Free money from banks! (but watch the fine print)

I earned $200 in less than an hour the other day, without removing any of my clothes. A bank gave me the money (or will, a few months from now) in exchange for opening a business checking account.

Why would a bank or a credit union give away that kind of money? To get people through the doors.

Once you're there, bank officials hope you'll take advantage of their other services, making you a loyal and profitable customer. Not to make that $200 sound like a gateway drug, but once a bank has you chances are you'll be hooked. (Not always, though. More on that later.)

After all, that checking account is probably connected to a debit card. The customer might want a credit card, too. Down the road he might be in the market to finance a car, take out a small-business loan or apply for a mortgage.

If you've had just about enough of your current bank's sneaky fees and indifferent service, this is a golden opportunity: Other banks will pay you to dance with them!

And if you prefer to dance with those what already brung you? Open a new account anyway, for the quick profit and/or to designate a dream. (More on that later, too.)

Getting Started

Naturally the banks don't want you to open accounts just to get free fundage. Supermarkets don't want you to buy just the loss leaders, either. But that's the risk businesses take when they offer incentives. It would be cheaper for banks to offer toasters, the way they did in the old days, but most of us would rather have the cash.

I found one such offer in a “student survival kit” coupon book while attending the University of Washington. You may see posters at the bank you already use, walk by a sign at your local credit union, or even hear a radio or TV ad. Or do it the 21st-century way, by looking for bank promotions online.

Note: Some banks will check your credit report when you open an account, which is “usually a 5-point ding,” according to MSN Money columnist Liz Pulliam Weston, author of “Your Credit Score: How to Improve the 3-Digit Number That Shapes Your Financial Future.”

Each bank has a different set of conditions. You may have to deposit at least $100, or leave the account open for at least six months before your bonus comes through. You could be required to set up direct deposit, or to complete a certain number of transactions in a set time period.

This can be fairly easy to do. For example, the online checking account necessitated making several debit-card purchases. I used the card to buy a few small, cheap and necessary grocery items.

The Academy Award for “Best Gaming of the System” goes to an unknown frugalist posting at He or she opened a $25 checking account to get a $50 supermarket gift card. Next the bank sweetened the deal: Write four checks and get another $25. So the account holder wrote four $1 checks — for cash.

Suppose you don't have an extra $100 lying around loose. (Hi there, recent grads with huge student loans!) See if you can borrow from a relative or friend, with a written promise that once the bank makes good you'll withdraw the original funds. Or just get creative about scraping together a few dollars here and there; for ideas, see my previous GRS column, “Think you can't afford an emergency fund? Think again!

Dodging the $1,500 Frisbee

In the past four years I've opened four other accounts just to get the bonuses:

  • A local credit union offered $25, which became the start-up funds for my contribution to my daughter's no-frills wedding.
  • An online bank offered $50 to open a checking account
  • Two national banks that offered $75 and $100 for checking accounts

See a pattern here? The checking account is important to banks because it encourages you to set up direct deposit and online bill-pay.

Be very clear on the terms and conditions before you agree to the account. Is that free checking? Must you keep a minimum balance? Will you have to pay for a box of checks? (Those are cheaper if you buy them from check-printing companies, and cheaper still if you access such a company through a cash-back shopping site such as Mr. Rebates or Fat Wallet. That is, assuming you still write checks.)

Pay attention to that fine print or your bonus could drip right out of the account — and maybe even take some of your hard-earned funds with it. Just ask my boss: J.D. admitted in print to having paid about $1,500 in fees over the years for a simple checking account. (Of course, he did get a free Frisbee.)

“Take advantage of the offer while making sure it isn't costing you money,” says Todd Sandler, of head of product strategy for ING Direct.

What's the Catch?

My online bank account is still open but holds less than $20. If the bank nagged me to close it I guess I would. For now, it just sits there.

Money would still be sitting in one of those national-bank accounts if the institution hadn't decided it would assess fees for accounts with (relatively) low balances. This announcement, incidentally, was on the back of the monthly statement. Sneaky bastards!

A small part of me wanted to keep that account open in case I ever move back to Alaska. But about seven-eighths of me was feeling uber-stressed: I was up to my hairline in deadline and unable to handle one more curveball. The last time that happened I wound up paying for ringtones I didn't order, so I just closed the account.

Relax: Credit scores typically aren't affected by bank account closures, according to Weston — unless, of course, the account was closed by the bank because you hung a lot of bad paper.

I closed the credit union account after my daughter's DIY nuptials, because the closest branch was not convenient for making deposits. Which brings me to my list of potential drawbacks:

  • Scattered funds. Your money's all over the map. Suppose you needed a big chunk of cash right away? (Job loss, bail bondsman.) Having to go to four or five different places could be a pain.
  • Scattered attention. If you haven't made any recent deposits, it's easy to ignore the statements. As noted above, you might lose money to newly created monthly fees.
  • No interest. Incentives tend to be for opening checking accounts, which usually don't pay interest, or pay much of it, anyway. Not that savings accounts or certificates of deposit are sagging under the weight of interest payments, but you might be able to get a slightly higher percentage at some online banks.
  • Abandonment issues. Ignore an account long enough and it might be handed over to the state as “abandoned.” (Oh, and the bank gets to take a fee. How nice for it.) Generally it takes at least three years for that to happen, but laws vary; in Texas, for example, the rule is “one or more years.”

Let the Bank Buy the Drinks?

Maybe you'll use the new financial institution for everyday bill-paying. But you could also designate the account, and its bonus bucks, for a specific goal:

  • Seed money for your emergency fund.
  • Vacation savings. Let the bank spring for $200 worth of margaritas on the beach.
  • College fund. Put in whatever you can during gestation, and add any checks from the delighted new grandparents. Later you can put it in a 529 account or whichever vehicle you choose.
  • Savings accounts for your kids. Watch for online bank promotions that offer not just bonuses for them, but also referral fees for you.
  • Snowflaking your debt.
  • Holiday shopping. That bonus is the start of a cash-only Christmas in 2012. (Hint: Use some of it to build an evergreen gift stash starting with the post-holiday clearance sales.)
  • Someday fund. Want to pay cash for your next car, or save a down payment for a home of your own? The longest journey begins with a single buck.

If you're funding a dream, vow to beef up the account even if it's $5 at a time. I did that, depositing into my credit-union account the proceeds from mystery shopping, manufacturer's rebates and the occasional Craigslist sale. It wasn't much — that was a tough couple of years — but as I recall I set aside a few hundred bucks. Every little bit helped, given that the bride was then on disability and the groom got laid off shortly before the wedding.

Of those four extra accounts, two are now closed and the online one might as well be. But the fourth one is not only active, but hopeful. It's my own big-dreams fund: I call the account “Home” and have been squirreling away any extra money I can.

Note: You will have to pay income tax on the “free” money the bank gave you. But how else could somebody like me make $200 in an hour? Legally, I mean.

So I'll pay my taxes with a smile, because what's left is mine to keep. Yours too, if you start saving now. Bonus: You get to keep your clothes on.

More about...Banking

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