Looking for a juicy bank opening bonus? Let me show you how to figure out if opening that account is worth it as far as the time and money you'll put into doing it.
I remember the first time I scored free money from a bank opening bonus. It wasn't from interest earned in my savings account – a great strategy for how to save money. Instead it was simply completing a set of tasks to please the bank.
I had to:
- Open a new checking account
- Add in $250
- Keep the checking account open for 6 months
And for this small effort (a little paperwork + taking money out of my savings to add to this new account) what did I receive? A handsome reward of $75.
Sure, $75 doesn't sound like much now. But that was a lot of money to a federal work study, minimum-wage-earning college student ($5.15/hour). I would have had to work over 14 hours behind the counter at the library for that same pay.
It was a no-brainer!
I've honed my skills since this first bank offer and have realized that there are rules to take into consideration when figuring out whether or not a bank offer is worth the time and effort, even if it is the best current account.
To show you how to figure this out on your own so that you can confidently say “yay” or “nay” for the next bank offer your receive, let's use the following example:
You get an offer of $150 to open a new checking account. You'll need $10,000 to open the account (of new money), and you will need to leave the account open for 6 months in order to receive your cash (by the way, this is an actual offer I receive every few months from Chase).
Since this deal is for opening a non-interest bearing checking account, you need to figure out what your true return on money will be from this opportunity (meaning what this deal is worth after taking into consideration you are losing interest on that $10,000 that otherwise would be sitting in a savings account).
Step #1: Calculate Your Return on Money
Most bank offers do not allow you to cannibalize your money. This means the money you use to open the account with cannot have come from that bank itself (whether through another checking account or savings account you have with them). To figure out whether or not it's worth it, your first step is to figure out what your rate of return will be on this money from this deal. That way you can compare percentages to percentages, and not a dollar amount to a percentage (the $150 versus the 1% you're earning on the money in a savings account).
To calculate this, take the amount of the reward ($150), and divide by the amount of money required to open it that must remain sitting in the bank account for the full six months. So if you get an offer from Chase for $150, and you need to fund the account with $10,000 upon opening, your overall rate of return is 1.5%.
Overall Return on Your Money: 1.5% in total
Return on Your Money Per Month (0.015%/6 Months): 0.0025%
Step #2: Calculate Your Money's Opportunity Cost Percentage
Your money came from somewhere. And likely it's earning interest there (at least I hope it is!). So you need to find out what interest rate your money is earning per month at the other location.
Let's say your savings account earns 1% right now. Divide that number by 12 (0.01%/12), and you'll see that you are earning 0.00083%/month.
Money's Opportunity Cost (what you would be earning by keeping it where it is): 0.00083%/month
Step #3: Calculate How Much You'll Lose by Taking This Deal
Your last calculation is to multiply the account opening money ($10,000) by the rate it's earning per month where it is.
In this case, you would multiply $10,000 * 0.00083 to get earnings of $8.33/month.
Find out how long the money has to stay in the account to earn the new bonus, and multiply that by the monthly earnings. If this is a six-month offer, you would multiply $8.33 by 6, and see that your money would have earned $49.98 (we'll round up to $50) during this same time frame.
Opportunity Lost in those 6 Months: $50
Step #4: The Time Filter
It takes time to open up a new checking account, and to close a new checking account after the six months is up (if you decide to do so). So you want to subtract the amount you will earn from the bank offer ($150) from the amount you would have earned by keeping your money where it is ($50). In this example, your actual gain from moving the money is $100.
Now you need to ask yourself if $100 is worth it to you.
Net Gain for you ($150-$50): $100
Bonus Tip: Make Sure there Isn't an Early Account Closure Fee
Banks don’t like it when you close an account with them and move your business elsewhere. So they created a fee to entice you to stay a bit longer. For banks who have the early account closure fee, the window of time when it is assessed is typically up to 90-180 days of account opening.
Avoid this Fee: Look at the fine print of any account you wish to open to see if there is an early account closure fee. Simply hold onto the account until you reach the minimum time threshold.
If $100 is worth it to you (or whatever you calculate from your bank offer), then it's time to move forward and this truly is the best current account! If not, then it's time to throw the offer in the recycling bin and move on.