July 16, 2018

Beware Hidden Costs in Promotional Checking Accounts

Checking Account Hidden CostsFree checking accounts are on their way out, and to make matters worse banks are increasing their fees. But these banking institutions are still going to do everything they can to attract new customers and keep old ones. One such tactic is to offer promotional bonuses to people who open checking accounts, such as gift cards to restaurants, popular electronics like iPods, and cold hard cash. These incentives seem great, but individuals need to be aware that such promotions usually come with hidden fees. Before accepting any of these promotional offers take a look at what some of the charges in the fine print may be.

Possible Strings Attached

To keep the bonuses that come with checking accounts, and to waive any monthly fees, a lot of banks require that the account holder meet certain requirements. This can range anywhere from making a certain amount of direct deposits each month to using your debit card a certain number of times every few weeks. Another example would be a bank requiring you to keep the account open for a certain number of days with a specified minimum balance. None of these terms are necessarily negatives, and if the individual knows about them ahead of time than the promotion can remain beneficial. The bank is also benefiting in this relationship because the constant requirements keep the customer in close contact.

The Bonus is Split with the Government

Another downside is that, though you can spend the promotional bonus however you like, you will probably be paying a little bit extra on taxes when it is time to file. You might think this only applies to cash bonuses, but in actually it can extend to gift cards and other types of incentives that aren’t cash. This is because the bank is required to report any gift over the amount of ten dollars and it then becomes “taxable income”. The amount of tax you will pay on the cash or gift will depend on your tax situation and what tax bracket you are in, so be sure to look into that before opening any checking accounts.

Eventually the Bank Gets Their Money Back

As we mentioned earlier, bank fees are increasing. So even if the bank gives you a money incentive on the front end, they fully expect to be getting it back either through ATM fees, monthly checking fees, transaction fees on debit and credit cards, and by cross-selling other products (such as certificates of deposit). People who open checking accounts with promotional offers can usually expect to be bombarded more than normal as the banks try extra hard to earn back their return. It might be worth it to some to spend more time searching and try and find a free checking account.

Less Appeal in the Long Term

Fifty or one hundred dollars upfront sounds like a fantastic deal, but its novelty may soon wear off when you realize what other stipulations it comes with. Additionally requirements that may come with these promotional checking accounts include depositing a large amount up front or also investing in a savings account. The other drawback is that these accounts usually have much lower interest rates than other types of accounts, so your returns in the long run won’t be nearly as good as they could be. You may want to compare the rates on promotional accounts to those on regular accounts to see if there is a big difference and if you will actually be benefiting.

There’s No Leaving Early

Hidden Costs in Checking AccountsBecause banking institutions are giving out pure profit at the front end they expect you to be sticking around for at least a little while. As mentioned before most promotional checking accounts come with the requirement that you keep the account for a minimum amount of time, and this is the main way that banks protect themselves. Usually this minimum term is at least six months, and if the individual closes the account early the bank will take back their bonus and possible tack on more fees.