Should I play the bank bonus game?

[00:00:00] Ralph Estep, Jr.: Have you ever been tempted by those shiny bank bonus offers? You know, the ones that promise you hundreds of dollars, just for opening a new account. Well, stick around because today, we're diving into the world of bank bonuses and we're going to answer the burning question: Should I play the bank bonus game? What if I told you there is a way to potentially earn thousands of dollars a year all while sipping your morning coffee? Sounds too good to be true, right?

[00:00:25] Ralph Estep, Jr.: Well, my friends that's exactly what we're exploring in today's episode of The Ask Ralph Show.

[00:00:37] Ralph Estep, Jr.: Before we dive in, I want to take a quick nod to yesterday's show where we tackled a heavy question and boy, it was heavy. Am I too far gone for forgiveness? If you missed it, or if you want to revisit any of our past episodes, remember, you can find them all at askralph.com

[00:01:00] Well now, let's get to today's topic. I received a voice message from Craig in Louisiana. "I was wondering if you might consider doing an episode talking about bank churning, and I'm not sure that's the right word for it. But the idea is that, you play the bank bonus game. And so bank offers you $200 to open up a new account and have a direct deposit and various things. And I've read online about people making some pretty serious side money, just going from one bank to another, opening accounts, letting them run the required amount of time, and then moving on to the next one.

[00:01:41] Craig from Lousiana: So I'm kind of a mixed minds about this. I can see the appeal. It sounds like it's a fair amount of work, but it could be some easy money. And I just wanted to know what you thought about it. So it would be interesting if you do an episode. I would appreciate it. Thanks for everything you do, Ralph."

[00:01:58] Ralph Estep, Jr.: Well, Craig, first of all, thank you for your question and thank you for being a loyal listener. And all my listeners out there, welcome to another episode of The Ask Ralph Show, where we master your finances from a Christian perspective. I'm your host, Ralph, and I'm thrilled you've joined me today for what promises to be an enlightening discussion.

[00:02:21] Ralph Estep, Jr.: Well, let's start with a verse that I believe speaks to our topic today. It's from the book of Proverbs chapter 13, verse 11, which says, "Dishonest money dwindles away, but whoever gathers money little by little makes it grow." Now you may be wondering, "Ralph, how does that relate to bank bonuses?" Well, my friends, this verse reminds us of two important principles. First, it warns us against trying to make money through dishonest or questionable means. And secondly, it emphasizes the value of steady, patient accumulation of wealth. As we discuss bank bonuses today, we'll keep these principles in mind concerning whether these bonuses aligned with a wise long-term approach to financial stewardship.

[00:03:08] Ralph Estep, Jr.: So let's get into it. Craig asked if he should play the bank bonus game, and it's really a great question. Bank bonuses can indeed seem very attractive. After all who doesn't like free money, right? But as with most things in life, it's not quite that simple. So let's start by breaking down what bank bonuses are and how they work. Essentially, banks offer these bonuses as a way to attract new customers. They may offer you $200, $500 or even $1,000 if you open a new checking or savings account with them and meet certain requirements. These requirements usually involve things like setting up direct deposit, maintaining a minimum balance or making a certain number of debit card purchases within a specific timeframe. Now, on the surface, this can seem like a win-win situation. The bank gets a new customer and you get some extra cash. Before you start opening those accounts left and right, let's look at some of the pros and cons. It's exactly what Craig wanted me to tell him today.

[00:04:04] Ralph Estep, Jr.: So let's start with the pros. The first is extra money. This is the obvious one. If you meet the requirements, you can indeed earn some extra cash and who wouldn't like a little extra cash right now? Everyone loves to get something for seemingly nothing.

[00:04:20] Ralph Estep, Jr.: The second is potential for higher interest rates. Sometimes, the accounts offering bonuses also come with higher interest rates. Well, at least that's for a promotional period. This could be a beneficial thing if you're looking to spark some savings. We tend to see these when the economy is experiencing some change. You've got to pay attention to changes in the economy.

[00:04:40] Ralph Estep, Jr.: Third, it's the opportunity to try new banks. If you're not entirely satisfied with your current bank and trust me, I hear this all the time from my clients. This could be a chance to test out a new one with the added incentive of getting a bonus. You may find that the new bank is really the best choice for you, but you also may start to appreciate your old bank. That's why I recommend not burning that old bridge until you're really happy with the new one.

[00:05:04] Ralph Estep, Jr.: Well fourth, and finally, it can be a motivation to save. Some bonuses require you to deposit and maintain a certain balance. This could serve as a motivation to boost your savings. You know, I always encourage saving. So for me, this is a huge pro in making the decision.

[00:05:19] Ralph Estep, Jr.: But now, let's look at some of the potential downsides. Number 1 is complexity. Keeping track of multiple accounts, their requirements, and deadlines can be complicated and time consuming. You can truly drive yourself crazy managing these multiple accounts and it's easy to lose control of your finances. We certainly don't want to do that.

[00:05:38] Ralph Estep, Jr.: Number 2 is opportunity costs. The time and energy you spend managing these bonuses could potentially be better spent on other financial activities or growing your business. Moving all of your direct deposit items and your auto draws of expenses can take time and can be a huge hassle. So you got to factor into that decision from a cost benefit analysis perspective.

[00:05:58] Ralph Estep, Jr.: Number 3 is fees. Some accounts come with monthly maintenance fees that could eat into your bonus if you're not careful. You got to be careful that bait and switch and introductory offers which later result in higher fees and expenses you wouldn't have experienced if you kept where you were at now.

[00:06:14] Ralph Estep, Jr.: Number 4 is minimum balance requirements. If you can't meet these, you might not only miss out on the bonus, but also incur extra fees. You got to read the fine print and really understand the specific requirements for the new account versus your former account relationships. I've seen clients get that surprise fee based on these minimum requirements. And it simply spoils the entire banking bonus.

[00:06:36] Ralph Estep, Jr.: Number 5 is impact on your ChexSystems report. There's something you may not have considered, but opening multiple bank accounts in a short period of time can potentially impact your ChexSystems report. This is a report the banks used to evaluate new account applications and may result in problems for you down the road when you want to open new accounts to take advantage of these banking perks.

[00:06:55] Ralph Estep, Jr.: And last but not least number 6 and that's tax implications. Yes, my friend's uncle Sam wants his share too. Those bank bonuses are typically considered taxable income, which means you'll need to report them on your tax returns. So don't be surprised when you get that year-end statement. Now, as we talked about, Craig also asked about these potential tax consequences and that's an important point to consider. Bank bonuses are generally put on a 1099-INT form just like your interest income. This means you need to pay income tax on these bonuses.

[00:07:26] Ralph Estep, Jr.: So that $500 bonus might end up being more like $350 or $400 after taxes, depending on your tax bracket. As for credit implications, opening new bank accounts typically doesn't directly impact your credit score. Unlike credit cards, most banks don't do a hard pull on your credit when you open a checking or savings account. However, if you're applying for multiple accounts in a short period, some banks might actually do a hard pull, which could temporarily ding your credit score. That's something you want to consider.

[00:07:55] Ralph Estep, Jr.: But here's where it gets a bit trickier. If you're not careful about managing these new accounts, you can potentially overdraft or have checks returned for insufficient funds. These issues, if reported to ChexSystems or Early Warning Services can make it harder for you to open bank accounts in the future. And if they lead to unpaid fees, it gets sent to collections that could definitely impact your credit score.

[00:08:15] Ralph Estep, Jr.: Well now let's talk about how this relates to other financial goals. If you're working towards building an emergency fund, saving for a down payment on a house or trying to pay off debt, chasing bank bonuses may not be the best use of your time and energy. So you might ask, "Ralph, what's the verdict?"

[00:08:31] Ralph Estep, Jr.: Should you play the bank bonus game? Well, as with many things in personal finance, the answer is, it depends. If you're someone who's organized, detail oriented has the time to manage multiple accounts and keep track of various requirements, then bank bonus hunting could be a way to earn some extra cash. But if you're already stretched thin and struggling to keep up with your current financial obligations or working towards significant financial goals, it might be better to focus your energy elsewhere.

[00:08:59] Ralph Estep, Jr.: Remember this my friends, there's no such thing as free money. Pretty sure somebody told me that. These bonuses come with strings attached. Sometimes a pretty complicated string, and it's up to you to decide if the potential reward is worth the effort and the potential risks.

[00:09:13] Ralph Estep, Jr.: Now, if you do decide to dip your toe into the bank bonus waters, here's some practical tips to help you navigate those waters.

[00:09:19] Ralph Estep, Jr.: Number 1. You got to read the fine print. Make sure you understand all the requirements to earn the bonus. Some banks have very specific criteria that must be met. For example, they might say you have to have so many debit card transactions. You've got to sign up for direct deposit. You got to have account open for blah, blah, blah. So make sure you're paying attention to those details.

[00:09:39] Ralph Estep, Jr.: Second thing, set reminders. Use your phone or calendar to set reminders for important dates like when direct deposits need to be set up or when you need to make a certain number of transactions. It would be silly to make this change and then don't get the bonus cause you didn't pay attention.

[00:09:54] Ralph Estep, Jr.: Number 3. Keep track of your accounts. Use a spreadsheet or a budgeting app to keep track of all your accounts, their balances, and any fees. You got to manage this if you're going to play this game to make sure you're aware of what's going on.

[00:10:07] Ralph Estep, Jr.: Number 4. Be prepared for taxes. Set aside a portion of your bonuses for taxes so you're not caught off guard come tax season. Be surprised how many people say to me, "Ralph, I didn't realize that was taxable, but that really didn't make a lot of sense to do it."

[00:10:21] Ralph Estep, Jr.: Number 5. Don't neglect your regular finances. Don't let the pursuit of bonuses distract you from your primary financial goals and responsibilities. It can quickly turn into the banking casino. That's not going to help you in a longterm.

[00:10:34] Ralph Estep, Jr.: And number 6. This is what I'm talking about. Consider the long-term relationship. If you're going to be open in a new account, consider whether it's a bank you'd want to have a long-term relationship with beyond just the bonuses. You may have built a long-term relationship with your existing bank, and they've been there for you when you needed something notarized or, you know, maybe they have a safe deposit box or you get your car loan from them or some other perks. You've got to study those things.

[00:10:58] Ralph Estep, Jr.: And lastly, as Christians, we should always approach our financial decisions with wisdom and integrity. While, there's nothing inherently wrong with taking advantage of bank bonuses, we should be careful to not let the pursuit of money become our primary focus. Remember what Matthew 6:24 says, it warns us that we cannot both serve God and money.

[00:11:18] Ralph Estep, Jr.: So to recap, bank bonuses can be a way to earn some extra cash. But they come with some potential complications and risks. They require careful management, can have tax implications and while they don't directly impact your credit score, mismanagement of your accounts could lead to issues down the line. Whether or not to pursue these bonuses depends on your personal financial situation, your personal goals and your capacity to manage multiple accounts.

[00:11:43] Ralph Estep, Jr.: As we wrap up today's episode, I want to remind you that personal finance is just that. Personal. What works for one person might not work for another. The key is to make informed decisions that align with your values and your longterm goals.

[00:11:59] Ralph Estep, Jr.: And speaking of longterm goals. Don't forget to tune in tomorrow. We'll be discussing a topic that's becoming increasingly important in our digital age. Ready for this one? Should I take a digital Sabbath? And more importantly, how do I do it? We'll be exploring the potential benefits of unplugging regularly and how it might impact both your spiritual and your financial life. You don't want to miss that one.

[00:12:21] Ralph Estep, Jr.: If you found today's episode helpful, I'd love for you to share it with someone who might benefit from this information. And don't forget, visit our website. That's at askralph.com. Join our community. And when you do, you'll get a free copy of my book. Mastering your finances. That's right folks. This book sells for $10 on Amazon. But by joining our email list, you'll get a copy absolutely free.

[00:12:41] Ralph Estep, Jr.: And Hey, keep those questions coming. The whole point of The Ask Ralph Show is to answer your burning financial questions from a Christian perspective. So don't be shy. Send them in.

[00:12:51] Ralph Estep, Jr.: Well, before we let go, let me give you a few actionable steps based on today's topic. Number one, take stock of your current banking situation. Are you happy with your current bank? Are there areas where you feel you could be getting a better deal? Number two, if you're considering pursuing bank bonuses, start by researching the offers available in your area. Make a list of the requirements and look at a cost benefit. You know, look at those potential benefits and make sure it makes sense for you. Number three, create a simple spreadsheet to help you keep track of any new accounts you open. Their specific requirements, any important dates to go along with those. And fourth. Most importantly, take some time to reflect on your financial goals. How do they align with your values as a Christian? Are there areas where you could be a better steward of your resources? Remember this, my friends. The goal isn't just to accumulate wealth, but it's to use our resources wisely in service of God and others. And with that, I'll leave you with our signature sign-off. Stay financially savvy, and God bless you.