Bank introductory bonuses often hold the promise of exciting perks and rewards in exchange for a member’s new business. Here’s what consumers need to know.
What are Introductory Bonuses?
One way that banks make money is by borrowing what a customer deposits and lending it at a higher interest rate to borrowers for a profit. The more money a bank receives from its customers or members, the more money it can earn as a financial institution.
However, the financial landscape is crowded, so many banks offer promotional bonuses, hoping to attract new customers, create long-term relationships, and encourage banking habits that support their business goals as well as offering exclusive rewards to their newest members. These incentives can include cash rewards or other types of financial perks, and they are usually offered for a limited time.
Common Bonus Types
While each bank has its own set of rules and introductory bonus programs, rewards are commonly offered to customers who might:
- Open a new bank account–such as a money market, rewards checking, or savings account.
- Enroll in direct deposit–typically for things like salary or government benefits.
- Sign up for a new credit card–and also get approved by the bank for it.
- Refer friends and family–and sometimes the referred person can receive a bonus, too.
Perks of Banking Bonuses
Both consumers and banks can benefit from banking bonuses. Consumers are given incentives to try new products that may improve their banking experience, and at the same time, banks get to showcase their services to customers who might not have tried them otherwise. Bonuses and perks often include:
- Financial Rewards: lump sum cash incentives, reward points, or cashback
- Account Enhancements: waived fees, higher transaction limits, priority customer support, and access to exclusive financial services
- Competitive Savings: higher interest rates on certain accounts, such as an interest checking account, certificate of deposit (CD), or High Yield Savings Account (HYSA)
- Credit Card Extras: airline miles, hotel points, or cashback on purchases
Rules, Fees, and Other Considerations
While signing up for a banking bonus may seem like a no-brainer, they usually come with specific terms and conditions. A cash incentive may depend on a large deposit or a minimum balance requirement. A specific perk might require enrolling in direct deposit or fulfilling a certain number of transactions. It’s important to check for any monthly maintenance fees, transaction fees, or other applicable charges.
Customers will want to fully understand what is expected of them before opening a new account, and they should ensure that any requirements tied to their banking bonus are sustainable and don’t outweigh the benefit of the bonus itself. It’s also important to know that some banking bonuses could be considered taxable income. For example, a customer who opens a HYSA with an attractive interest rate may have to pay taxes on the interest earned if it reaches a certain threshold. Of course, consulting a tax professional is always a good idea.
With a thorough understanding of the perks and considerations, consumers can make the most of introductory bank bonuses.