30

Banks in my country often offer deposits with promotional rates for new funds - calculated as funds exceeding amount accumulated on selected date.

Now there are several banks practicing such promotions - so the idea is to open saving accounts in few of them, put savings in one promotional account, get the promotional interest, then drain the funds in that bank moving to another. As the promotions are regular it would be possible to revisit the same bank in few months and use same funds to gain new funds bonus.

What are the risks with that approach? What to look for?

I assume using only established and reputable banks and deposit amounts that are fully insured.

  • 7
    Companies very often have limits in the order of a half or a whole year for these kinds of offers; not months. – Jan Doggen Aug 1 '18 at 9:19
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    @JanDoggen Yes - they have. But with few banks one could get decent coverage of promotional rates. I imagine you could have main bank with bulk of funds on savings account and then move money to other banks only at promotion times, move back and wait for next eligible promotion. – AGrzes Aug 1 '18 at 9:27
  • Don't know where you are, but in the UK, many such offers only apply to new accounts, so "keeping one open" would often not work. Opening a new account each time is possible, but a bit more hassle. Also, the more people "churn" accounts like this, the more banks will write in clauses to prevent it. – TripeHound Aug 1 '18 at 10:01
  • It's an obscure film, so you may not have heard of it, but this was a ploy of the protagonist in "Buzzard" – binarymax Aug 1 '18 at 22:49
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    This is called churning, and there are many web forums devoted to the practice. – RonJohn Aug 2 '18 at 9:33
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There is no risk to this approach if the deposits are fully insured and there is no fine print that you are unaware of. Unfortunately, sometimes there is fine print and you have to decide whether the cash bonus is still worth it.

For example, Chase Bank (U.S.) was (is?) offering a $500 bonus for a $15,000 deposit for 3 months. That's 13+ pct annualized which is good. The fine print catch was that you had to keep the account open for 6 months and in order to avoid monthly fees, you had to maintain a balance of $1,500. So that drops the annualized rate about a percent but the Yield is still good for fixed income. At the end of the first 3 months, you withdraw $14,000 ($13,500 plus the cash bonus). and move on to the next opportunity otherwise you may halve your Yield.

I have a friend who does these regularly. She just finished one with HSBC which provided a $200 bonus for a $1,500 deposit and at 3 months, she withdrew all but the $25 minimum which has to remain for another 3 months. She also did one at Fifth Third Bank which offers $200 for a 60 day deposit of $500 but the fine print required $1,500 deposit (or 10 credit card purchases if you have their credit card) in order to avoid monthly fees. That's better than 50% Yield.

Suggestions of opportunity loss are silly. This is fixed income money, If you want this money invested then invest it and there are no guarantees that invested money will do better. But all of that is a different story. This approach for fixed income money bumps Yield up significantly.

If you're a millionaire, this is might be chump change (g). If you're young and you want some free money, go for it!

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    That Chase bonus is between $200 and $250 on the savings account. Don't fall for the trick of adding together multiple bonus offers that the advertisements do. The other ($300) bonus is for a checking account and only requires tying up $1500 or a direct deposit slot for 6 months... which is a far better return. – Ben Voigt Aug 1 '18 at 13:50
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    @Ben Voigt - These offers change over time. For the sake of expediency, I did not take a deep dive into the weeds with all of the specifics. The exact details of the offer that I cited was a $500 bonus for putting $15k in a money market and $25 in a checking account. Now if you feel that an extra $25 is falling for a trick and is a significant omission then have at it and recalculate the Yield based on tying up $1,525 instead of $1,500. – Bob Baerker Aug 1 '18 at 13:58
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    No, I mean the checking account bonus of $300 without tying up the $15,000 is an obviously good deal, then you have to evaluate also doing the savings account bonus, on the merits of receiving its incremental return, only $200 (or $250, as you say the details change periodically) for it. – Ben Voigt Aug 1 '18 at 14:30
  • Using the word "trick" is what threw me. There's no question that the checking account bonus is a better deal because of the reduced deposit requirement. IMO, in this era of low interest rates, $300 on a $15k investment for 3 months is a good Yield even with the 10% catch for another 3 months. – Bob Baerker Aug 1 '18 at 14:46
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    This answer is great if the person is organized, however, many are not. There are some risks if a person is unorganized and either the bonus criteria is missed or penalties are incurred. – Pete B. Aug 1 '18 at 19:29
21

Risks to your method:

  • You misunderstand one of the rules and after waiting the specified number of days + 1, you discover that you didn't qualify and you missed other opportunities.

  • You misunderstand an important tax law and you have to pay tax on income that you don't have access to. For example, a long time ago I had a CD that had an exit clause where there would be no penalty. Therefore the law at the time was that the bank had to report the theoretical interest on December 31st even though the CD wan't going to mature for many more months. So I had to have money someplace else to pay the taxes on the interest.

  • You pick a bank that is having financial troubles, or you have to put your money into an account without the full deposit protections, and money you need is out of reach at a critical time.

11

In Germany there is the scoring agency Schufa, which is roughly like the US credit score system. There's probably something similar in your country.

Depending on the exact offer, the bank might tell your local scoring agency. They, in turn, will lower your score because making different bank accounts every few months is statistically a bad sign.

That being said, I did this, it did lower my SCHUFA score, but it went up again after I quit the bank accounts. All in all, I made some money without lasting damage.

So, if you are thinking about moving, getting a loan, etc. soon, be careful and check the consequences beforehand. If not, yay, free money. (Well, it costs time, actually).

  • In the US, bank accounts don't appear on credit reports or scores, but there is a ChexSystems report which covers deposit accounts and is roughly analogous to a credit report. – Ben Voigt Aug 4 '18 at 21:52
  • @BenVoigt it's probably different everywhere, but one should know about it to be able to check it – DonQuiKong Aug 5 '18 at 17:36
3

Overall, there is no risk to doing it, except missing out on better investments.

Those offers typically have in the fine print that you can only use them if you haven't used them before for so many years, and you need to leave the money in for 6 or more months. That limits your 'tour' to just less than two per year.

Also, compared to other investments, the bonus payment is not that great. It might sound impressive to get $ 500 bonus for putting $ 15000 for six month in the account, but it only nets to ~6.7% annualy (and really only ~3.5%, because after the one-time bonus, you get 0.1% or such for the rest of the year).
Although that is a pretty good number for a sure investment, long term you can make more by investing in stocks (~10%). If you are very risk averse, this is a good plan, but it's not a great investment overall.

Note that the banks don't offer that because they like you - they are in need of incoming cash flow, to borrow it out to other customers. That can change quickly, and six month from now, there might not be any further such offers.

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    A 6.7% return on a virtually risk-free investment sounds pretty good in my book, considering that other investment vehicles with similarly low risk (savings account, CD, etc) typically have returns under 2%. – Nuclear Wang Aug 1 '18 at 19:42
  • Yes, but consider it's for a fixed and limited amount of 15000, it is for a fixed and limited time of six months, and you cannot repeat it. It is not that well comparable to other options, where you could put millions or choose other time frames. – Aganju Aug 1 '18 at 21:17
  • Why do you say you can't repeat it? Question is about churning the same money in a cycle among 2 or more banks: the asker wants to repeat it (as some customers do in the UK, though for smaller bonuses) – Qsigma Aug 2 '18 at 16:56
  • You can repeat it as often as you can find bank bonus offers that you qualify for. AFAIK, banks haven't adding restrictions like the credit cards have been doing for the past few years with their bonus offers. – Bob Baerker Aug 2 '18 at 17:06
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    I am not sure about the last paragraph, I have seen offers like this pretty consistently for years (in another country than the US), it seems to be mostly about customer acquisition. – Relaxed Aug 3 '18 at 6:06
1

In addition to the central issues raised in other answers, it's worth also being aware that depending on your country, if the accounts in question have overdraft facilities on them then opening new ones may be registered by credit reference agencies as new applications for credit.

Applications for credit can affect your ability to get credit in various ways:

  • When you get one accepted, your new account reduces the average age of your credit accounts. This may make it harder for you to get more credit because it looks like you've already taken on a lot of new credit recently.
  • Conversely, if you are not using these overdrafts then this lowers your overall credit utilization which suggests you are living within your means and makes lenders more likely to grant additional credit. Over time this will outweigh the effect of having a lower average age of credit.
  • However if you have an application denied (either based on your credit history itself, or because the bank has guessed that your application is for the purposes of churning and have the discretion to turn you down) this will put other lenders off granting you further credit.

If you intend to make use of any significant new credit (e.g. take out a mortgage) any time soon you should consider to what extent a churning strategy may risk your ability to get the product you want at the price you want.

It will be up to you as to what extent the risk is worth the payoff.

0

The existing answers are good, but they do seem to overlook one type of 'risk' that can be at play here: making the bank(s) mad.

Churning has been going on for a long time and banks, obviously, don't like it. Credit card churning for sign-up bonuses is especially common in the U.S., for example. As a result of this churning, major banks are starting to crack down on it. I'm not as familiar with what's been going on with checking/savings accounts, but the following are examples of rules major U.S. banks have instituted in the last few years to cut down on credit card churning. I would not be surprised if they are doing something similar for checking/savings account churning:

  • Chase Bank has the so-called "5/24 rule," which basically says that your application for a new Chase card will be automatically declined in most cases if you have opened 5 or more new credit cards (from any bank) within the last 24 months (i.e. 2 years.)

  • Chase also has a rule where you will not be eligible for a sign-up bonus on a card if you've received a sign-up bonus for any card within that family of cards within the last 2 years.

  • The biggest risk with Chase is that they've recently started reviewing accounts when a new card is open and shutting down all cards for that cardholder and banning them from opening new Chase cards if they find that the person has been opening too many Chase cards. This has extended even to closing checking accounts belonging to the churner in some cases, too.

  • American Express has a once-in-a-lifetime rule, which says that you are not eligible for a card sign-up bonus if you've ever had that card before.

  • American Express has also added language to their sign-up bonus deals that allow them to claw back the sign-up bonus if you close the account within the first year or they otherwise have reason to believe that you're just churning sign-up bonuses.

  • Citi bank has a rule for some of their card families where you can't get a sign-up bonus for a card if you've opened or closed any card within that family of cards within the last 2 years.

While checking and savings account churning probably hasn't risen quite to the level of credit card churning, these demonstrate some of the risks you may ultimately face if churning becomes a significant problem for the banks. While there shouldn't be any risk of losing your initial capital, the biggest risks you face with churning in general are:

  • The bank may close all of your accounts and/or ban you from opening new accounts with them in the future.

  • The bank may claw back the sign-up bonus in some cases, though this would require a provision in the terms and conditions of the bonus offer allowing them to do so.

  • Banks may view the frequent opening of new accounts as risky behavior and refuse to do business with you in the future or not make the best interest rates available to you on loan products, such as mortgages.

protected by Ganesh Sittampalam Aug 3 '18 at 9:56

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