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Things to consider before opening bank account for a sign-up bonus.

If you find the sign-up bonus at a bank tempting, in particular for a checking account, you should learn about the pros and cons of doing this before proceeding. As while the cash may sound tempting, there are advantages and disadvantages to what some people consider to be “free money”. There may be fees, minimum deposits, taxes due, and many other financial considerations to make before pursuing some type of reward or sign up bonus.

Consider these before you decide to open a new account just to be able to claim a sign-up bonus. Always read the fine print of any offer. There are a few ideas that you need to consider before you open a savings or checking account for the sign-up bonus, however.

Minimum balance requirements

Banks that have sign-up bonus schemes usually charge a monthly fee on their accounts. In some cases, these accounts require a minimum balance of $1,000 or more. That can obviously be a barrier to most Americans who struggle to come up with $400 in emergency savings. A minimum balance is even a bigger con and more challenging for low income families.

The monthly fee that they charge may be in the region of $10 a month which is a major con. Maintaining the minimum balance or paying a monthly fee could prove to be costly enough to cancel out the profit that any sign-up bonus offers. Always read the fine print of any offer to see if there are fees involved. Or learn more about saving money when living on a limited income, as it is possible to do.

Income taxes may be due on the sign-up reward

You may not realize it when the bank gives you your sign-up bonus, but it counts as taxable income at both the state and federal level. This is a little known con to opening accounts as it obviously reduces the amount of money you stand to make. It also makes your income tax filing process a little more complicated.




When it's time to pay your taxes, the bank will usually send you a 1099 form that tells you that you should include the money as income when you calculate your taxes. You may need to pay, depending on your bracket, $20 to $70 as tax on the $200 that you receive from the bank. This also makes it even more critical to plan and budget for that future tax bill.

Review the interest rates on a new account

Whatever sign-up bonus you may receive from the bank, it's important to remember that it will likely not be enough to compensate for a poor annual percentage yield or interest rate. This will be something to consider especially if you plan to keep large sums of money in your account. Always keep in mind that the interest rate the bank or lender pays should be your primary consideration, not the sign-up bonus.

Other terms and conditions from the bank

Usually, signing up isn't all you need to do to earn a sign-up bonus. Often, you need to keep the checking account for at least 90 days, and also arrange for your employer to automatically deposit your salary in the account each month. Or you may need to sign up for other services, such as a credit card or auto loan.

If the bank doesn't see a direct deposit made in the first 60 days into the new savings or checking account, you won't get your bonus. In other cases, banks require you to use your debit card a certain number of times before they let you have your bonus.

Be mindful of credit checks

Some banks will even run a credit check for a new checking or savings account. If they do that, and it is a “hard-pull” of your credit, then your score will be negatively impacted. This is obviously a major con/disadvantage to going for a sign up bonus. Especially when considering many lower income families (or the unbanked) already struggle with their credit ratings to begin with.





Your old (or new) bank may penalize you

If you would like to switch from your current bank to a new bank just to be able to earn the sign-up bonus, you need to be aware that your existing bank could impose a $25 penalty on you for closing your account. If you decide to keep the old account open too (and use multiple banks), then this is a hassle/con as now you need to keep track of different accounts, statements, IDs, passwords, and more. Usually, banks impose the penalty on customers who close accounts that have been operational for under a year.

Or maybe you want to open a new checking or savings account, get the reward (sign up bonus) and then close it after a number of weeks or months. The new bank may charge you a closing fee as well, thus reducing the net impact of a sign up bonus. Not to mention you will need to track all this, when to close, etc.

Earn a bonus from your current bank

It only makes sense to go to a new bank when you are confident that their financial product gives you the results that you need. In other words, do not just look at any teaser offers. If your current bank gives you a great interest rate or other benefits (such as customer service, credit cards, etc.), you should consider staying on.

A big pro of staying loyal to your current lender is you can often still earn a bonus by referring someone you know to the bank and getting them to sign up as a customer. You could get your free money, and keep your account, as well.

Bottom line advantages and disadvantages to sign-up bank account bonuses

While it sounds tempting to get some money for just opening a saving or checking account, there are many things to consider. As while that “free” money is a major pro and great to have, there may be taxes, fees, hassle of tracking multiple accounts, and other cons to it. Just be aware of these. In addition, as always, read the fine print of any offer from any bank so you know all the terms and conditions of any sign-up bonus or reward.

By Jon McNamara

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