Bank sign-up bonuses: Not a great deal.

Last week seemed to be the week U.S. Bank decided to do its bulk mail drop. In addition to some updates on my Cash+ card, I received a letter from U.S. Bank advertising $200 for opening a new checking account with direct deposit.

I love sign-up bonuses for credit cards; sign-up bonuses provide a good incentive to try out a new product and they help me finance my travel. In the past, I also chased after bank account sign-up bonuses. After all, who wouldn’t want a free $200? In my experience, though, bank account sign-up bonuses aren’t worth the work.

Credit card sign-up bonuses are tax-free in most cases; bank sign-up bonuses almost never are.

The IRS treats bonuses earned by using a credit card as a rebate that reduces the purchase price. As an example, if you purchased a $1000 computer and received $10 cash back on the purchase, the IRS does not consider the $10 taxable because, in its eyes, you have just purchased a $990 computer.

A sign-up bonus for opening a checking account, however, is treated like income because it is not offsetting the cost of a purchase. In almost every case, a bank account sign-up bonus will be reported to the IRS on a 1099. That $200 bonus you thought you got? Sorry, gotta pay taxes on that.

Bank accounts require more maintenance

With a credit card, you can simply spend what you want, set up auto-pay, cash your rewards, and be done with it. Many bank accounts require you a minimum balance, a minimum number of purchases on a debit card, direct deposit, or some combination of the above in order to avoid fees. You’re going to put much more work into maintaining your bank account than you will maintaining your credit cards.

Checking accounts are harder to close than credit cards

It’s a pain to close a checking account. Generally, banks will force you to close an account in person at a branch. When you close the account, you generally receive a check that you must deposit somewhere else. Also, remember those recurring payments or that direct deposit that you set up to avoid fees? Those need to be canceled as well.

Bottom line: It’s not worth the trouble

At the end of the day, I’m not going to open a checking account just for a sign-up bonus. If I am looking for a new checking account for some reason, I might be swayed by a sign-up bonus between two more-or-less equal choices.

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One thought on “Bank sign-up bonuses: Not a great deal.

  1. Yeah, it’s definitely worthwhile to read the fine print. It usually isn’t worth it for the reasons you stated. Chase finally mailed me an offer I couldn’t refuse: $300 to open their mid-tier checking account. The account requires a minimum balance of $15k in a savings account to avoid monthly fees, but no recurring transactions of any type are required. I transferred most of our emergency fund over there and have mostly forgotten about it. That money is earning less interest with Chase (0.1%) vs. Capital One 360 (0.75%), so I have to take that into account. I have to leave the account open a year or I lose the bonus.

    But in the end I get to keep ($300 – ($15000 * (0.75%-0.1%))) * 75%, or just over $150 after tax. I signed up for the account online and I’ll only need to visit a branch to close the account. I think that’s a reasonable amount of effort for that much money, but I can understand why others might not agree.

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