Switching banks can be a time-consuming process for many people. Since many of us have automatic bill payments set up, setting up a new bank account would require each of those bills to be updated to avoid missed payments.
Read more: I’m a bank employee: 4 reasons why you should withdraw your savings immediately
Check out: 7 Reasons You Need to Talk to a Financial Advisor to Boost Your Savings in 2024
However, despite the additional effort involved, switching banks can bring significant financial benefits. The reason for this is the massive incentives that many banks offer to attract new customers.
While some bank bonuses are easy to obtain, others require a lot of work and a sizable bank balance. Here are some tips to help you take advantage of these bank incentives.
Protect your assets: The smartest ways to protect your money.
How do bank bonuses work?
Banks offer incentives to encourage new consumers and businesses to open accounts. In addition, some banks also offer referral bonuses to their existing customers who refer friends and family.
Depending on the bank and the offer, certain requirements must be met before the bonus is granted. The requirements vary from bank to bank, depending on the incentive offered.
“Bank bonuses are great for customers for a variety of reasons,” said Matt Bundrick, co-founder of BankBonus.com. “Many allow consumers and businesses to earn additional cash rewards for completing relatively simple tasks. This typically includes some combination of using their new debit card, maintaining a minimum balance and/or setting up direct deposit.”
Learn more: How to withdraw money from a bank account? 3 ways to find out
4 things to consider before taking advantage of bank incentives
Before you open a new bank account to benefit from an attractive bonus, you should consider a few tips.
Understand the requirements and select suitable accounts
Each bank account incentive has different requirements. Savings accounts typically require you to make a deposit into your new account, while checking accounts may require you to set up direct deposit and use your debit card a certain number of times.
“Remember that the higher the bonus, the harder it is for the average consumer to get it,” Bundrick said.
Smaller bonuses of $100 may come with relatively low requirements. Maybe you need to use your debit card a certain number of times a month or set up monthly direct deposits totaling $500. However, larger bonuses can come with a lot of strings attached. There have been $1,500 incentives for new customers that required deposits totaling $200,000. That’s not going to be possible for most people.
“Banks have very specific requirements for how to get the bonus,” Bundrick said. “One wrong move and you could be disqualified. It would be annoying to lose out on a $400 bonus just because a debit card transaction didn’t post on time or your minimum balance dropped for even a day. Be sure to read the terms and conditions on the bank’s website and set reminders as needed so that time-bound tasks can be completed.”
Some banks also charge penalty fees for early termination. They don’t want someone to open a new account, get the bonus, and then leave. Instead, banks specify in the account terms that they will charge an account closure fee if you close your account within a certain number of days. Knowing about these fees early on can help you avoid mistakes.
Read the account terms before signing up
Before signing up for an account, be sure to read the terms and conditions. The bonus may be available, but the account may have terms and conditions that are not applicable to you.
Many bank accounts at traditional branch banks charge monthly maintenance fees. While there are usually ways to waive these fees, it may not be feasible in your situation.
“Remember that not all accounts are the same,” Bundrick said. “Some come with monthly fees (though many can be waived through certain activities) that can quickly erode the value of the bonus if you’re not aware of them. Be sure to take this into account before jumping on a bonus.”
Don’t forget the taxes
Many people don’t think about taxes when they open a new bank account. However, the IRS considers bank bonuses as income and you’ll receive a 1099-INT or 1099-MISC at the end of the year. This means it’s important to set aside enough of the bonus to cover the taxes owed.
Keep accurate records
It can be easy to open a new bank account and think your job is done, but it is important to keep detailed records of the account. This will help you ensure that you meet all the requirements to receive and keep the bonus.
“Whether it’s a credit card or a bank account, I have a spreadsheet that documents everything about the account,” Bundrick said. “I note the name of the bank, the product, the date it was opened, the bonus requirements, when the requirements must be met and any account fees. That way I keep track of everything so there are no surprises.”
A bank bonus can be a great way to earn some extra money when switching banks, but it’s important to do your due diligence before signing up. Make sure you understand everything you need to do to get the bonus and, most importantly, make sure the new account is a good fit for you.
More from GOBankingRates
This article originally appeared on GOBankingRates.com: I’m a Banking Expert: 4 Things You Should Do Before Taking Advantage of Banks’ New Customer Incentives
