Checking Account Sign-On Bonuses 101

NEW YORK ( MainStreet) -- Sign-on bonuses aren't exclusive to credit cards (or pro football players, for that matter), as banks are also increasingly offering select customers free funds to get them to open a checking account.

"Interest rates are so low that bonuses are the new way for financial institutions to entice consumers to bank with them," says Alex Matjanec, co-founder of MyBankTracker.com.
Banks are increasingly offering select customers free funds to get them to open a checking account.

The bonuses typically range between $100 and $150, but similarly to credit card sign-on bonuses, the funds are usually subject to some restrictions buried in the fine print. Here's what you need to know before taking a bank up on the deal:

They're only worth pursuing if you plan on actually banking with the institution.
Checking account sign-on bonuses are typically contingent upon you depositing a certain amount of money into your new account, whether it is by transferring funds from an existing account or linking the new account to direct deposit of your paycheck.

While the actual deposit thresholds associated with the bonus aren't always high, choosing to move the minimum usually won't stop you from incurring regular checking account fees. The $5 to $10 monthly charge means that opening an account just to get some quick cash probably isn't going to pay off in the long term, especially since closing the account shortly after opening it isn't really an option either.

Matjanec says most banks will rescind the bonus if you close the account before a certain period, usually from 90 to 180 days, and will even dock you with an existing early checking account closing fee to boot.

"Not only will you lose the deal, but you could get hit with a $30-plus fee and wind up losing money," Matjanec says.

You're likely to get the money right away ...
The good news is that most banks will deposit the bonus funds into your new account as soon as you meet the necessary requirements. So, unlike credit card sign-on bonuses, those who are actually giving the bank their business won't have to wait six to eight weeks to cash in on the incentive.

But you could wind up paying taxes on it later.
Unfortunately, you may end up paying taxes on the money at the end of the year, because, unlike credit card bonuses, they're not structured as rebate programs. (Meaning you didn't have to spend any money to get the "reward" money.)

"You could get a 1099 at the end of the year," Matjanec says. You can find out more about what types of bonuses are taxable by the Internal Revenue Service in this "Credit Q&A" article.

You can pass along the bonus to a friend.
Banks often target who they send their checking account bonus offers to based on existing relationships they have with customers, whom they want to open multiple accounts. That doesn't mean the incentive can't be passed on to a friend, though, should you have no use for it yourself.

"Anyone can get the bonus," Matjanec says, pointing out that all you really need is the coupon and the code associated with the offering.

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