Evaluating Bank Account Bonuses: Are They Really Worth It? (2024)

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• Banks can offer cash bonuses to new customers opening a checking or savings account.
• You must complete certain conditions in order to earn a bank account bonus.
• A bank account with a high APY may out earn one with a bonus —it depends on how long you leave your money there.

You've gotten emails advertising a new checking account bonus. Is it worth it?

The answer depends on how much time you're willing to put in, the bank's policies, and the account's interest rate. In some cases, though, capitalizing on a bonus makes your effort worthwhile.

Types of bank account bonuses

Unless they're moving, most people aren't likely to switch banks often. Banks offer bonuses on checking and savings accounts to entice new customers. It can offset the cost of switching, like buying new checks. It can put a little extra cash into the customer's account, too.

Jay Zigmont, PhD, CFP, founder of Childfree Wealth, says banks make better offers on checking accounts than savings accounts because they aren't paying interest on them in the future.

It's also for that reason that the best savings account bonuses are typically smaller than checking account offerings.

You're also more likely to receive a bank account bonus from a brick-and-mortar bank, where interest rates are low, compared to an online institution with a high-yield savings account, where the interest rate is likely much higher.

How bank account bonuses work

Earning a bank account bonus is typically a straightforward process. You must follow the rules that a bank has set to earn the bonus, and after you complete its requirements, the money will be sent to your account.

These requirements can vary depending on the bank and type of account you're opening. For instance, you may have to set up a direct deposit, meet a minimum account balance, or maintain a certain average daily balance.

One factor that could hold you back from earning a bonus is if you've banked with the institution before. Bonuses are typically reserved for new clients. However, there is often a time limitation after which you are considered a "new" user again.

The length of time that must pass before you're considered a "new" customer again — and therefore eligible for a bonus — will vary by bank. However, you can generally expect a wait time of around six months to two years since you last owned a bank account there.

Checking if you qualify under that time stipulation could be worthwhile if your old bank now offers one of the best bank account bonuses. Many banks currently offer bonuses between $100 and $400 when you open a checking account.

Keep in mind that these bonuses are taxable, though. "That cash is effectively prepaid interest, so it's not just a gift — it's something you have to pay taxes on," says Zigmont.

In most cases, your bank will send you a 1099-INT form, which is used to report interest income. However, even if they don't send you a form, you still have to claim it as income.

These funds could bump you into a higher tax bracket. However, only the extra money that moves into the next bracket will be taxed at that higher rate.

If you want to find the percentage you'll pay on your entire taxable income, you can calculate your effective tax rate.

Benefits of bank account bonuses

You can earn a cash bonus when you open a bank account just by completing the bank's promotional requirements. These requirements may be actions you planned to take anyway.

If this account is now your primary checking account, you might have already wanted to switch where your paycheck gets deposited. You may have also planned to move over a few thousand dollars to pay your monthly bills.

For example, some banks offer up to a $300 bonus when you add less than $3,000 to your checking account through direct deposits. In that case, earning the bonus could come without significant effort on your part. If you're able to make a larger deposit, typically in the six figures, you can benefit from an even higher reward with the best checking account bonuses amounting to several thousand dollars.

The bonus will be deposited straight into your account. Keep in mind your account must still be open for that to happen, though. Read the terms and conditions to avoid accidentally closing your account too soon, as it could take two weeks or even two months for the bonus to be posted.

Considerations before chasing bonuses

Don't let the allure of a bonus make you miss important details about a bank account you're considering. Be sure you understand all the other common bank fees associated with that account because they may not be the same as at your old bank.

For instance, you may have to pay a monthly service fee on a checking account that doesn't meet a minimum balance requirement or receives monthly direct deposits. You could also face a fee if you close your bank account too soon after opening it.

Consider how much time and energy the bonus is worth to you. Zigmont recommends taking the money if you can, but not if it entails a lot of effort, like if the bank requires a minimum balance that would be difficult to maintain.

How to maximize the value of bank account bonuses

Your greatest risk of not earning a bank bonus is misunderstanding the conditions set by the bank.

For instance, some bonuses require you to maintain an average daily balance. Let's say that amount is $1,000. When you open the account, you move that much over, intending to earn the bonus. However, the transfer takes three days, so the money is only in your account for 27 days, not 30. That means you're only averaging $980 in your account per day rather than $1,000.

"Keep in mind, you're starting up a new bank account," says Zigmont. "It might take you a week or two to get money moved over and things, so you want to know what time period they're looking at. If it takes you a week or two to get money over, you've got a week or two with zero balance in that average."

Another requirement that could trip you up is direct deposit. If you already receive your paycheck by direct deposit, switching it to a new bank might not be much of an issue. Just be sure you can set it up in the allowed time window.

Are bank account bonuses right for you?

An account's interest rate is an important factor to consider before going after a bonus. Some banks offer a bank account bonus to compensate for a lower APY.

That's why Zigmont says looking for a bonus makes the most sense when opening a checking account. Even most of the best checking accounts offer very low interest rates anyway, so you're not losing out on much. The same isn't true of saving accounts, though.

You can find some of the best savings account offers at 4% or even 5% APY right now. Unfortunately, you're more likely to find a bonus offered at brick-and-mortar banks, which typically have much lower savings account interest rates.

Make the best use of your money by calculating whether you'd earn more through interest on a high-yield savings account or by receiving a bonus. Say you're looking to move $5,000 into a savings account. You are deciding between a bank that has an account with 4% APY and no bonus and a bank that has an account paying 0.01% APY and a $525 bonus.

First, calculate the compound interest. In one year, at 4% APY, your money would grow to $5,203.71. At 0.01% APY, it would be just $5,000.50, but with your bonus included, you reach $5,525.50.

At first, the bonus value outweighs the high-interest rate. However, after your money has sat in that 0.01% APY account for three years, the high interest will have outpaced the bonus, assuming the interest rate hasn't fluctuated.

Ultimately, how long you plan to keep your money in the account will decide which option is best for you.

Common Bank Account Bonus FAQs