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Ken Tumin founded the Bank Deals Blog in 2005 and has been passionately covering the best deposit deals ever since. He is frequently referenced by The New York Times, The Wall Street Journal, and other publications as a top expert, but he is first and foremost a fellow deal seeker and member of the wonderful community of savers that frequents DepositAccounts.

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Downsides of Checking Account Bonuses - When Is It Not Worthwhile?

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With interest rates so low these days, you may be able to earn more with checking account bonuses if your savings is small. However, there are several downsides to consider. Yesterday I came across this Bankrate article on 5 hidden costs of checking-account bonuses. Some of the hidden costs mentioned were more related to time and work. In our blog post on bank bonus gotchas, we described the common strings attached to many bonus offers like direct deposit and debit card usage.

Another potential gotcha mentioned in the Bankrate article is taxes. Most banks will consider the value of the bonus as interest and include it on your 1099-INT. So you'll have to pay income taxes on the bonus, and that includes the value of non-cash bonuses. One risk not mentioned in the article is if the bank values the non-cash bonus higher than what it's worth. For example, if the bank reports a gift value of $200 and your marginal tax rate is 28%, it will cost you $56 in federal income tax. If you could have bought the gift for only $100, your net bonus after taxes is only $44 ($100 - $56).

One potential gotcha not mentioned in the Bankrate article was described in detail in our bank bonus costs article. That's the potential effect on your credit score and on being approved for new bank accounts. Many banks will do a hard credit inquiry when you open a bank account, and this can temporarily ding your credit score.

In addition to a hard credit pull, many banks use ChexSystems when you apply. This is done primarily to ensure you have not abused checking privileges at past banks (like by bouncing checks). However, banks have used ChexSystems to see how many accounts you have recently applied for at other banks. If they see you have applied for multiple bank accounts, they may decide to reject your application. Many readers have reported this problem.

With these hidden costs in mind, you should pick your bank bonuses carefully. Is the value of the gift worth it? Also, will the account provide value to you without regard to the bonus? Do you have any other tips for deciding on bank bonuses?

That brings me to a new poll question. How large does a checking account bonus have to be for it to be worth applying for? Assume the bonus is in cash and the requirements are relatively easy.



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Comments
16 Comments.
Comment #1 by pdxmale posted on
pdxmale
I have averaged nearly $4,000 (not counting any referral bonuses) per year over the last 2 years in bank bonuses.

While, yes, they are taxable, I am in the 15% bracket, making the hit tolorable.

My credit score is over 750 and I don't borrow money, so that is of little or no consequence for me.

Aslo, I just got my chex systems report, with 62 entries on it, and have seldom been denied an account due to that report. Not never, but seldom.

For me, it's like free money that pays a bill or 2 or 3 every month.

3
Comment #2 by Anonymous posted on
Anonymous
My financial situation is similar to the previous poster, however I have been repeatedly denied for new account applications.

ChexSystems is almost always the excuse given but with no explanation.

All my credit scores & history are impeccable with absolutely no negative events ever.

Getting your ChexSystems report is useless, if the actual reason for denial is not for valid negative activity.

Opening multiple accounts is NOT prohibited or negative activity even though it is used in a discriminating way by institutions who hide behind ChexSystems without the courtesy of a reason for denial.

Every denial for the mere existence of multiple accounts should be protested loudly.

9
Comment #3 by pdxmale posted on
pdxmale
#2  ---  I looked back at my records and found that I have been rejected due to check systems 4 times in 2 years.

Either I have been very lucky or you have been very UNlucky.

1
Comment #4 by dbl118 posted on
dbl118
pdxmale- That's really an impressive amount of money.  Most bank bonuses I see are from between 25-200, with very few higher.  I open bank bonuses once in a while, but they always seem to be a relatively large amount of work for a relatively small return, especially when you factor in taxes and lost interest.

I've found credit card deals to be the better bang for your buck.  The best credit card deals offer 2-3 more times as much money as the best bank bonuses.  They tend to have less fees to worry about and less requirements...usually just "spend x amount of dollars in 3 months", and with a little effort you can spend x amount without actually spending it.  Where are you finding $4000 worth of deals?  On this website?

4
Comment #5 by Anonymous posted on
Anonymous
To pdxmale - #1,

It is pure fantasy these days to get that much bonus.
For starters, most bonuses these days are for local customers only.
I counted only 22 bonuses given from 22 different states this year, do you drive there to open it?, of course not, the gas alone to drive back and forth will eat your bonus and then some.
Most of them require direct deposits form employer or SS income to qualify for the bonus.
You nay be confusing the reward accounts with opening bonus accounts, I find your claim UNBELIEVABLE.

9
Comment #6 by Anonymous posted on
Anonymous
I would not take anything Pdxmale says on here very seriously.  Ken got a lot of comments about how this guy uses this site to advertise his own referral bonus scheme for CCU and removed his post the other day.  He cares more about making a few bucks than about how he actually makes the money.  If anything sounds too good to be true, it almost always is flawed.  And this is the guy that said he traveled all over the country opening up reward checking accounts in-person , and as he said in this post, on a 15% tax bracket.  At the very least he is crazy and eccentric.

6
Comment #7 by schris413 posted on
schris413
Glad I'm not the only one who thinks he is eccentric.

1
Comment #8 by pdxmale posted on
pdxmale
as he laughs all the way to the bak

1
Comment #12 by Anonymous posted on
Anonymous
what is a bak??

3
Comment #13 by pdxmale posted on
pdxmale
short for BANK

1
Comment #14 by Anonymous posted on
Anonymous
gracias malox

1
Comment #16 by Anonymous posted on
Anonymous
I've made over 2k in bank bonuses but I dunno how one would ever make 4k in bonuses a year for the last two years by themselves. Most banks with bonuses after you get the bonuses and close the account then reopen another account will not give you another bonus. Also Chex Systems cost me 4 bank bonuses in one year it depends on the bank will most will still open the account some like Perk Street Financial denied me.

4
Comment #17 by Anonymous posted on
Anonymous
perk street denie d me too what a joke

1
Comment #18 by Anonymous posted on
Anonymous
If you play by the rules, have a clean history & high credit score, banks are discriminating against you by rejecting a good faith application.

At the very least, it is disingenuous to use ChexSystems as an excuse, but then not reveal what information factored into the rejection determination.

This should fall under "Consumer Protection" since all negative decisions must be explained in some transparent, coherent manner.

Ultimately, we are not entitled to a particular account, just an honest reason for denial.

1
Comment #19 by Anonymous posted on
Anonymous
With banks dropping interest rates on savings accounts getting denied for opening to many bank accounts seems like a lame excuse for a bank to deny you.

2