’ll have to pay income taxes on it. If you’re in the 25% tax bracket [5], a $100 bonus is really worth $75 after taxes.

There’s also the hassle of setting up direct deposits and bill payment accounts. You probably don’t have a bunch of direct deposits laying around to use and with the time requirement, like keeping the direct deposit active for 180 days, you won’t be able to take advantage of many of these too often.

I personally believe a bonus is great when you’re already looking at opening an account somewhere, such as after a move. It’s hard to “make money” off bank promotions with any regularity.

(Photo: srish [6])