Here's a little twist to the typical Ask the Readers column. Yesterday, I exchanged e-mail with financial writer Liz Weston. She gave me advice for this Friday's post, and in return she asked the following question:
I'm writing about all the bonuses you can get for opening a savings account or other financial account (like $50 to open an ING checking account, for example). Is this something your readers like to do? How do they find out about these offers? What advice would you give people about the pros and cons of using these incentives?
It's been a l-o-o-o-n-g time since I wrote about savings accounts around here. Part of that is because there just hasn't been anything exciting to report. Interest rates are still pretty low, and the difference between banks is minimal.
Lately, however, there's been a bit of bubbling in the marketplace. I'm not sure if anyone else feels it, but it seems to me like rates are ready to rise. (They could hardly go any lower!) Plus, people have begun to e-mail me again asking about where they should put their money.
So, let's talk about banking. How do you choose your savings and checking accounts? Is it based just on interest rate? Or do you take special offers into consideration? What offers have you noticed lately? It used to be that most of the high-yield savings accounts offered some sort of incentive to sign up. Maybe it's because I haven't been looking, but I haven't noticed this lately. Have you? What other promotions are out there? And how do you find out about them? What are the pros and cons of pursuing these deals?
For example, my pal Jim over at Bargaineering just wrote about a bank deal earlier today. M&T Bank — which only has branches on the east coast — is offering bonuses of up to
$150 $100 for opening a new checking account.
And though it's not a bonus really, Ally Bank is offering “raise-your-rate CDs“. Open a two-year certificate of deposit with Ally, and if rates increase during those two years, you can request a rate increase (but you can only do this once). Since even the best CD rates are pretty low right now, this is a good way to protect yourself if they start to rise (as they probably will).
What are the drawbacks? In most cases, there aren't any — if you're willing to jump through the hoops required to get the bonuses.
For example, rewards checking accounts can offer better returns than even high-yield savings accounts. But to get these returns, you have to use a debit card to make 10 or more point-of-purchase transactions each month, go paperless, and so on. If you don't do these things, you don't gain anything. (And, in fact, the company that provides rewards checking accounts to banks and credit unions markets this product as a profit center for the bank, so that should tell you something.)
There is another option putting your savings in peer lending sites such as Lending Club. This works by people requesting personal loans, while others fund them based on criteria provided by Lending Club. You can invest how ever much you want, and Lending Club says they offer an average of 5.6% – 10% returns. This sounds great, but the drawbacks are that its not FDIC insured, its not the safest place to put your money, as some might default on their loans, and you have to continuously re-invest your money if you actually want it to grow.