In order to attract new customers, many banks are offering generous sign-up bonuses, and they hope to make a return on their investment by smartly investing your money and charging you fees. Believe it or not, banks make most of their money by charging fees – everything from a monthly account maintenance fee to penalty fees for when you overdraw your account. Banks view these signing bonuses as a one-time investment which they hope to quickly recover, but savvy consumers can turn these bonuses into a regular source of income by continually opening new accounts and moving funds around.
The terms and conditions associated with each signing bonus mean that the more income and available funds you have, the more extra income you can generate, but everyone can generate at least some additional income. For instance, CapitalOne 360 is currently offering a $50 bonus if you open a CapitalOne 360 checking account and make three debit card transactions in the first 45 days. There is no minimum balance requirement and no monthly fee. At the high end of the spectrum, HSBC is offering a $750 bonus, but it requires, among other things, a deposit of $125,000. It is important to analyze the terms and conditions of each offer to ensure you can meet the minimums required to both clear the signing bonus and to avoid monthly account maintenance fees (except where those fees are more than offset by the signing bonus).
Each offer varies, and links to help one find the best deals are listed below, but typically you will need to direct deposit a set amount within a given period of time (e.g. $1,000 in the first 90 days after opening), and/or make a set number of debit card payments using your account (e.g. the three debit card transactions for CapitalOne 360 as listed above), and/or deposit a certain minimum amount (this is more typical for savings than checking accounts, e.g. $15,000 minimum deposit for Chase Savings). In addition, in order to avoid being charged the monthly maintenance fee, you will need to either direct deposit a certain minimum amount each month or maintain a set monthly balance. In every case, it is preferable to use the direct deposit option, because in so doing, you don’t have to tie up any funds with a specific bank in order to avoid paying the monthly fees.
Generally speaking, one should have a primary checking account in order to pay all bills, and a primary savings account that has the highest yield possible. Then strategically sign up for new accounts and clear the signing bonuses by moving your direct deposit around – almost all employers allow employees the option to split their paycheck among as many different accounts and varying amounts as desired, and to change it as often as desired. Once these accounts are set up and receiving direct deposits, set up automatic transfers so that these new accounts only serve as pass-throughs to your primary savings account. When it comes time to pay bills at the end of the month, deposit as much as needed in one lump sum from the primary savings account to the primary checking account. Setting all of these accounts and transfers up is not as difficult as it may sound – usually all of this can be done easily in a few minutes by using the bank’s online account management tools.
Be sure to understand the terms and conditions of each account and signing bonus applied for, in order to avoid accidentally incurring additional fees or tying up funds. For instance, some banks limit the amount that can be transferred to external accounts or charge fees for transfers to any external account. It’s usually still worth signing up if the bonus is significant, but these additional limitations complicate things. Also, typically banks will charge an early closing fee or reclaim the signing bonus if the account is closed less than six months after opening. Lastly, although this is less common, some banks will perform a “hard pull” credit inquiry on new customers, which typically subtracts two to five points off the customer’s FICO credit score – certainly nothing disastrous, but something to be aware of, particularly if one is planning to apply for a new credit card or loan of any kind in the near future.
Here is a real-world example of bank bonuses that I have either cleared or am in the process of clearing (this will all happen over the course of about a 90 day period). I will receive $800 worth of signing bonuses over the course of 90 days, so the equivalent of nearly $270 per month in additional income (it really adds up!).
|Chase Savings||$15,000 initial deposit||10 biz days||$175|
|PNC VirtualWallet||$5,000 direct deposit and one online BillPay||60 days||$300|
|CapitalOne 360 Checking||Three debit card purchases||45 days||$50|
|U.S. Bank Checking||$500 direct deposit||90 days||$150|
|SunTrust Checking||$1,000 direct deposit||90 days||$125|
A good summary of all national and regional bank sign-up bonuses can be found at the following link: http://www.hustlermoneyblog.com/best-bank-bonuses-deals/
There are a large enough number of national and regional banks offering deals that this can be done periodically, on either a 90 day or six month cycle. If you can avoid the monthly fees while still signing up for new accounts, then typically you would sign up for a few new bank accounts every 90 days; whereas, if you are unable to avoid the fees while signing up for new accounts, then wait 6 months, close your existing accounts, and then begin the next cycle of opening up new accounts.
Logan Hertz works as a business strategy consultant in Atlanta and freelances as a personal finance expert. If you are interested in clever, easy ways to increase your income and reduce your costs, email him.
© 2014 Logan Hertz – permission to reprint is gladly given, provided the author is given credit