Should You Open a New Bank Account for a Cash Bonus? Do the Math First
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Access to affordable credit helps me pay my employees, but I don't really need it. Inflation is killing me. But who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill. See? Banks and credit unions help small businesses make payroll. This bill would cut the vital resources they need. While increasing megastore profits. They deserve it, don't they? Tell Congress, stop the Durbin Marshall money grab for corporate megastores. Paid for by the Electronic Payments Coalition.
Here's your Money Briefing for Thursday, July 25th. I'm J.R. Whalen for The Wall Street Journal. For the past few years, banks have had enough cash on hand and didn't have to offer much incentive for people to make deposits. Savings rates were near zero. Fast forward and banks are pulling out all the stops to get your money in the door.
You're seeing a lot of one-time bonuses, cash bonuses, sometimes as high as $500 to open up a new account. You're also seeing some promotional rates on savings accounts as high as 5%.
Wall Street Journal personal finance reporter Amani Moise will join us after the break.
Access to affordable credit helps me pay my employees, but I don't really need it. Inflation is killing me. But who cares? Big retailers are making record profits. That's why we support the Durbin Marshall credit card bill. See? Banks and credit unions help small businesses make payroll. This bill would cut the vital resources they need. While increasing megastore profits. They deserve it, don't they? Tell Congress, stop the Durbin Marshall money grab for corporate megastores. Paid for by the Electronic Payments Coalition.
Should you take advantage of a new wave of promotions offered by banks to open a new account? Wall Street Journal personal finance reporter Imani Moise joins me. Imani, for several years, most banks weren't offering customers much to keep their money in savings.
Why are banks suddenly offering cash bonuses and high promo rates?
Some were offering close to 0% interest. What's changed?
We're a ways away from the beginning of the pandemic when a lot of these big banks had more deposits than they knew what to do with. And consumer deposits, so in the form of checking or savings account, are the cheapest form of funding that a bank could have. Banks take money from depositors and they usually pay them and then they lend that out for more money than they pay their depositors. And checking and savings accounts are the cheapest version of those deposits.
What kinds of incentives are some banks currently promoting?
You're seeing a lot of one-time bonuses, cash bonuses, sometimes as high as $500 to open up a new account and take certain actions, like either keep a certain balance in there or connect your direct deposit. You're also seeing some promotional rates on savings accounts as high as 5%.
Those incentives might give people a reason to consider opening up a new account, maybe even switching banks. But in your story, you recommend that they do some math to make sure it makes financial sense to do so. What numbers should they look at?
The fine print is always going to be more important than those big, bold numbers that you're going to see on those mailers in your mailbox. The first thing to know is if you're looking at a promotional rate, see the time duration on that. Is it for a year? In one case, Citigroup is offering a 5% promo rate right now, but it only lasts three months. So you want to know what is the average savings rate? What will it reset at? In the case of one-time bonuses, what does the bank require you to do to earn that bonus? Is it a direct deposit?
What types of account incentives are banks currently promoting?
Is it a certain balance? If it's a balance-based offer, you may want to see how that cash bonus nets out compared to earning interest on a regular savings account.
What else should people look for in the fine print?
On the checking account offers in particular, there's a very wide range of deposit requirements. So some offers can be as low as, okay, as long as you're putting at least $200 a month into the account, you're going to earn this bonus. And others can be as high as $2,000.
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