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Banking is a highly competitive business. With a little thought, he could name 5, 10, or more banks in his neighborhood alone. From a customer’s perspective, that’s good news.
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The more banks have to fight each other for your business, the more chances you have of getting a great signup bonus. It used to be, but advances in banking and more options available have made switching banks much easier and more attractive.
Here are some reasons why you should take advantage of your bank’s signup bonus and some things to watch out for.
Banks want to attract new customers
Banks exist to provide financial services to their customers, but they are also commercial enterprises trying to attract as many customers as possible. A solid roster of products and services may keep customers in the long run, but big sign-up bonuses are often used to attract customers in the first place.
After all, it’s easier for banks to catch potential customers’ eyes with flashy advertising campaigns about free money than to convince them that they offer the best all-inclusive financial services package. However, once customers open accounts, banks can advertise other services over time.
Banks also want to generate profitable transactions
Sometimes you get signup bonuses with no conditions, but banks are getting smarter about the limits they place on their offers. In many cases, you must make certain transactions that are beneficial to the bank to qualify for the signup bonus.
For example, a sign-up bonus may only be granted if you commit to making 20 debit card transactions in a month, or if you sign up for direct deposit. You may not think money is out of your pocket with these types of transactions, but they are profit-generating for banks, so they are often attached to “free” giveaways.
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But bonuses can be profitable
In the early days of banking, customers would even receive a mug or toaster to open a new account. Today, however, the chances of getting a sizeable cash offer are much higher.
For example, if you deposit $20,000 into your new savings account and hold it for 3 months, you could get a $200 bonus. This may not seem like a big deal at first, but it’s an incredible offer when you do the math. This $200 bonus equates to 1% of his $20,000 he deposited, but it pays out in just one quarter, so his annual rate is 4%. With the current average savings deposit rate of just 0.17%, this is a huge benefit.
Even the most generous online savings accounts typically pay less than about 2.75% as of October 2022.
Please note that signup bonuses may be taxable
One thing many customers overlook about signup bonuses is that they are very likely to be taxed. Banks typically issue a 1099 at the end of the year to declare the sign-up bonus paid as interest income. This means that you will have to pay tax on the bonus amount at your normal income tax rate.
This is not a deal breaker, but please note that the true value of the signup bonus may be reduced by 10% to 30% or more due to high tax rates and state income considerations . tax too.
Beware of the fine print charges
In addition to dedicating yourself to certain transactions, such as POS purchases or deposit requirements, you may need to pay fees in your new bank account. For example, you get a big signup bonus, but you have to pay $15/month for a new account.
Alternatively, you may have to commit to keeping money in your account for 3 months or longer in order to claim the bonus. In some cases, closing your account 3, 6, or 12 months in advance can even result in penalties. Remember that banks do not give away money for free, so you can avoid fees that detract from the value of your bonus before agreeing to open a new account.
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