Banks Willing to Pay Up for Your Cash

NEW YORK ( TheStreet) -- Banks may not be lending to you, but they really, really want you to hand over your money to them.

So much so, that they're offering consumers cold, hard cash rewards to open depositary accounts, or enroll in additional services.

Since the start of the year, banks of all shapes and sizes have been upping the ante when it comes to offering incentives. Bank of America ( BAC), the country's largest bank, has offered bonuses of up to $100 to open a new checking account, as well as a $35 reward for using its online bill payment service, and free equity trades for opening a brokerage account. HomeStreet Bank, a private, Seattle-based entity with just $3.2 billion in assets, is offering customers $215 to open an account in certain states.

>>>>Bank Upping the Promotional Ante

JPMorgan Chase ( JPM) is perhaps the most aggressive flaunter of dollars for deposits. The bank has been emailing and snail-mailing customers coupons for $50-to-$125 rewards. In a clever move, it also uses its extensive ATM network to spit offers out at customers who don't yet belong to the Chase family.

"We view checking accounts as the core of a customer's relationship," says JPMorgan spokesman Tom Kelly. "If you have a checking account with us, you touch us everyday -- to make purchases, to make payments, for direct deposit, to write checks... That gives us the opportunity to do more business with them."

David Seaman, a fellow reporter at MainStreet.com, is one of those who took Chase up on its offer.

"I withdrew money a while ago from a Chase-branded ATM at Duane Reade and was asked if I wanted a $125 bonus print-out," Seaman said recently. "I selected yes, brought the print-out to a local Chase branch, and opened a new checking account. The $125 bonus posted yesterday."

Some smaller banks are touting even better deals. For instance, one Capital One ( COF) offer was particularly attractive for Richard Parker.

The 26-year-old Hunter College student was already a Capital One credit-card holder, but was tempted with a series of increasing rewards to sign up for a checking account too. He eventually succumbed to a deal that seemed too good to pass up: $300 for opening an account, with the simple requirement of having an opening balance of at least $50.

"In April they offered me, like, $50, over the summer $100, and by October, it was up to $300," says Parker. I was tempted to hold out 'til it got to an even grand. It was sorta like playing Press Your Luck."

However, the offers may also come with restrictions and fine print that, if not read carefully, could lead customers into a trap: Annual fees, minimum balances, enrollment timeframes, or added services that cost money.

Banks also tend to loop customers into free services, simply to make it more difficult to jump ship. When your paycheck is direct-deposited into the account, and your bills are automatically paid from it, and you've signed up for a savings account or credit card as well, it may seem like too much of a hassle to break free when the time comes.

For instance, Seaman's new Chase account came with a couple of minor snags: He had to enroll in direct deposit, and was given a savings account he didn't ask for, which requires a minimum $300 balance to avoid fees. He also says he was "hustled into" getting a debit card that comes with airline rewards, and a $25 annual fee.

Kelly, the JPMorgan spokesman, notes that customers are able to opt for fee-free debit cards that don't offer rewards. But he also confirmed that the bank sees the current environment as an opportunity to nudge consumers into more banking relationships -- ones that can be more profitable as the economy improves.

Building such relationships is especially important today. Banks have already started to lose a big chunk of retail revenue because of new laws related to certain fee and interest-rate practices. Some of the measures have already been implemented. Others go into effect later this month. Still others are expected to come to fruition, but are currently tied up in Congress' financial regulation overhaul plan, which has yet to be passed.

Some banks, like Bank of America, have pre-emptively adopted certain measures, like the one that cracks down on overdraft fees. The bank estimated that it lost roughly $160 million in such fees during the fourth quarter, which would equate to $640 million on an annual basis. JPMorgan Chase, which has fought the change, estimates that it will cut $500 million from revenue over the course of a year.

To make up for that lost revenue, banks plan to shift the fees elsewhere, or build out other types of profit-generating business. In order to do that, they need to establish those customer relationships. A great place to start is with deposits, which have been growing in recent quarters. People are still wary of spending or investing extra money, so they save it instead. Personal saving has increased to a rate of 4.6% of GDP in 2009 from 1.7% in 2007.

The wave of bank failures has also forced many consumers to find a new place to store their cash -- benefiting some of the bigger banks that survived. For instance, Bank of America saw deposits rise to $992 billion in the fourth quarter, a quarterly growth rate of 2%, and an annual rate of 12%. Deposits at both Citigroup ( C) and Wells Fargo also grew on both a quarterly and annual basis, without either of those companies making an aggressive marketing push. Citi is now offering one $25 reward, with numerous strings attached. Wells isn't offering any incentives currently, although spokeswoman Richele Messick says the bank hasn't ruled it out in the future.

JPMorgan's deposits, however, actually declined 7% on an annual basis, partly because it allowed high-interest-rate deposits from the Washington Mutual acquisition to expire. Hence the aggressive push for more customer cash.

Heather Hoffman provides a good example of the type of opportunity JPMorgan has been trying to seize upon. Hoffman, who sells real estate in Brooklyn and Queens, already had a personal Chase account, but recently visited a branch to sign up her 15-year-old son for a student account. The agent offered her a $100 sign-up bonus to add a business account as well, and upgraded her checking account to a better, "Premier" type, which earns interest and has no service fees.

Hoffman came in as a Chase checking depositor, added another account and brought a new customer into the Chase fold, who may remain there for many years. She also left with perks.

"All his friends have the little debit card things," Hoffman said of her son, and Chase "put the $100 in within a week."

-- Written by Lauren Tara LaCapra in New York.

If you liked this article you might like

24 Stocks Hedge Funds Are Loving Right Now

24 Stocks Hedge Funds Are Loving Right Now

It's Dumb to Think Amazon Will Be Able to Skirt Regulators Forever

It's Dumb to Think Amazon Will Be Able to Skirt Regulators Forever

Citigroup Gives CEO Corbat 48% Pay Raise as Profitability Misses Goal

Citigroup Gives CEO Corbat 48% Pay Raise as Profitability Misses Goal

Worst-In-Class Goldman Sachs CEO Blankfein Gets 9% Pay Raise

Worst-In-Class Goldman Sachs CEO Blankfein Gets 9% Pay Raise

Why Bank of America and Goldman Sachs Shares Are Perfect Inflation Hedges

Why Bank of America and Goldman Sachs Shares Are Perfect Inflation Hedges