85

I googled around (this in the US) about "bank accounts you can open online",

I noticed:

https://www.us.hsbc.com/checking-accounts/campaigns/offer-2018/#advance-checking-details

Notice they will (seemingly) literally give you 200 bucks cold hard cash, if you

  • maintain a bal. of 1500- for 90 days

That offer seems "to good to be true" - since it's a major bank I doubt it's an outright lie.

But maybe some sort of soft scam? Am I not seeing the downside?

What's the deal on this.

(Running sundry online consumer businesses, I'm well aware that user acquisition cost can be $100s, but it seems an unusual offer. Perhaps I'm wrong, maybe all banks in the US do this??)


Bizarre footnote ..

funny thing, regarding that question in the end I got a robot email that they would not give me an account, which I found absolutely bizarre! Conceivably they have an algo which guesses if you are just after the bonus - or, they read this list :) Strange!

  • 5
    Look into "churning". This is typically used for credit card rewards and signup benefits, thebalance.com/what-is-credit-card-churning-4147321, but it can be used for other sign-up bonuses. The churning community will have broken down the rules and risks of these sign up bonuses pretty well. – Freiheit May 29 '18 at 14:00
  • Potential duplicate of money.stackexchange.com/questions/83574/… – user662852 May 29 '18 at 16:02
  • 11
    Banks used to give toasters to new customers. Now it's cash. – Pete Becker May 29 '18 at 17:01
  • 101
    This is the first "is this a scam?" question I've read that was not a scam; congratulations! :-) – Eric Lippert May 29 '18 at 22:55
  • 1
    Slightly different use-case, but a bank offered me a $1200 cash incentive to switch my home loan to them (at a better interest rate than my current bank, no less). I took it, as the cash more than covered the exit fees from my current bank. It's not a scam; the bank is planning on earning profits that ultimately far exceed the cost of the initial payout. That's something they can almost always do if you sign up with them, and that they can certainly never do if you don't. For the bank, it's just a calculated risk. – aroth May 31 '18 at 4:32
169
+50

Banks in the US frequently offer these kinds of promotions, and this particular one is not out of line with similar offers. Chase frequently does $300 for a new checking account. As usual some restrictions apply and they vary by institution.

There is a whole community on the net that does reward hacking for supplemental income for both bank accounts and credit cards.

The justification for these kinds of rewards is a mean cost of new customer acquisition. If it costs $1500 per new customer to obtain one through advertising alone; but that cost can be dropped to $600 per new customer with a cash incentive, then it makes sense to offer the incentive.

In this case it is very unlikely this is a scam.

  • 12
    the bottom-line answer seems to be indeed "US Banks frequently offer these kinds of promotions" ... thanks – Fattie May 29 '18 at 12:20
  • 8
    It's amusing that they call this reward hacking. – Bob Baerker May 29 '18 at 12:31
  • 4
    I've done 3 of these in the past 5 years and there were no catches. Most major banks don't play games but yes, you have to read the fine print because a few do. – Bob Baerker May 29 '18 at 12:50
  • 21
    Another reason this works - if it's someone with a steady income and direct deposit (usually a requirement) then they're less likely to have their balance in their account dip below $300. If the person never closes their account or hits 0, then it hasn't really cost the bank any money. If they are a person that hits 0 on their balance, then they're more likely to go negative and pay the bank back in penalties anyway. – sirjonsnow May 29 '18 at 13:39
  • 10
    @Fattie your question says you have to maintain a minimum balance for 90 days. There bonus is probably paid at the end of that period. That's pretty typical to prevent people from opening an account, taking the cash, then closing it again. Another common condition you'll see is direct depositing so much per month, probably so you can't be doing it with a bunch of banks at once. In my experience the conditions are usually pretty reasonable if you plan to actually use the account. – Kat May 29 '18 at 14:38
32

It's very common for banks in the US do this because believe it or not, the bonus dollars given away are less than the cost of customer acquisition.

I did one of these last year at Chase Bank which offered $500 if you opened a money market account for $15,000, a checking for $25 and provided a direct deposit. There were no fees and those balances had to be maintained for 3 months. At the end of 3 months, $1,500 had to remain in the MM for another 3 months in order to avoid fees. That's 13.33% for the first 3 months and that isn't bad for sitting at home.

Currently, Fifth Third Bank is offering $250 for a $500 deposit for 3 months (about 10 states). HSBC is currently offering as much as $750 in bonuses. Capital One and PNC Bank are also frequent fliers in this category. Others as well.

There are credit card deals as well. A really good one would be spend $500 in 3 months and receive a $200 bonus.

There are numerous web sites devoted to listing such deals and they are not a scam, assuming that you are dealing with major banks. I'd be leery of "The Billy Bob Local Bank" (g).

  • +1, but there are way better deals than a $200 bonus for signing up for a credit card in the U.S., especially if you're a frequent traveler. I've received thousands of dollars worth of airfare in sign-up bonuses. Some of the cards aimed at very frequent travelers have sign-up bonuses that can be redeemed for as much as $1,500 for travel purchases through the bank's travel portal or well more than that if transferred to an airline. Even for less premium cards, sign-up bonuses that can be redeemed for several hundred dollars worth of airfare with annual fee waived for first year are common. – reirab May 31 '18 at 16:48
  • Better is a relative thing. I don't fly any more so the best frequent flier deals are worthless to me. But thanks for the suggestion - maybe @Fattie will be able to take advantage of a bonus miles card so he can fly to the US and open dozens of money market, checking and credit card accounts for the bonuses ;->) – Bob Baerker May 31 '18 at 16:59
  • Even if you just get cash for it, you can get $500 sign-up bonuses with first year fee waived regularly on mid-tier cards like Chase's Sapphire Preferred. Though the spending requirement is usually something like $3,000 or $4,000 on those cards instead of just $500. I forgot about OP being European, though. - haha - The question said in the U.S., so I forgot that OP is actually from Europe. – reirab May 31 '18 at 17:57
  • @reirab I can't pay my rent in airfare. – Nzall Jun 1 '18 at 8:52
  • Just came across this in my reading: "The gist of the 5/24 rule is this: If you have opened 5 or more new credit cards in the past 24 months (from any issuing bank), you will not be approved for a new credit card from Chase. ... The number of credit cards opened in the last 24 months is a rolling count." – Bob Baerker Jun 4 '18 at 13:29
17

I've gotten a number of these new account bonuses over the years, there's no catch. BUT I will say, though this might be obvious, I have received a 1099 every time no matter the dollar value. Be careful to follow the rules, but generally by the time you've received the deposit for the bonus, the required time limit has elapsed and you're free to close the account. To continue on the taxation topic it's worth pointing out that almost all these offers run on a 90 day timer because the IRA replacement rule sets a 60 day timer. This is really for money you have sitting in a taxable account anyway.

Chase actually got me as a permanent customer via bonus for opening a new checking account, so it can be effective as a means of buying a customer.

  • 3
    Yes, I noticed that another bank explicitly sent me a form stating that the $200 bonus they offer is reported to the IRS as interest paid (because you have to keep the account open for some minimum time, it's as if you opened a short term CD). – pboss3010 May 29 '18 at 19:21
  • 1
    Good answer. One (large) exception that might be worth noting, though, is credit card sign-up bonuses. Those are generally not taxable. I've received lots of those and have never received a 1099. My understanding (not a CPA or tax pro) is that these are considered rebates and not interest or other income and, as such, aren't taxable. – reirab May 31 '18 at 16:55
  • I'd second reirab's answer. I too have never received a 1099 for a credit card sign-up bonus. I always wondered and now I know why :->) – Bob Baerker May 31 '18 at 17:02
  • Maybe I should have been more specific that I was talking about cash bonuses on banking products, not credit cards. The way I understand the rationale, it's because a CC bonus is a form of a non-cash rebate. – quid May 31 '18 at 17:26
  • @quid For CCs, the bonus isn't taxable even if it is cash. It's considered as a rebate on a purchase (which is not taxable) rather than as income (which is.) But, in regards to money markets, checking accounts, etc., you're absolutely right that it's taxable. I think the bonuses offered on some mortgages would also not be taxable, though I've not tried personally. – reirab May 31 '18 at 17:53
10

In addition to the customer acquisition cost, there is one more thing I'm surprised not that many people have mentioned.

Let's take Chase and HSBC's offers as an example. I think they offer somewhere around $300 to $500 as a "bonus" when you deposit $10,000 in cash and keep it there for a year.

What's $300 to $500 over $10,000? That's about 3% to 5% interest. That may seem high, but if you keep your account there for 2 years, it works out to 1.5% to 2.5% for the bank. And if you keep it for longer ... you can do the math. And how many folks are going to leave the bank once they deposit their money there, even after a year?

Investment alternatives

According to Bankrate.com, a 5 year CD (certificate of deposit) rate is about 1.27% (May 2018), though it's not uncommon to see around 2% to 3% at some banks. So it does seem that the interest rate the banks are giving you in the form of a "bonus" are on par with or better than CDs.

Bond yields are at over 3% now, so you could technically get a better interest rate investing in bonds. Equities are supposed to produce over 5% year-over-year in terms of returns, and that seemed true circa 2011 to 2017, but this year has been a down year, and it's hard to say.

What's in it for the bank?

Finally, what's in it for the bank? The bank makes revenue lending your money to others who need to borrow the money. Let's take some examples of how the bank uses the money you deposit to make money for itself.

  • Credit cards: 5% to 20% APR
  • Mortgage rates: 4% to 6% APR
  • Loans against your residence (sometimes called a second mortgage): 5% to 7% or higher
  • Personal loan: 7% to 20%

So you see, if a 100 people take advantage of this "offer" and deposit $10,000 each, the bank now has liquid assets of $1 million to lend out. Sure the bank has to give away $350 to each person, but they probably more than make up for it with the loans and other lines of credit they open for their other customers.

  • Almost all the offers run on a 90 day period. $300 on $10,000 in 90 days is 12% APR. But to your later point this is an overall effective way of buying permanent customers. – quid May 30 '18 at 6:05
  • IIRC the Chase and HSBC offers require you to keep $10,000 in your account for at least 90 days, but in addition, to keep the account open for a year (with a lesser balance if required, though I think they charge a service fee in that case.) But I could be mistaken. – Sam May 30 '18 at 6:23
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    @Fattie: That's central banks you're describing there. Commercial banks can't create money. What is true about commercial banks is that they can lend out far more money than their own share capital, but that is exactly because they're lending out money that they loaned themselves. And really, think about it: if commercial banks could create money, then why bother with all that lending and the like? Just print the money outright and you have 100% profit. – MSalters May 30 '18 at 11:16
  • 3
    @quid - In your Chase link it states that you have to "Maintain at least a $10,000 balance for 90 days from the date of deposit" but at the bottom of the page, it states they will deduct the bonus amount if either the checking or savings account is closed within six months after opening. A little deceptive since they mention 3 months in the body of the offer and the fine print addendum is six months. – Bob Baerker May 30 '18 at 16:26
  • 1
    @Fattie - US Mortgage companies are temporary lenders that must sell their loans because they do not have the funds to hold them. Lending banks can hold mortgages in their portfolios though they tend to hold adjustable rate mortgages and sell the fixed rate mortgages in the secondary market. Fannie Mae buys mortgages from banks and private lenders, packages them into mortgage backed securities and sells them to investors. I have no clue what the percentage breakdown is for lending banks (mortgages held versus sold). – Bob Baerker May 31 '18 at 14:08
8

I too have seen $500 cash offers to sign up for a checking account. The interesting thing is that checking account offers are oftentimes higher than credit card offers, even though it's the credit card where the bank can obviously potentially make money off of you. I suspect that the reason for this is from the bank's perspective, credit cards are like dating, and checking accounts are like marriage. For one, they make a profit on debit card transactions, but if they can also get you to direct deposit your paycheck into their checking account, then they can likely immerse themselves into your daily life. From there it's a much smaller leap to some bigger money makers such as mortgages, car loans, and investment accounts.

  • 4
    When I did the $500 bonus from Chase last year, one of the things that they asked when I opened the account was if I wanted to have a free consult with the investment advider. I said sure, why not? I spent about 3+ hours with him over 4 sessions and I seriously considered opening a managed account which is one of their goals of customer acquisition. In the end, I realized that it still made more sense for me to continue to manage my own money (the fees). – Bob Baerker May 29 '18 at 18:52
  • 1
    @BobBaerker - I suspect quite a few people pull the trigger on that, which surely is worth much more to the bank than $500. Likely a small percentage of conversions is all they need. – TTT May 29 '18 at 19:24
  • 1
    @ TTT - The average managed money fee for the Chase products that I looked at started around 1.25% per year with lower breakpoints for larger sums. Retirees bring in a lot more than that so I suspect that you're right about the low conversion percentage needed. – Bob Baerker May 29 '18 at 19:49
2

It's not too good to be true. Plenty of people have a side-hobby where they get all these free bonuses. Between checking and credit card sign on bonuses I've earned ~$2500 this year. Most of the major banks do it.

The downside is that you have to read the rules and be somewhat meticulous and organized about it. Otherwise, you could miss the bonus and incur some monthly account fees. Worst case scenario is you forget about it and 5 years later fees have eaten away your $1500 deposit.

It will often look something like:

  • direct deposit $500 within 60 days to get $200. (Transferring from my vanguard brokerage will satisfy, so I don't need to bother my employer)
  • keep $1500 in the account to avoid $12 monthly fee
  • keep account open 6 months to avoid bonus claw-back
  • close account
  • wait 12 months, rinse and repeat

So it's not free money - it takes effort and attention. I think once you figure out the rules and get a system in place you can be earning over $100 an hour, so quite good for most.

check out doctorofcredit.com, or reddit.com/r/churning if you're curious.

  • Fantastic factual information, @JohnK - thanks for that !! – Fattie May 31 '18 at 22:16
-2

In HSBC's case, they may be trying extra hard to reacquire banking clients after receiving poor publicity over some unusually bad conduct involving money laundering. I suspect this is the kind of thing customers might leave a bank over. Since this issue is still reasonably fresh in peoples' minds, if they were to defraud customers with your deal turning out to be a scam, the further publicity may be enough to invoke serious legal or regulatory repercussions for them.

So:

  • They may be trying extra-hard to re-attract account holders by offering sizable account-opening bonuses
  • Based on the article, they can afford to offer that kind of money to new account holders
  • Since their reputation is already suffering, they could get more than a slap on the wrist this time if the offer was a scam

Based on those considerations, I'd say the offer is legitimate.

  • however, the idea of news about HSBC and laundering would be a bit like ........ news about Michael Jordan winning a basketball game or news about hot weather in the Sahara. :) – Fattie May 31 '18 at 12:58

protected by Chris W. Rea Jul 27 '18 at 21:26

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