When I was in junior high I began mowing lawns in the neighborhood. After deciding I needed a safer place for my money than my dresser, I opened a checking and savings accounts (with a decent interest rate I might add) at my parents’ bank. Just like blindly rooting for the same sports team my father did, I used the bank my parents used and didn’t ask questions. I think a lot of people do this.
Consumers are now viewing banks they’ve had since childhood with a critical eye, looking for hidden and up-front fees (ATMs anyone?), lackluster customer service, and other drawbacks. Knowing this, banks will do almost anything to get their competitors’ frustrated customers in the door, and they’ve gotten creative.
Because the Fed has kept interest rates at historic lows since the Great Recession began in 2008, most banks are no longer offering the generous interest rates on savings accounts I saw when I was a teenager. Now, brick-and-mortar banks have to compete with online banks like Ally. Typically, online banks offer very competitive rates on savings accounts relative to other banks. For example, Bank of America’s basic savings account offers a meager .01% interest rate, and Wells Fargo offers .02% for theirs. As a comparison, Ally’s interest rate on their savings account is .99%, almost 10x higher. With all of that being said, this article isn’t about the advantages of online banks (check out this Dime post from June for more on that).
It may be a long time before traditional banks go back to offering high interest savings or checking accounts. However, they do have a tactic to attract new customers: cash rewards.
I recently moved, and I’ve already received three mailers from competing banks welcoming me to the area and promoting their services. In each case, I would be given a cash reward for opening up a checking account at the respective bank. After letting the first offer from Key Bank lapse, I decided free money is pretty awesome, so I decided to take Chase Bank up on their offer.
The rules were simple: I couldn’t already be a member of Chase Bank, or have been one in the recent past. I had to open the account with a $25 deposit, and have direct deposits totaling $500 per month placed into the account. After a 90 day waiting period I would be rewarded with a $300 deposit into the account. If I closed the account within six months, the $300 would be forfeited.
I have written about the credit card debt I have, and the strategies I am using to stop accruing debt and begin paying it down. Opening a checking account and thus receiving $300 to help pay down my debt seemed like a no brainer. Three months in and still I’m happy I opened the account at Chase. I consider it a supplemental account. I kept my primary checking account at the credit union, with the majority of my paycheck deposited there. I have $250 per paycheck deposited into my Chase account because I am paid every other week. I then apply the $250 to a credit card I’m aggressively paying down.
Of course, there are some drawbacks. If you like having all of your money in one place, then this setup might annoy you. For example, it can take a few days to transfer money from one bank to another. The cash reward will be taxed as interest income, so I will be expecting a 1099-INT form in the mail come tax time. It’s always a good idea to read the fine print. One offer I read said, at the bank’s discrepancy, they could offer me a gift in lieu of a cash reward. I declined. Overall, make sure you know what you have to do in order to earn and keep the money.
All in all, it’s definitely a way to earn some extra cash for doing almost nothing. From the bank’s perspective, it allows them to show you their services and products in hopes you’ll become a lifelong customer. For some people, the reward may not be worth the burden; whether because of fees, convenience, or the lack of a good mobile app. For those looking to change banks anyway, it’s a bonus. Bottom line: if you get an offer in the mail it’s not a bad idea to at least check out what the bank is offering you.
In the end of this financial experiment, I may or may not stay with Chase after the six month required period, but so far I’ve been a satisfied customer.