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- When I graduated college, I was earning $28,000 a year at a newspaper job and had that much in student loan debt.
- I was worried about losing my job as the newspaper industry was collapsing, and I needed to build an emergency fund fast.
- I learned about bank sign-up bonuses — where you earn some cash for opening a new account — and was able to save up a healthy emergency fund in about a year.
- Find out who has the best high-yield savings account right now »
In the first year after graduating college, my financial situation was pretty rough. I was earning $28,000 as a reporter at a small newspaper and owed about that much in student loans. The newspaper industry was starting to crumble by this point, and I knew that an entry-level employee like myself would be first on the chopping block when layoffs came around.
I needed an emergency fund, but saving extra money and making student loan payments at the same time was next to impossible. My schedule at the paper was unpredictable, so getting a second job was off the table.
That’s when I learned about bank bonuses, and how using them could help me earn some extra cash when I needed it. Within a year, I had saved enough to stash away a respectable emergency fund.
What are bank bonuses and how do they work?
Many banks offer bonuses for new customers who open a checking or savings account. These bonuses are designed to entice customers away from their current bank.
Most bonuses range from $100 to $300, depending on the bank and its requirements. The higher-paying bonuses often stipulate that you keep a large minimum amount in the account, usually $5,000 or more. The lower-paying bonuses typically only require one direct deposit every month and have a lower minimum threshold.
Here’s how the process has usually worked in my experience: I open a bank account, add money to it, switch my direct deposit to that account, and then receive the bonus around 90 days later.
Sometimes I have to keep the account open even after the bonus has been paid out, sometimes as long as six months. Closing the account before that time could lead to the bonus being rescinded.
This strategy only works if you’re organized
Tracking the bonuses and requirements can be difficult if you’re not organized. I recommend keeping a spreadsheet that shows:
- Name of the bank
- Date the account was opened
- Bonus amount
- Requirements to earn the bonus
- How long you have to keep the account open
- How to avoid any monthly maintenance fees
When I open a new bank account, I like to check my online account every few days. That way I can make sure I haven’t been charged any fees, and I’ll know when the bonus has come through.
When it’s time to close the account, I call the bank and verify that doing so won’t mean I lose the bonus. If the bank is an online operation, I can do it all from home without visiting a branch in person.
I find bank bonus offers by searching for “bank bonus 2020” via Google and checking the latest lists. If I see a bonus for a bank I’ve had an account with in the past, I’ll call and ask if I’m still eligible.
Downsides to opening new bank accounts
If you decide to open a bank account (or more than one) for the bonus, keep the following in mind:
Bonuses are taxable income
Sign-up bonuses, along with any interest, count as income and need to be reported on your taxes. It will be taxed at the same marginal tax rate as regular earned income. A helpful rule of thumb is to save 20% of the bonus in a separate account so you’re not surprised come tax time.
Opening too many accounts might be a mark against you
Note that opening multiple bank accounts, like opening multiple credit cards, is perfectly legal. However, banks don’t like to feel like someone is taking advantage of them or gaming the system in some way, and frown upon customers who seem like they might be exhibiting risky behavior.
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Some people report that opening a dozen or more bank accounts in one year can lead to a negative mark on your ChexSystems report.
ChexSystems is banking reporting agency, similar to a credit reporting agency, that tracks your bank account activity. If you have a negative item on your ChexSystems report, it may be harder to open a new bank account. While this has not happened to me, it’s a possibility.
If you don’t follow the rules, you won’t get the bonus
If you open a new bank account and don’t follow all the requirements, like making a minimum deposit or leaving it open for a certain amount of time, you could end up not earning the bonus.
You could end up paying fees if you aren’t careful
Before opening a new account, see if there are any monthly fees you can safely avoid. Some banks charge a fee if the balance is below a minimum threshold.
If you’re charged a monthly fee, try to figure out how you can avoid it next time. You should also call the bank, explain that you messed up, and ask for the fee to be waived. This is usually only available as a one-time courtesy for new customers.
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