'Free money' bank offers may cost more than you think

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If you’re thinking about switching banks, this summer may be a lucrative time to make the leap.

A new analysis by GoBankingRates.com found that more than a dozen of the top 50 U.S. banks are offering free cash giveaways in an effort to attract new customers.

Fifth Third Bank is dangling a $200 carrot in front of new customers who open a new checking account and have at least $100 direct deposited.  Not to be outdone, Chase is offering new customers a $150 bonus when they open a basic checking account and $250 for opting for their Premier Plus Checking account with a $100 direct deposit.

“In the past, banks have used interest rate deals or promotions as incentives, but because rates are so low right now, that can only go so far,” says John Gower, senior banking analyst for Nerdwallet.com. “Instead, they’re turning to cash bonuses.”

So what’s the catch?

This isn’t exactly a charity project for big banks. They wouldn’t be handing out wads of cash if it weren’t in their best interest over the long term.

By offering cash bonuses and other goodies, retail banks are hoping to tap into a very specific group of people — existing bank customers who are on the fence about whether they should switch banks.

Banks have made it so expensive and time-consuming to leave their service these days that consumers continue putting up with them even if they want to leave. More than a quarter of consumers say they are sticking it out just because switching banks is too much of a hassle, according to Accenture.  A little cash incentive, banks hope, will be enough to nudge these fence-walkers to make a move.

“It’s not going to pay off for them if a customer only opens an account, dumps the funds and walks away,” says Christina Lavingia, of GoBankingRates.com. “They want a customer who’s going to maybe get a credit card or a mortgage and eventually, they’ll make a lot of money that way.”

To make sure new customers stick around, a lot of banks require customers to show their commitment before they qualify for a bonus.

For example, some offers require customers to enroll in direct deposit or actively use their online checking features. Right now, Santander promises to give new customers $20 each month for a year. All they have to do is enroll in direct deposit, deposit at least $1,500 into their checking account within a month and pay two bills through the bank’s online banking feature. Citibank’s $10-a-month promotion requires online bill payment, a mobile check deposit or digital money transfer.

Long-term costs of short-term benefit

Just because a bank offers free cash with its checking accounts doesn’t mean the checking accounts themselves are free, too. Far from it.

In answer to rising overhead costs and the beating they took during the 2008 financial crisis, banks have been jacking up consumer fees left and right. Free checking accounts are officially an endangered species, making up less than 30% of checking account offerings in 2013, according to an analysis by MoneyRates.com’s Richard Barrington. Banks now charge an average $12.50 per month for checking accounts and more than $30 for each overdraft fee.

Banks can’t afford to get rid of their fees. Neither can they afford to lose more customers. So they hope cash bonuses will be enough to woo new accounts without having to actually change their fee schedules.

“Banks are struggling to raise revenue and you see them launch price-based strategies such as cash rewards,” says Rajesh Kandaswamy, a banking analyst with Gartner. “Since it is more difficult to win new bank customers compared to retaining them after, upfront cash rewards prove attractive to banks instead of reducing ongoing fees."

So before you buy into a cash bonus reward offer from a new bank, do your homework first. Make sure you’ll be able to cover the minimum balance requirements and monthly service fees.

“You’re getting a short-term reward up front but if you’re signing up for an account that’s not right for you, you could easily be charged the amount of the bonus over the course of a year,” Gower says.

Lavingia adds: “You want to be careful about loopholes but if you’re at a bank where you’re not earning as many [perks] right now, it could be a good opportunity to make the switch.”

Here’s a list of cash bonus offers going on now. Read each deal carefully for terms and conditions:

Bank of America: In select states, earn $100 when you open a personal checking account.

BBVA Compass Bank: Win $100 by sending money through their p2p transfer system.

BMO Harris Bank: Earn up to $200 by opening an Everyday Checking account, Select Checking or Portfolio Checking account.  

Capital One: Earn a $50 bonus with a 360 Checking Account.

Chase Bank: Earn a $150 bonus by opening a Total Checking account or $250 when you open a Chase Premier Plus Checking account.

Citibank: Pocket $10 each month (up to $100) through Dec. 31, 2014 by opening a checking account by July 31.  

Fifth Third Bank: $150 to $250 cash bonus when you open an Essential or eAccess checking account with direct deposit.

First Republic Bank: Download their free online banking protection software and get a $25 bonus.

KeyBank: Get a $150 bonus for opening an eligible KeyBank checking account online.

PNC Bank: Earn $100 to $300 for opening one of three PNC Virtual Wallets.

Santander Bank: Get $20 a month for a year when you open their extra30 checking account.

TD Bank: Sign your kid (kindegarten-5th grade) up for a Young Saver account and qualify for a $10 summer reading bonus.

U.S. Bank: Earn $100 in rewards by opening a S.T.A.R.T. savings account.


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