Banks Will Pay You to Open an Account. What's the Catch?
Free money is mighty appealing. Would you open a new bank account for $50? How about $100? A number of banks and credit unions will pay you that much or more to become a new customer.
Citizens Bank is offering a cash bonus of up to $175 to those who open a new personal checking account by the end of the month. Key Bank will give you $150. At TruMark Financial, a credit union in Pennsylvania, new customers can also earn up to $150.
"Like any business, financial institutions offer promotional incentives to attract new business," said Greg McBride, senior financial analyst at Bankrate.com. "In years past, it might have been a toaster, but currently the incentive that resonates with people is cash."
The new-customer bonus comes in various forms: money that's deposited directly into your account, rewards points or a prepaid debit card. And there are typically various hoops to jump through to qualify.
At NerdWallet, the price comparison website, they track these bonus offers. Senior analyst John Gower told me customers are typically required to sign up for one or more services, such as direct deposit, online bill pay or e-statements to qualify for the cash-reward.
"These are things that save the bank money by reducing the amount of human interaction they need for these services," Gower said. "And that's how they can pay for the bonus."
For example, the START savings program from U.S. Bank offers $100 cash back, but it's not all at once. You get a $50 prepaid Visa card after you open a new account and the balance reaches $1,000. Keep a minimum $1,000 balance for a year and you get another $50 card.
That $175 bonus from Citizens Bank is also incremental. You get $50 to enroll and make three online bill payments, $50 after you set up direct deposit and make a single direct deposit of $500 or more to your new account, get another $50 for doing both direct deposit and online banking. The final $25 comes after you open a savings account and transfer $25 into it.
A few banks require a substantial commitment to get the bonus bucks. At Chase, you need to make a new deposit of $10,000 or more that is not already in another Chase account to have the $125 bonus added to your account.
With interest rates miserably low right now, an extra 50 or 100 bucks to open a new account may be tempting. After all, if you had $1,000 in the average interest-bearing checking account—which is paying 0.51 percent right now, according to Bankrate.com—you'd earn a measly $5.11 at the end of a year.
So, that free cash is clearly a nice bonus, but it should not be the sole factor—or even the main one—that determines where you park your money.
"You really want the account that's right for you because you're probably going to be with that bank for years," NerdWallet's Gower said. "So $100 upfront isn't going to make up for a lot of fees or if you end up with an extremely low interest rate. That's going to hurt you much more in the long-run than you will gain upfront."
_ By Herb Weisbaum, "Today" show contributor.