Gone are the free thermoses and knife sets that once rewarded new checking or savings accounts. Now, banks and credit unions are using cash to attract depositors. The incentives may convince some people to switch banks, but others may be opening accounts just to collect the bonuses.
While the promotions may only bring you in the door, banks and credit unions are hoping they will spur the start of lasting relationships.
Bonuses are most often associated with opening checking and sometimes savings accounts. Neither are big money makers for financial institutions, but customers are more likely to shop for loans and other services where they bank, which can mean more income for the lender. Further, it doesn’t hurt the bottom line when new accounts are subject to a litany of fees or are required to use online services to cut costs.
Switching banks versus ‘churning’ accounts
Consumers who take advantage of these promotions generally fall into two groups: those who want a new primary bank or credit union and those who just want the bonuses.
The former will invest more time and consideration into choosing a new account, as they intend to use it for everyday needs, including depositing paychecks and paying bills. Issues with their current bank or a long-distance move could send this type of consumer in search of a lender with some very specific needs in mind. Bonus seekers, on the other hand, often will do only the minimum necessary to fulfill the terms and reap the rewards, closing the account after they’ve been collected.
`Switchers’
From 2008 to 2012, as many as 24 million customers abandoned big banks and went to smaller institutions, MarketWatch reported in April, citing data from Moebs Services, a research firm in Lake Bluff, Illinois. It said the flow has slowed considerably since then, to no more than 2 million a year. People switch banks for a variety of reasons, including location, cost and poor service. While down from 24% in 2010, 16% of consumers surveyed by J.D. Power said they had a problem with their bank this year. Bankers know – all other things being equal – a bonus may be all that’s needed to pry loose some disgruntled depositors.
`Churners’
“Churning” accounts usually refers to credit cards, where customers transfer balances to cards with more favorable rates and rewards for new business, but the term can also apply to those opening bank accounts based on proffered incentives. Message boards and personal-finance blogs are awash with chatter about promotions sought by deal chasers.
Because some banks, like JPMorgan Chase and Capital One often run several new business promotions in a month, a bank-hopper can open multiple accounts, add features to those they already hold and refer friends to maximize returns. If churners can deal with any restrictions, they may wind up with a few hundred dollars a year for their efforts.
How common is it?
Yet depositors are generally reluctant to change financial institutions where they have their primary accounts because it’s a hassle. Bain consultants estimated that banks in developed countries formed new relationships at a rate of only about 3% last year. Google Analytics show a sharp drop in web searches for “new account promotions,” “checking account bonuses” and similar terms since 2012, which may reflect a decline in the number of deals being offered as the U.S. economic recovery strengthens.
But you don’t have to look far to find a bank or credit union offering new account bonuses.
Here are highlights of some recent offers:
Capital One 360: Open a new 360 Checking account and receive a $50 bonus. It requires three debit card purchases within the first 45 days.
Citibank: To collect up to $100, a depositor who opens a new Citibank regular checking account must do so before July 31 and then engage in at least one of three online activities to get $10 each month, including making payments online, depositing a check with a mobile device or transferring funds using PopMoney. Those who opened an account on June 1 could reap the full $100 by satisfying all the terms by Dec. 31.
U.S. Bank: Newly enrolled depositors in U.S. Bank’s S.T.A.R.T. money-market savings program can get up to $100, provided they also open a new checking account, which both require small minimum deposits. By setting up recurring transfers from the checking into the money-market account, a new customer can get a $50 rewards Visa card once the transfers reach $1,000. The depositor must maintain a $1,000 minimum savings balance for a year to get a second $50 card.
Before jumping in, keep in mind that penalties may apply to accounts that are closed too soon. For example, both PNC Bank and Branch Banking & Trust charge $25 on accounts closed within 180 days.
Despite alluring bonuses, it may be difficult for most Americans to play this money-moving game with their primary account, even if they wanted to – which most don’t. Switching banks isn’t as simple as changing grocery stores. But cash incentives may be convincing for those who aren’t happy with their current institution.
Bank shopper image via Shutterstock
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