Banks Lure Customers with Cash: Deal or No Deal?

You’re likely to see more bank promotions in January and February that try to entice you with cash incentives if you open new accounts, according to an article published recently on SmartMoney.com. (Read the complete article here.)

That’s because banks are trying to recoup some of their 2008/2009 lost revenue through checking and debit card activity, and therefore they’re aggressively marketing those accounts to potential customers (like you). In fact, some banks, such as Capital One, JP Morgan Chase and Bank of America, are offering cash incentives, up to $200.

But, according to Smart Money, if you’re tempted by these offers, read the fine print first—most offers come with restrictions such as direct deposit and minimum balance requirements.

“To qualify for the Capital One or Chase promotions, for example, consumers need to set up direct deposit, and Bank of America requires maintaining a minimum balance of $500. Why the restrictions? It gets customers to use their accounts in a way that is most profitable for the bank.”

While these deals may sound great at first, you should consider the long-term cost of fees for these accounts. These fees could easily add up, and end up costing you more than the cash incentive you received to open the account in the first place.

A December 2009 study from the Filene Research Institute, for example, showed that the average annual bank fees on a share draft or checking account were $181.14 (or $15 per month). Compare that to the average annual cost of fees on similar accounts for a credit union, which were $71.47 (or $6 per month). That’s more than twice as high!

The gap in fees and charges between banks and credit unions grows even larger when it comes to overdraft fees.

“ . . . the study showed that bank-customer households pay an average of $132 per year in overdraft fees, which is an amount almost four times higher than the $35 annual average paid by credit union members.”

In just one year then, customers at banks pay, on average, $109.67 more for fees on their share draft or checking account and $97 more in overdraft fees. Over the course of three years, the difference in fees quickly adds up and it becomes very obvious that the initial cash incentive banks are offering (even the highest incentives of $200) is perhaps not such a sweet deal after all, whereas having an account at a credit union could actually save you money in the long run.

ARTICLE RESOURCES

To read more about the cash promotions banks are offering, check out
Banks Try to Lure New Customers with Cash

To read more on the Filene Institute study, go to
Banks Fees Hit the Low Balance Customers Hardest