Free Cash? Read the fine print first!

Banks such as Capital One, JP Morgan, and Bank of America have offered cash incentives up to $200.00 to open a checking account and debit card. 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.

But, according to SmartMoney.com (read the full article here), 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 or more. “These deals sound very attractive, but they come with behavioral restrictions and requirements”, says Ron Shevlin, a senior analyst with market research firm Aite Group. “It’s great that you’ll get $200 upfront, but will you pay $200 in ATM and safety-deposit fees?”

Many banks require consumers to set up direct deposit, maintain a minimum account balance or make a certain number of debit-card purchases each month. “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.”

Sure these deals sound great at first glance. However, you should also add up the possible long-term cost of  these accounts.  Make sure the fees don’t end up costing you more than you initially received as an incentive.

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). 

The gap in fees and charges between banks and credit unions grows even larger when comparing 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.” Doing some quick calculations then shows that in just one year customers at banks pay, on average, about $110.00 more in fees on their share draft or checking account and $97 more in overdraft fees. Add that up over 2 or 3 years and the initial cash incentive banks are offering (even the highest incentives of $200) is perhaps not such a sweet deal after all.

Opening a credit union account could actually save you money in the long run. So before you jump on the next cash incentive promotion you see, make sure you know what you are getting yourself into first.